Fraudster Admits to Using Botnet in Pump-And-Dump Scheme

An Arozina computer specialist pleaded guilty to offenses related to his role in a pump-and-dump scheme instrumented with the help of hacking and botnets.

James Bragg, 41, of Chandler, Arizona, admitted his involvement in the stock-fraud operation, which lasted from Novermber 2007 to February 2009.

According to court records, Bragg was hired by a Texas man identified only as C.R. to send spam emails promoting the stocks of various companies in order to artificially inflate their value.

In such schemes, the fraudsters buy shares at low prices, then trick a lot of people to invest into the same stock. When the price rises high enough, they dump it for a substantial profit.

Prosecutors said that Bragg contracted various hackers from Russia an elsewhere in order to infect computers with malware, with the purpose of building a botnet.

This army of infected computers was used to send millions of emails with spoofed headers to stock investors world wide.

"Bragg admitted today that he participated in a mass email campaign in support of an illegal, get-rich-quick stock manipulation scam.

"The conspirators may have updated the fraud with technology, but strip away the army of computers and this is a classic pump and dump scheme," commented United States Attorney Paul J. Fishman.

In addition to operating the botnet, the hackers paid by Bragg compromised brokerage accounts and used them to purchase shares in the stocks.

Meanwhile, a third co-conspirator forged documents and used them to obtain opinion letters from attorneys certifying that trading restrictions imposed on the manipulated stocks could be lifted.

Bragg pleaded guilty to one count of securities fraud and fraud for his role in the pump-and-dump operation. He faces a maximum sentence of five years in prison and a $250,000 fine.

Back in June 2009, Bragg pleaded guilty to one count of conspiracy to commit wire fraud for his role in a different scam, coordinated by former spam kingpin Alan Ralsky. He was subsequently sentenced to 12 months and one day in prison.