NEWARK, NJ—Federal agents arrested the alleged organizer of an international securities fraud ring employing hackers, botnet operators, and e-mail spam distributors today for conspiring to artificially inflate the value of stocks through the scheme, U.S. Attorney Paul J. Fishman announced.

Christopher Rad, 42, of Cedar Park, Texas, was arrested this afternoon by FBI special agents on a federal Indictment charging him with one count of conspiracy to commit securities fraud and transmit multiple commercial e-mail messages with fraudulent information. The defendant is scheduled for an initial appearance and bail hearing this afternoon before U.S. Magistrate Judge Robert L. Pitman in Austin, Texas federal court.

James Bragg, 42, of Chandler, Ariz., pleaded guilty on October 20, 2010, before U.S. District Judge Joel A. Pisano in Trenton, N.J., federal court for his role in hiring botnet operators and engaging in mass e-mail campaigns to pump up the value of stock prior to dumping shares.

According to the indictment unsealed today, other documents filed in this case, and statements made in Newark and Trenton federal court:

Rad conspired with stock promoters in a scheme to manipulate the price and volume of particular stocks, including stocks with ticker symbols RSUV and VSHE (the “Manipulated Stocks”), in order to later sell them at an artificially inflated price—a practice known as a “pump and dump” scheme. The scheme began as early as November 2007 and continued through February 2009. After conspiring with the stock promoters, Rad organized others to manipulate the stock price.

During his plea hearing, Bragg admitted that as part of his conspiracy with Rad he hired hackers and spammers, including an individual in Russia referred to in the information as “B.T.” The hackers distributed computer viruses to infect computers around the world and create a virtual army of computers, or “botnet.” The hackers then caused the botnets to distribute spam to promote the Manipulated Stocks. Some of the targeted victim-investors were residents of New Jersey.

In addition to relying on unsuspecting investors to buy into the spam promotions, the hackers also hacked into the brokerage accounts of third parties, liquidated the stocks in those accounts, and then used those accounts to purchase shares of the Manipulated Stocks. This created trading activity in the Manipulated Stocks and increased the volume of shares being traded, further creating an impression that the Manipulated Stocks were worth purchasing.

Rad also agreed with others to trade the Manipulated Stocks between themselves, creating the impression that the stocks were active. In some instances this was done prior to the spam campaigns so that recipients of the spam would perceive active trading in the promoted stocks.

A stock promoter who was also part of the conspiracy falsified documents submitted to attorneys in order to obtain opinion letters to secure millions of freely trading shares in those stocks. Those letters certified that trading restrictions on shares of the Manipulated Stocks could be lifted because certain conditions set forth in securities regulations were met.

The conspiracy count with which Rad was charged carries a maximum potential penalty of five years in prison and a $250,000 fine.

U.S. Attorney Fishman credited special agents of the FBI, under the direction of Special Agent in Charge Michael B. Ward in Newark, with the investigation leading to the charges. He also thanked the U.S. Securities and Exchange Commission’s Division of Enforcement.

The government is represented by Assistant U.S. Attorneys Christopher Kelly of the U.S. Attorney’s Office Economic Crimes Unit and Erez Liebermann, Deputy Chief of the Economic Crimes Unit and Chief of the Computer Hacking and Intellectual Property Section.

The charge and allegations contained in the indictment are merely accusations, and the defendant is considered innocent unless and until proven guilty.

This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

LAS VEGAS—A former Lake Las Vegas resident who convinced persons in the United States and Japan to invest over $26 million in mining projects in South America, Nevada, and California and a real estate project in Arizona was sentenced today to six-and-a-half years in federal prison and ordered to pay $23.5 million in restitution to the victims, announced Daniel G. Bogden, United States Attorney for Nevada.

Alberto DoCouto, 68, a former resident of Lake Las Vegas in Henderson, Nevada, was sentenced by U.S. District Judge James C. Mahan. DoCouto pleaded guilty in June 2010 to securities fraud.

“The defendant willfully and knowingly made false promises and representations regarding mining and real estate projects and induced persons to provide him with money which he used for his personal enrichment,” said U.S. Attorney Bogden. The sentencing judge found today that Mr. DoCouto was delusional and not generally remorseful.

From about 2001 to 2007, DoCouto created numerous limited liability companies and corporations, and told investors that he and his companies were engaged in exploring and developing a series of lucrative mining claims in Peru, Guyana, California, and Nevada. DoCouto told investors that the mines held valuable precious metals such as gold and diamonds worth billions of dollars, and persuaded them to invest millions of dollars in the alleged projects in exchange for shares of stock, promissory notes and investment contracts in the companies. DoCouto repeatedly represented to the investors that their monies were needed to bring the projects to fruition. In fact, DoCouto’s companies and projects were a façade; the shares of stock that the investors thought they owned in DoCouto’s companies were worthless; and none of the mining projects were developed. DoCouto instead diverted and converted the investors’ funds for his own personal enrichment, including for the purchase of an opulent 6,000 square foot home at Lake Las Vegas and several luxury automobiles, all of which were seized and forfeited by authorities. After the purported mining projects failed, DoCouto solicited funds from investors in Canada, Kuwait, and elsewhere for a real estate development project in Arizona. DoCouto obtained hundreds of thousands of dollars from investors to run water to the property and to develop the project, but again, he converted much of the money for his own personal purposes, including to pay the mortgage on his home, to pay for lavish home improvements, to make payments to a riding stable, and for various cash expenditures.
The case was investigated by the FBI, with assistance from the United States Bureau of Land Management, and prosecuted by Assistant United States Attorneys Timothy S. Vasquez and Nicholas Dickinson.

Justin Laurin Prather Also Ordered to Pay Nearly $17.5 Million in Restitution

DALLAS—Justin Laurin Prather, 38, of Lubbock, Texas, formerly of Irving, Texas, who pleaded guilty in August 2010 to one count of wire fraud, was sentenced late Friday by Chief U.S. District Judge Sidney A. Fitzwater to 121 months in federal prison, announced U.S. Attorney James T. Jacks of the Northern District of Texas. In addition, Judge Fitzwater ordered that Prather pay $17,471,678 in restitution and surrender to the Bureau of Prisons on January 25, 2011, to begin serving his sentence.

According to plea documents filed in the case, Prather, a former employee of CitiCapital Commercial Corporation (Citi) and senior vice president of GE Capital Commercial, Inc. (GECC), ran three separate fraud schemes.

In the first scheme, in 2004, Prather began a “securities investment scheme,” in which he solicited money from investors and told them that he had unique access to investment opportunities through Corbin Matthews, a purported broker with Lehman Brothers, Inc. He promised his investors substantial, short-term returns. To further his scheme, he manufactured investment documents to provide to some of the investors and some of the investors even reinvested the “profits” they earned. Prather admits that Corbin Matthews is a fictional person he created to further his fraud scheme.

The second scheme, the “construction equipment scheme,” was built upon the premise that Prather, through his position as senior vice president of GECC, could obtain great deals on construction equipment that GECC obtained from foreclosures and lease returns. In this scheme, Prather purportedly obtained buyers for the equipment, but needed bridge financing to acquire the equipment from GECC before it could be sold to the buyers. Prather asked investors to loan him money to purchase the equipment, and once again, he promised investors substantial short-term returns. Also in this scheme, Prather manufactured investment documents to provide to some of the investors and some investors even reinvested the “profits” they earned. Prather admitted that he never obtained the used construction equipment.

Prather used his third scheme, the “golf car scheme,” to fund the other two fraud schemes. Part of Citi’s and GECC’s legitimate business involved financing golf cars for a number of golf car dealers. In this scheme, Prather used the names of four legitimate golf car dealers (actual clients of Citi and/or GECC) and forged documents reflecting the sale of golf cars to the dealers for which Citi and/or GECC provided financing. Based on these forged documents, Citi and/or GECC transferred funds to accounts associated with Prather, resulting in Prather fraudulently obtaining approximately $12.5 million from Citi/GECC from July 2008 through January 2009.

This law enforcement action is part of President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

$10 Million in Losses Alleged

FRESNO, CA—United States Attorney Benjamin B. Wagner and Stanislaus County District Attorney Birgit Fladager announced that yesterday a federal grand jury returned an indictment charging James Lee Lankford, 71, of Modesto, with 49 counts of mail fraud, and Jon Vance McDade, 46, also of Modesto, with 49 counts of mail fraud and one count of bank fraud.

This case is the product of an investigation by the Federal Bureau of Investigation and the Real Estate Fraud Unit of the Stanislaus County District Attorney’s Office. Assistant United States Attorney Michele Thielhorn is prosecuting the case.

The indictment alleges that Jim Lankford, who is the owner/broker of Century 21-Apollo Realty in Modesto, and Jon Vance McDade, who is Lankford’s roommate, devised a scheme to defraud elderly property owners and lending institutions out of money and property. Specifically, the indictment alleges that Lankford and McDade would find elderly property owners who wanted to sell their property with no listing agent. Lankford and McDade would then induce the elderly property owner to sell their home to one of them and enter into a “straight note” contract for a portion of the purchase price, under which the defendant would make interest-only payments to the seller for five to 10 years, with the principal amount owed to the seller at the end of that period. The defendants then obtained conventional financing to purchase the same properties in the form of a mortgage from a lending institution, but did not disclose to the lending institution the seller-backed financing. The indictment alleges that the defendants would divert the proceeds of the mortgage loan to themselves, and would lull the elderly property owners by mailing them monthly interest-only payments.

The indictment also alleges that Lankford and McDade made material misrepresentations on the loan applications, and in some instances, submitted falsified documents regarding monthly income to the lending institutions. The defendants allegedly caused fraudulent loan applications to be submitted Countrywide, World Savings Bank, GreenPoint, Wachovia, Seaforth Mortgage, Aegis, Sierra Pacific, and Alliance Bancorp.

The indictment alleges that in many instances Lankford and McDade subsequently sought to refinance the property with another lending institution to draw out any remaining equity in the property. In connection with refinancing transactions, Lankford allegedly deceived some of the elderly property owners into signing documents indicating that they had been paid in full. Many of the properties were later allowed to go into foreclosure, or were sold in short sales through Lankford’s real estate business. The indictment alleges that the defendants’ conduct caused losses to the victim elderly property owners, lending institutions, and banks of at least $10 million.

The indictment also charges Jon Vance McDade with one count of bank fraud for submitting a loan application for the refinancing of property at 3331 Wycliffe Drive in Modesto that contained false salary information and false representations regarding his assets and debts. According to the indictment, this bank fraud caused a loss of approximately $580,000 to Wachovia/Wells Fargo Bank.

Lankford and McDade were arrested this morning in Pacific Grove, Calif. They are scheduled to appear in federal magistrate court in San Francisco this afternoon.

The maximum statutory penalty for each count of mail fraud is 20 years in prison, a $250,000 fine and up to three years supervised release following incarceration. The maximum statutory penalty for bank fraud is 30 years in prison, a $1 million fine, and up to five years supervised release following incarceration. The actual sentence, however, will be determined at the discretion of the court after consideration of any applicable statutory factors and the Federal Sentencing Guidelines, which take into account a number of variables.

The charges are only allegations and the defendants are presumed innocent until and unless proven guilty beyond a reasonable doubt.

This law enforcement action is part of the work being done by President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes. One component of the FFETF is the national Securities Fraud Working Group, which is tasked with combating investment fraud schemes. For more information on the task force, visit StopFraud.gov.