Feds Snag ‘Spam King’ in Stock Scheme Sweep

A Michigan grand jury has indicted the man widely know as the “Spam King” and 10 others in connection with an alleged stock fraud scheme that used bulk e-mails to pump up the prices of stocks.

The biggest name among those indicted is that of 52-year-old Alan Ralsky, who earned the nickname of “Spam King” by being considered one of the world’s most prolific bulk e-mailers — a practice he defends as legal, despite a US$700,000 settlement with the state of Virginia, which claimed he sent tens of thousands of messages over the Verizon network in 2002.

The jury also indicted Ralsky’s son-in-law, Scott K. Bradley, 46, according to the Department of Justice, along with Michigan resident Judy M. Devenow, 55; and eight others, including residents of California, Arizona, Canada, Hong Kong and Russia.

Millions of Messages

Bradley and Devenow have already been arrested and were arraigned on Thursday. How Wai John Hui, who the Department of Justice said is a dual citizen of Canada and Hong Kong, was arrested Jan. 2 in New York. The remaining defendants are being sought, the DoJ said.

The charges, which stemmed from a three-year investigation involving the FBI, the U.S. Postal Service and the IRS, claim that the accused used millions of spam messages to tout various products and services, including certain penny stocks.

When recipients responded to those messages by buying those shares — low-priced Chinese stocks were a favorite target — driving the price higher, the defendants then allegedly sold shares at the higher prices.

Spam and Stocks

“The flood of illegal spam continues to wreak havoc on the online marketplace and has become a global criminal enterprise,” said Assistant Attorney General Alice S. Fisher of the DoJ’s criminal division. “This indictment reflects the commitment of the Department of Justice to prosecuting these spamming organizations wherever they may operate.”

The indictment claims the spam ring used various techniques to ensure that its messages made it through spam filters used by Internet service providers to intercept unwanted messages, such as falsifying message header information and using proxy servers to relay messages.

The indictment also alleges that spammers expanded their reach by infecting user machines and turning them into so-called robot computers, or botnets, which were then used to send out more messages.

It’s not clear how much the ring made in total, but the DoJ said they earned $3 million during the summer of 2005 alone.

In addition to violating the CAN-SPAM Act, the defendants are accused of mail fraud, wire fraud and money laundering.

Work Remains

Ralsky has long been a fixture on Spamhaus’ top 10 list of the world’s most prolific spammers and also ranks as one of the “most devious and most hated spammer in the U.S.,” according to Richard Cox, chief investment officer of the spam tracking firm.

“Getting a guy like this indicted is not easy,” Cox told the E-Commerce Times. “It’s easy for us to say we’ve seen him do this and that, but the level of proof that is needed to go through the U.S. courts is much higher.”

Ralsky and his fellow spammers were known to hire experts to develop technology to enable spam messages to get through filters and to write bot code, Cox said. “Developing new techniques was very much part of his modus operandi.”

Spamhaus worked with law enforcement on the investigation and said at the peak of his activity, Ralsky and “his gang frequently sent millions of spam messages per day.”

Increasingly Common Schemes

So-called pump-and-dump stock schemes have become increasingly common, with U.S. companies often a target as well as those from overseas, according to Web security firm Sophos.

The schemes have also grown larger recently, with the use of bots and overseas servers, meaning that millions of people can receive the same stock-related message within a matter of minutes, creating sudden surges in share prices, Sophos Security Consultant Graham Cluley told the E-Commerce Times.

“There are plenty of people who still haven’t defended their e-mail gateways and are being fooled into making an unwise investment,” Cluley said. The use of alternative delivery methods — one recent spam campaign relied heavily on PDF files, for instance — is also helping to dupe even more sophisticated Internet users.