SEC Says Man Hacked Online Account to Dump Options (Update2)
(Adds comment from Dinh in sixth paragraph.)
Oct. 9 (Bloomberg) -- A 19-year-old college student used a
computer program that reads keystrokes to hack into another
investor's online brokerage account and unload worthless Cisco
Systems Inc. options, according to civil and criminal charges
announced by federal regulators.
The Securities and Exchange Commission said the software,
known as ``The Beast,'' permitted Van T. Dinh of Phoenixville,
Pennsylvania, to identify the login and password for a TD
Waterhouse Group Inc. account of a Massachusetts investor. Dinh
then instructed the investor's account to purchase options on $20
million worth of Cisco stock from his own online portfolio,
thereby avoiding $37,000 in losses, the SEC said.
The SEC said the case was its first prosecution that alleges
both computer hacking and identity theft as components of a
fraudulent scheme, though the agency has been stepping up
policing of other frauds involving the Internet.
``Most of the defendants in these cases we have brought
attempt these frauds with a certain degree of bravado, thinking
they are not going to get caught,'' said John Reed Stark, chief
of the SEC's office of Internet enforcement. ``But the more
active on the Internet they are, the easier it is to find them.''
In a related action, a federal prosecutor in Massachusetts
filed criminal charges against Dinh, accusing him of securities
fraud, mail and wire fraud, and causing damage in connection with
unauthorized access to a protected computer, the SEC said.
Dinh, a freshman business student at Drexel University in
Philadelphia, said in an interview that his family is getting a
lawyer to represent him. He declined further comment.
Put Options
Dinh described himself as a day trader in applications to
open several online brokerage accounts, Stark said.
In late June, Dinh used one account to purchase 9,120 put
option contracts at a total cost of $91,200, or $10 each, the SEC
alleged. Each contract entitled Dinh to sell 100 shares of Cisco
stock at $15 each by July 19. The 912,000 shares covered by the
contract have a current market value of $19.4 million.
Dinh stood to profit if Cisco shares dipped below the $15
strike price, the SEC said, estimating he would have made more
than $900,000 if the stock traded as low as $14 a share. Instead,
Cisco shares rose after Dinh bought the contracts, threatening to
wipe out his entire $91,200 investment.
To avoid the loss, Dinh on July 8 targeted members of a Web
site called www.stockcharts.com, asking in an e-mail, which was
sent under an alias, if anyone would be willing to test a stock-
charting tool he claimed to have developed, the SEC said. In
reality, the tool was a disguise for a program called the ``The
Beast,'' which permitted Dinh to remotely monitor the keystrokes
of another computer user.
Unwitting Download
The victim, who lives in Westborough, Massachusetts,
received Dinh's e-mail and unwittingly downloaded the keystroke-
logging program into his home computer, the SEC said.
On July 11, Dinh placed an order to sell some of his Cisco
put contracts at $5 each, the SEC said. However, with Cisco stock
selling at $18 a share -- more than $3 above the strike price of
Dinh's contracts -- no buyers stepped forward, the SEC said.
The SEC said Dinh then entered the investor's online account
and placed buy orders for Cisco put contracts at current market
prices. The buy orders, executed on the Chicago Board Options
Exchange, used all of the cash available in the investor's
account to purchase put options that Dinh had offered for sale.
Dinh traveled to SEC headquarters in Washington to respond
to a subpoena from the agency, Stark said. Dinh wasn't
represented by a lawyer then and, in response to some SEC
questions, invoked his Fifth Amendment right against self-
incrimination, Stark said.
``This case should remind investors using the Internet to
review their brokerage statements very carefully every month,''
Stark said in a statement. The SEC didn't identify the
Massachusetts investor by name.
Cisco, the world's largest maker of equipment to direct
Internet traffic, is based in San Jose, California. Company
shares rose 16 cents to close at $20.95 each in trading on the
Nasdaq Stock Market.
--Miles Weiss in Washington (202) 624-1879 or at
mweiss@bloomberg.net, through the San Francisco newsroom (1)(415)
912-2980. Editors: Parry, Bray. |
