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22 Wednesday

SEC Moves to End Stock Scheme

WASHINGTON -- U.S. securities regulators brought an emergency action to halt a scheme that allegedly involved infiltrating online-brokerage accounts in the U.S. to manipulate the market for more than a dozen stocks trading over the counter or on the Nasdaq Stock Market.

Suspicious trading in accounts at online-brokerage firms led regulators to uncover a high-tech twist on a traditional "pump and dump" scheme, said David Horowitz, assistant district administrator in the Securities and Exchange Commission's Philadelphia office, which brought the action.

The emergency action, filed in federal court in Manhattan, charged Grand Logistic SA, a Belize corporation located in Tallinn, Estonia, and owner Evgeny Gashichev, a Russian citizen, with manipulating stock prices through the unauthorized use of other people's online-brokerage accounts.

13 Tuesday

Uncovered $630 million in alleged contract fraud.

The United Nations hasn't renewed funding for a special task force that uncovered about $630 million in alleged contract fraud, and efforts to retain some of its investigators have been delayed following objections from the Russian government.

The delays could put at risk 175 investigations that the task force had not completed, according to Inga-Britt Ahlenius, who oversees the U.N.'s main investigative division, the Office of Internal Oversight Services, or OIOS.

Some of those investigations involve Russian nationals and companies, according to a person familiar with the matter. The task force also followed up on a case in which a former U.N. purchasing agent from Russia pleaded guilty in 2005 to federal charges of soliciting bribes from U.N. contractors, this person said.

Russia introduced a U.N. resolution last month that would have barred the U.N. from hiring members of the task force for three years. The resolution was defeated, but the hiring of some investigators has become mired in bureaucracy. A spokesman for the U.N.'s Russian mission didn't respond to requests for comment.

The task force -- which was created in 2006 in the wake of a scandal in the U.N.-administered oil-for-food program in Iraq -- was never intended to be permanent. The U.N. had only funded it through Dec. 31. But the prospect that its investigations will be dropped raises questions about the U.N.'s commitment to police itself, some U.S. officials say. As previously reported last month, an American-backed drive to protect U.N. employees who attempt to expose wrongdoing is also faltering.

Among its work, the task force took a broad look at leads that arose from the case of Alexander Yakovlev, according to a person familiar with the matter. Mr. Yakovlev was a U.N. purchasing agent from Russia who pleaded guilty in 2005 to U.S. charges of taking nearly $1 million in bribes from U.N. contractors, and is awaiting sentencing. The task force continued to look at the bribe allegations and issued several reports in 2006 and 2007, alleging, among other things, that at least six additional companies had paid him bribes, this person said.

Arkady Bukh, Mr. Yakovlev's attorney, said he has heard about the task force's additional allegations, but hasn't seen them in writing and couldn't comment. He said he expects his client to be sentenced in a few months.

11 Wednesday

Hackers Indicted in Widespread ATM Heist

WASHINGTON -- The U.S. Justice Department indicted eight Russian and Eastern European computer hackers, alleging they were part of a crime ring that allegedly broke into ATMs in hundreds of cities world-wide and stole $9 million in a matter of hours.

Prosecutors in Atlanta announced indictments Tuesday in a scheme that is among the most brazen and damaging electronic-bank heists disclosed to date. One of the men accused was arrested and is awaiting extradition from Estonia. The others are thought to be at large.

The alleged hackers cracked a computer system at RBS WorldPay Inc., the U.S. payment processing division of Royal Bank of Scotland Group PLC, and cloned prepaid ATM cards, which thieves then used to withdraw cash from 2,100 ATMs from 280 cities around the world, including in the U.S. The synchronized operation, which began Nov. 8, 2008, took no more than 12 hours.

The RBS case is part of a boom in online theft from financial institutions. "More money is stolen electronically or [in] data breaches than through bank robberies," Shawn Henry, assistant Director of the Federal Bureau of Investigation's Cyber Division, said in an interview.

The alleged hackers targeted payroll debit cards that companies issue employees for withdrawing their salaries. Once the hackers entered the systems, they boosted the maximum allowed withdrawal and then tried to destroy data on the systems to cover up the break-in, prosecutors alleged.

The most serious charges in the 16-count grand jury indictment were against four conspirators and ranged from wire fraud to aggravated identity theft. Others faced lesser charges. RBS ensured that its customers were reimbursed for stolen funds.

The losses could have been much greater had the hacker ring been able to assemble a larger network of accomplices, Mr. Henry said. "The size of the human network was a limiting factor, [because] some of the ATMs ran out of money," Mr. Henry said.

The RBS hackers are one of two major cyber gangs law enforcement officials have targeted in recent years for wreaking havoc on U.S. financial companies. The second is the group responsible for online attacks on TJX Cos., Heartland Payment Systems Inc., and others. That gang's ringleader, U.S. citizen Albert Gonzalez, was indicted in August along with his conspirators.

Security sleuths say the RBS gang was considerably more sophisticated than Mr. Gonzalez's crew. "This investigation has broken the back of one of the most sophisticated computer hacking rings in the world," said Acting U.S. Attorney Sally Quillian Yates of the Northern District of Georgia.

A class-action lawsuit against RBS WorldPay is pending in the same district, alleging the company failed to adequately protect customer data.

One alleged leader of the gang is Viktor Pleshchuk, 28, of St. Petersburg, Russia, who manipulated the data and managed the hackers' use of the RBS WorldPay computer network with the help of several others, according to the indictment. He developed a method used to reverse-engineer personal identification numbers from encrypted data on the network of RBS WorldPay, the indictment said.

Another of the key conspirators, Sergei Tsurikov, 25 years old, of Tallinn, Estonia, was responsible for conducting reconnaissance on the RBS WorldPay system and supported other hacking activities, according to the indictment. He shared information with Mr. Pleshchuk.

Mr. Tsurikov is awaiting extradition to the U.S. from Estonia. In a new arrangement between the U.S. and Estonia, he would be the first cybercriminal to be extradited from Eastern Europe, which has become a haven for the cyber underground.

The RBS caper also relied on one of the U.S. Secret Service's most-wanted criminals, Oleg Covelin, 28, of Chisinau, Moldova, according to the indictment. Mr. Covelin distributed the account information to others to withdraw money from ATMs. Lawyers for the three men couldn't be located.

Preparations for the heist began on Nov. 4 when the four key players broke into RBS WorldPay's computer network from a location outside the U.S., according to the indictment.

The thieves distributed approximately 44 prepaid payroll card numbers and their personal identification numbers to their network of "cashers."

On Nov. 8, 2008, the thieves signaled the network of cashers to begin withdrawing money. Over the next 12 hours, more than $9 million disappeared from accounts in 280 cities from Atlanta to Hong Kong.

The cashers were allowed to keep up to half the cash they stole and sent the rest back to the ringleaders, according to the indictment.

RBS WorldPay detected the breach on Nov. 10 and disclosed it publicly on Dec. 23, acknowledging that the data of 1.5 million cardholders was compromised. The company also said at the time that 1.1 million social security numbers may have been compromised, although the indictment makes no mention of that.

"RBS WorldPay has been and will continue to cooperate with the law enforcement agencies involved with the investigation," the company said Tuesday in a statement.

The Justice Department launched an investigation, working with authorities in countries from Estonia to Hong Kong. Mr. Henry, the FBI official, commended RBS for its cooperation. Companies sometimes delay providing information in breach probes, fearing lost customers.

Mr. Henry declined to describe how the alleged hacking ring was organized. But he said that, generally, some rings become virtual organized-crime groups. "They share expertise and techniques, though they might be located multiple countries and have never met each other," he said.

09 Saturday

UPDATE: 13 People Indicted In $12M ``Boiler Room`` Fraud Scheme

NEW YORK (Dow Jones)--Thirteen people, including a purported member of the Bonnano organized crime family, were charged Wednesday in an alleged "boiler room" scheme that caused investors to buy more than $12 million in stock based on false claims about the firms. According to a criminal indictment, the boiler room, operated by purported Bonnano soldier Anthony Guarino, allegedly induced investors to purchase shares through private placements of Florida online-broadcast provider Realcast Corp., New York online gaming company BBC Gaming Inc. and other companies.

The Federal Bureau of Investigation conducted searches beginning at 8 a.m. EDT Wednesday of the offices of ...

22 Wednesday

59 Cab Drivers Face Charges

Nearly five-dozen cab drivers were accused by the Manhattan district attorney's office of overcharging customers in a long-running scheme that involved preying on people they suspected were tourists.

Manhattan District Attorney Cyrus Vance announced the charges Wednesday, saying 45 of the 59 drivers face felony charges, including one who allegedly overcharged his passengers 5,127 times and raked in more than $11,000 in fraudulent profits.

The drivers are accused of changing a setting on their taxi meters to show that trips within the five boroughs were actually outside city limits, thereby doubling the rate charged.

When the New York City Taxi and Limousine Commission first announced its investigation in March, it claimed that as many as 35,558 cab drivers were alleged to have committed the offense at least once, and that more than $8.3 million in fraudulent charges were collected over a two-year period.

On Wednesday, Mr. Vance said those charged with flipping the switch to illegally charge customers did so only about 77,000 times combined, racking up more than $235,000.

City officials said that in total about 2,000 of the 48,000 or so licensed cab drivers have faced some sort of disciplinary action, including having their licenses revoked or being fined. Those charged criminally flipped the switch to the higher rate at least 300 times each.

The case first made news in March, when the TLC said it was investigating drivers for using the higher rate, known as Rate Code 4. Officials were tipped off by a customer who complained, and the TLC then proceeded to use global positioning systems and other technology inside the cabs to investigate the scheme.

David Yassky, chairman of the TLC, said it appeared the majority of the fraudulent trips were charged to those making trips to the airport, Grand Central Terminal and Times Square, alleging the drivers focused on those most likely to be tourists.

"The entire taxi system, which is a jewel of the city…depends upon trust," Mr. Yassky said. "We are determined to protect the integrity of the taxi."

Mr. Yassky also said new technology placed in every taxi since May should spell the end of this particular scheme, as passengers will now be alerted by a beep and a message when a driver has flipped the meter to the rural rate.

The New York Taxi Workers Alliance in a statement raised questions about why the defendants were being charged now and why 21 of them were led to report Wednesday morning to the TLC headquarters, where they were arrested.

In a Manhattan courtroom late Wednesday, many of the defendants were brought in chained together in groups of 10 to be arraigned on two counts each of scheming to defraud.

The first defendant to be arraigned, Joseph Kastner, pleaded not guilty and was released from custody after a judge rejected the prosecutors' request to have bail set at $10,000.

Mr. Kastner allegedly overcharged passengers nearly 4,000 times and made more than $7,000 on the scheme. His lawyer said he denies all the allegations made in the indictment.