Federal authorities on Tuesday announced the arrest of four men in Israel and Florida associated with an ongoing "pump and dump" penny stocks and Bitcoin operation. Over the past 48 hours, members of the online gambling community have identified two of the arrested men as the owners of 13 online casinos, including Casino Titan, Grand Parker, and Loco Panda.
The fraudulent investment scheme was described by the New York Times as spanning three continents, including operations in New York and Florida, as well as Israel, Cyprus, and Russia. The two men arrested by Israeli authorities--Gerry Shalon and Ziv Orenstein--are the ones who own the online gaming sites. The FBI says it wants to extradite Shalon and Orenstein to face charges in the United States, though both men are Israeli citizens. Joshu S. Muel Aaron is a fifth suspect in the case, but he still remains at large.
The charges against those who have been arrested include securities fraud, wire fraud, aggravated identity theft, conspiracy to commit securities fraud, conspiracy to commit wire fraud, conspiracy to commit identification document fraud, and conspiracy to commit money laundering. If convicted, the men likely would spend decades in a federal prison.
Two Arrested for Cyber-Hack of JPMorgan
In a related case, two men were arrested in Florida on Tuesday: Anthony Murgio and Yuri Lebedev. Murgio and Lebedev have been charged with conspiracy to operate an unlicensed online money transmitting business. Murgio also faces money laundering charges.
The two men appear to implicated in an unsolved case from summer 2014. The Washington Post describes the case as a "major hack of JPMorgan Chase". The case involved a cyber-attack on JP Morgan-Chase's central database, which contained the private information from 76 million households. At the time, Bloomberg News speculated that the Russian government might have sponsored the hack, in retaliation for sanctions against Russia over the Ukrainian crisis.
Cyber-Attack Related to Penny Stocks Sheme
Now it appears that the hacking of JP Morgan-Chase might have been an attempt to continue the penny stocks scheme. While the FBI press release on the case does not mention the JPMorgan cyber-attack, a source with the FBI told the Washington Post that they charges against Anthony Murgio and Yuri Lebedev were leverage to get them to talk about the JPMorgan case.
The source said, "The next step will be for the FBI to arrest these guys, have them flip and cooperate and maybe start having the conversation about JPMorgan. You're using these charges as a hammer--something to hold over their head."
One reason federal authorities would want the Israeli members of the alleged conspiracy to be extradited to the United States would be to have them testify against each other. If they were tried in separate countries, the defendants could shift blame to defendants in the other country. It is unknown whether Israel will agree to extradite Gerry Shalon and Ziv Orenstein.
FBI Press Release
The FBI press release said, "Since 2011, Shalon, Aaron, Orenstein, and their co-conspirators have orchestrated multi-million dollar stock manipulation--or "pump and dump"--schemes to manipulate the price and trading volume of numerous publicly traded microcap stocks ("penny stocks") in order to enable members of the conspiracy to sell their holdings in those stocks at artificially inflated prices."
The arrests have caused considerable alarm among the affiliate marketers associated with Shalon and Orenstein's two affiliate programs: The Affactive Group and The Revenue Jet Group. Over the last 48 hours, webmasters have reported that affiliate reps for the 13 online casinos have advised that accounts and payments are frozen. One webmaster posted that an Affactive rep said, "Operations are closing immediately."
"Traditional Pump and Dump Scheme"
Austin Berglas, a former FBI cyber-expert and currently Senior Managing Director cyber-investigations at K2 Intelligence, told the Washington Post's national security reporter, Ellen Nakashima, that the JPMorgan hack turns out to be linked to a fairly conventional moneymaking scheme.
Mr. Berglas said, "The theft of tens of millions of e-mails is a perfect vehicle to advertise the penny stocks that you would then dump after getting the initial investment. It's the traditional pump and dump scheme in the digital world."
It appears the online gambling wing of Gerry Shalon and Ziv Orenstein's financial empire might be a tangential part of the ongoing investigation. Nevertheless, the webmaster community involved with the Affactive Group and Revenue Jet Group are likely to lose a great deal of money, through no fault of their own. The shutdown of the 13 online casinos is collateral damage in a much larger international investigation.
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