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Stealing Profits from Stock Market Spammers

Stealing Profits from Stock Market Spammers. How I learned to Stop Worrying and Love the Spam. DEFCON 17 ( 2009 ) Grant Jordan, Massachusetts Institute of Technology, MA Kyle Vogt, Massachusetts Institute of Technology, MA. Agenda. About this research… Assumption Some essentials

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Stealing Profits from Stock Market Spammers

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  1. Stealing Profits from Stock Market Spammers How I learned to Stop Worrying and Love the Spam DEFCON 17 ( 2009 ) Grant Jordan, Massachusetts Institute of Technology, MA Kyle Vogt, Massachusetts Institute of Technology, MA

  2. Agenda • About this research… • Assumption • Some essentials • What we did? • Conclusion

  3. About this research… • It’s all from researchers’ point • Differ from any other research that based on spam text analysis • How they come up with this?

  4. About this research… (cont.) • It’s all from researchers’ point • Differ from any other research that based on spam text analysis • How they come up with this? • Fig. 1: The epochal stock spam

  5. Assumption

  6. Assumption (cont.) • Lots of guesses

  7. Assumption (cont.) • Lots of guesses • Lots of hypotheses

  8. Assumption (cont.) • Lots of guesses • Lots of hypotheses • But of course, some economic theory

  9. Some essentials Fig. 2: The supply and demand curve

  10. Some essentials (cont.) • But everyone get the spam • What is this spam trying to do? • Send spam • ??? • Get profits • Fig. 2: The supply and demand curve

  11. Some essentials (cont.) Fig. 3: How spammer get profits step 1

  12. Some essentials (cont.) Fig. 4: How spammer get profits step 2

  13. Some essentials (cont.) Fig. 5: How spammer get profits step 3

  14. Some essentials (cont.) Fig. 6: How spammer get profits step 4

  15. Some essentials (cont.) Fig. 7: How spammer get profits step 5

  16. Some essentials (cont.) Fig. 8: How spammer get profits step 6

  17. Some essentials (cont.) Fig. 9: How spammer get profits step 7

  18. Some essentials (cont.) • What kind of stocks are these? • Penny stocks • Over The Counter (OTC) • Not traded on a major exchange • Thinly Traded: Near zero volume most days • High Volatility: Since price is so low (often $1/share), even small changes in price can produce huge % change

  19. Some essentials (cont.) • However, who is dumb enough to trust those spam?

  20. Some essentials (cont.) • However, who is dumb enough to trust those spam? • There are many idiots indeed… • Fig. 10: Evidence of such spam work 1 • Fig. 11: Evidence of such spam work 2

  21. What we did? • Numerous researchers claimed that by Fall 2006, stock spam was dead • But they are wrong!

  22. What we did? (cont.) • Numerous researchers claimed that by Fall 2006, stock spam was dead • But they are wrong! • Because all previous works are based on text-analysis • About 2006, almost 100% of stock spam are graphs • So? How could we analyze those graphs?

  23. What we did? (cont.) Fig. 12: It's easy to sort them by hands

  24. What we did? (cont.) • When you’re looking at every email with your own eyes, it’s easy… • Our data • 14 weeks • More than 50,000 spam emails • 12,168 stock spam • Information extracted from them • Previous results • Relative botnet power • Identify spammer’s unique signature

  25. What we did? (cont.) Fig. 14: Spam size of SRRL Fig. 13: Stock spam of SRRL

  26. What we did? (cont.) Fig. 16: Spam size of MRPG Fig. 15: Stock spam of MRPG

  27. What we did? (cont.) • Jordan-Vogt method • Sort week’s worth of spam by ticker symbol • Identify spammer by email style • Compare each spammer’s past results • Identify top spammer • When first email from top spammer arrives… buy the stock • Sell out • To sum up, choose the successful spammer; when the best spammer sends out his first email about a stock, we know to buy

  28. What we did? (cont.) Fig. 17: Buy it when got first spam from the best spammer

  29. Conclusion • Did it work? • Yes • Method worked for a few weeks

  30. Conclusion (cont.) • Did it work? • Yes, and No! • Method worked for a few weeks, but… • The best spammer had a bad week (lost ~$2M) then disappeared • Major botnet takedowns (?) • Major SEC crackdown (“Operation Spamalot”) • Suspended trading on 35 stocks • Indicted two men in Texas for securities fraud. Eventual $3.8M settlement • Because an SEC attorney was getting the spam

  31. Conclusion (cont.) • Could it work again? • Maybe • Spam goes in cycles… botnet come and go… • Fig. 18: Recent spam in April 2009

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