Four men pleaded guilty to running an e-mail pump-and-dump scam that involved 15 different publicly traded companies and defrauded investors of more than $20 million.

Michael Saquella, (also known as Michael Paloma), 47, of Mesa, Ariz., and Lawrence J. Kaplan, 63, of Scottsdale, Ariz., both pleaded guilty in a federal court in Alexandria, Va. to participating in the stock manipulation scheme. Henry J. Zemla, 38, of Harris Township, Mich., also pleaded guilty in federal court in for his involvement in the scheme.

Justin Medlin, 26, of Paris, France, also pleaded guilty in federal court in Alexandria to one count of electronic mail fraud and one count of conspiracy to commit securities fraud and electronic mail fraud involving seven of the companies. He will be sentenced on Nov. 30, 2007, by U.S. District Judge Leonie M. Brinkema.

Saquella and Medline are both scheduled to be sentenced on Nov. 30. Zemla will be sentenced on Dec. 7, and Kaplan is set to be sentenced on Feb. 8.

Each man faces a maximum of five years in prison, along with a $250,000 fine.

For a good part of the year now, security professionals have been warning about the burgeoning number of pump-and-dump e-mail schemes. Pump-and-dump refers to potentially fraudulent spam that hypes small-company stocks -- they're often thought of as penny stocks. The spammers invest in these generally low-cost stocks before the spam campaign begins. Once people are duped into buying the stocks, the share prices go up and the spammers sell off and cash in. The sell-offs, though, usually drive the stock prices down, and the other investors lose their shirts.

According to the Department of Justice, all the defendants admitted that they generally either solicited a company directly or were introduced to the company by a co-conspirator. In most instances, the companies were small privately-held businesses that needed to raise money. A member of the conspiracy would offer to help the particular company raise significant funds through the sale of stock.

Prosecutors noted that members of the conspiracy facilitated the process by arranging for the company's shares to be quoted on the Pink Sheets, a price quote system mainly used to trade small companies' securities. Through a series of stock manipulation steps, the conspirators took control of a majority or all of the company's stock -- often without the company's knowledge.

At this point, the defendants began to try to falsely inflate the price of the stock, even buying and selling shares amongst themselves so it looked like there was great investor interest. The DoJ also noted that they inflated stock prices by making misleading statements in press releases and in "tens of millions" of spam messages.

After successfully pumping up the price of each company's stock, the defendants sold the shares they owned for a profit of more than $20 million, according to the government, adding that the shares were rendered "virtually worthless."

In a related action, the U.S. Securities and Exchange Commission filed civil charges against Saquella and Kaplan for their part in the pump-and-dump scheme.

In July, the Texas attorney general charged two men with running a pump-and-dump spam scam that defrauded investors out of more than $4.6 million. The SEC also is investigating the case in which two Texas men face organized criminal activity and money laundering charges.