Ashley Madison CEO's emails allegedly discussed starting a 'pump and dump' stock scheme

Noel Biderman, the founder and former CEO of Ashley Madison, once discussed starting a "pump and dump" stock scheme with a former colleague, according to emails leaked in the devastating hack of the company's site and computer systems.

The company, however, tells Business Insider that the scheme never happened.

In April 2014, Biderman emailed Raja Bhatia, the founding chief technology officer of Ashley Madison who left the company in 2009. In an email exchange titled "new idea," he explained an idea for an app that would offer its users a "stock of the day" to buy, but would actually act as a "pump and dump," as Biderman described it in the email.

"Pump and dump" is a term for buying a stock and then artificially inflating its price by misleading other people into buying it, before selling off the holdings at a high. Stock manipulation is typically illegal.

The unnamed app would offer stock picks, or "daily deals" to its users, which Biderman's email said "will lead to a bump in potential purchases of the stock (thereby validating our pick of it)." But, Biderman continued, "our real business model would be to buy [stock] in advance - we have turned daily deals in to a pump and dump - tad a."

There is no evidence that Biderman and Bhatia ever built the app or engaged in any illegal activity or wrongdoing. It is not illegal to merely discuss theoretical plans for stock manipulation if those plans are never enacted. And there is no evidence beyond the hacked emails - whose authenticity could be challenged, given that they were published by criminals - that Biderman and Bhatia did anything wrong. The emails also have a mocking tone to them, which might indicate that the pair were merely joking around.

Paul Keable, the Vice President of Communications at Avid Life Media, told Business Insider that "the email exchange, which we have only now been made aware of, was a personal matter between Messrs. Bhatia and Biderman; unconnected to any aspect of Avid Life Media's business. At no point did Avid Life Media consider developing the app in question."

Biderman, Bhatia, and Bhatia's lawyer Daniel Naymark, did not respond to email requests for comment.

Ashley Madison is a controversial dating site targeted at people already in relationships, and is owned by Canadian parent company Avid Life Media. In July 2015, it was the subject of a catastrophic hack by an as-yet unknown attacker who demanded that Avid Life Media close down Ashley Madison and a sister site. After Avid Life Media declined to do so, the hacker released details of tens of millions of users, as well as internal documents, among them the email archive of then-CEO.

Avid Life Media has never confirmed the email archive is legitimate. Most observers believe the cache is authentic. It is from this email archive that the messages discussed in this article originate. Biderman resigned after unflattering stories based on the contents of the emails were published, and Bhatia's lawyer has also responded - without denying their authenticity - to other news stories written about the emails.

Bhatia is currently threatening to sue Brian Krebs, a security blogger, over a story he wrote about the contents of Biderman's emails. Krebs wrote an article entitled "Leaked AshleyMadison Emails Suggest Execs Hacked Competitors" based on a string of emails Bhatia sent to Biderman to tell him about a security hole he found in a competitor's website. Bhatia's lawyer called the article "defamatory" and says that Bhatia "noticed a readily apparent security gap and remarked on it to Noel Biderman," and at no point did he "attempt to bypass Nerve.com's security or to exploit its gap in any way."

Here's the full exchange regarding the "pump and dump":

On April 10, 2012, Noel Biderman sent an email to Raja Bhatia with the title "new idea". The email itself said:

Group buying stock siteŠ

Bhatia responded:

That's a mutual fund

Sent from my iPhone

Biderman:

Ha

I mean daily deals

Bhatia:

Daily deal on stock? How would it work. Doesn't make sense

Sent from my iPhone

Biderman:

This is all packaging...we send out a daily "deal" (stock of the day) which will lead to a bump in potential purchases of the stock (thereby validating our pick of it) but our real business model would be to buy in advance - we have turned daily deals in to a pump and dump - tad a

Bhatia:

Bahahhaha.

Sent from my iPhone

Biderman:

I know a great guy to run it:)

Bhatia:

Lizard king!

Sent from my iPhone

Biderman:

To the moon! Pitch it (under a pseudonym) and I bet it gets traction