Hoping to tackle the growing problem of pump-and-dump stock scams Microsoft Corp. has quietly filed lawsuits against at least three alleged perpetrators who it says used its MSN Hotmail networks to promote stocks.

Hotmail has "received large volumes of unsolicited commercial e-mail messages" promoting stocks for companies such as Distributed Power Inc., TGC Ventures Inc., China Biolife Enterprises, Inc., and Irwin Resources Inc., according to court documents filed during April and May in King County Superior Court in Seattle.

Microsoft charges the defendants with violating the federal CAN-SPAM act as well as Washington state consumer protection laws, and is seeking unspecified damages, according to the filings.

Pump-and-dump e-mail scams are a form of fraud where the criminals purchase stock in a company -- typically an inexpensive penny stock -- and then promote the equity in millions of unsolicited email messages.

The technique is one of the more lucrative spamming practices, and has been "the fastest growing area in spam" over the past few months, said Craig Schmugar, a threat research manager with McAfee Inc.s' Avert Labs.

Pump-and-dump spam has not only taken up resources and threatened the smooth functioning of Hotmail, but it "continues to result in significant costs to Microsoft," the court filings state. Microsoft executives were not immediately available to comment for this story.

Because Microsoft does not know the name of the spammers behind the unsolicited e-mails, it has filed the lawsuits as "John Doe" cases, giving it the power to subpoena information in the case and ultimately name the parties responsible when they are uncovered.

It's the latest move in the cat and mouse game between pump-and-dump spammers and the technology companies trying to stop them.

Pump-and-dump scams are gaining more attention from criminals and companies like Microsoft for one simple reason: they work. Researchers at Purdue and Oxford Universities recently <a href="http://www.mgmt.purdue.edu/faculty/frieder/Spam_july24.pdf">examined</a>] the dynamics of pump-and-dump and found that spammers could realize 5 percent returns in a single day.   

The IDG News Service is a Network World affiliate.