The hackers get access to your yahoo or hotmail or gmail account. How do they get access? They've either tricked you into clicking on a link and providing them the password OR some just get access by using software that is constantly trying combinations of passwords and it alerts them when they've hit a correct combination and can then get into your account.
Once they have access, they send out an email (see the example below) to everyone in your address book. The tricky part is the email is actually coming from YOU, because they have sending it out from your account.
If you read the below email you'll notice the goal of the scam is to get you to reply to them and send them money. Here is catch: the reply email looks almost identical to the victim's account they've hacked but IS different - thus all replies will go to them. In my friend's case the reply-to address was just one letter different.
What to do if you've been hacked like this? Change your password immediately (and make it harder to guess) and then send out an email to everyone in your address book and put in the subject line something to alert your people not to respond to the previous email. Not much more you can do...
Subject: Worst Case!!! (Need help)
I'm am in a deep mess right now and i need your help.I am in tears as i am writing you now,sorry I didn't inform you about my trip,I had a trip to the United Kingdom(Buckinghamshire) and a bizarre thing happened to me.I was mugged at gun point last night, it happened at the park of the Hotel were i lodged but thank God i wasn't hurt, the muggers carted away with all my belongings excluded my passport. Cell,c-card,cash and some important documents are all gone.I was able to make contact with the Uk Police and i was directed to the Embassy, but they seems to be taking things too slow.
I need your help so urgently.. My flight leaves pretty soon but i am having problems sorting out the hotel bills and also need getting my ticket straightened out. I need your help. I need a quick loan from you to get things fixed out here, promise to refund as soon as i get back home. Your support and assistance will go a long way here.please reply asap so i can tell you what to do and how to get the money to me via western union..Hope to read from you soon.