Probe uncovers alleged online fraud ring
An Eastern European crime ring netted at least $733,000 in illegal profit using trading accounts at seven brokerages, in the biggest fraud yet uncovered by a U.S. probe of online stock manipulation, the Securities and Exchange Commission said Wednesday.
The ring was traced to 20 residents of Russia, Latvia, Lithuania and the British Virgin Islands, the SEC said in a lawsuit filed in Washington.
Brokerage firms lost at least $2 million in the scheme, which emerged as part of a wider probe of Internet-savvy criminals who use other people’s accounts to pump up stocks and dump them later at inflated prices.
The fraud ring targeted customers of Charles Schwab Corp., ETrade Financial Corp., Fidelity Investments, Merrill Lynch & Co., Scottrade Inc., TD Ameritrade Holding Corp. and Vanguard Brokerage Services, according to the lawsuit.
The SEC said it obtained an order freezing $3 million of assets held in the U.S. trading account of a Latvian bank.
The SEC, FBI, Secret Service and NASD, the largest private regulator of brokerages, began the probe into online trading fraud in 2005, according to court filings. Firms have reported at least $22 million in losses because of the schemes.
The manipulation announced Wednesday occurred from December 2005 through December 2006 and involved at least 15 stocks traded on Nasdaq, the SEC said.
The suspects bought thinly traded stocks, then used stolen passwords to enter the online trading accounts of unwitting brokerage customers, the SEC said. They then liquidated the investments in the compromised accounts and used the proceeds to buy shares of the targeted stocks, including BriteSmile Inc., Internet retailer Bluefly Inc. and biotech firm Repligen Corp.
The suspects’ alleged rapid buying drove up prices of the stocks, enabling them to sell shares held in their own accounts for a profit.
The suspects stole the passwords using “phishing” software and other computer tools that enabled them to observe users’ keystrokes from remote locations, the SEC said.
The brokerages have absorbed the brunt of the losses because they guarantee online security and reimburse victims.
