E-Trade bought shares of BoysToys in data breach

Mitchell Caplan, E-Trade Financial Corp.’s chief executive, is reluctant to explain how his company came to own 1 million shares of BoysToys.Com Inc., a San Francisco strip-club operator that went bankrupt in 2001.

“I’m not interested in talking about it so much,” Caplan said in a recent interview. “It just encourages the bad guys.”

E-Trade, a discount broker, bought the BoysToys shares from customers whose accounts were stuffed with the near-worthless stock in August, according to a Sept. 8 regulatory filing. Caplan told investors last month that clients of the New York-based firm had been victims of Internet thieves from Eastern Europe and Asia who used stolen personal data to tap into accounts.

U.S. regulators are investigating how criminals exploit security gaps in online-brokerage accounts and use them to manipulate prices of little-traded stocks. After trading at no more than 5 cents for 2 1/2 years, BoysToys rose to a high of 13 cents Aug. 10 when a record 3.7 million shares changed hands, data compiled by Bloomberg show. The next day, it was back down to 4 cents.

“In order to make our customers whole, we ended up taking ownership,” E-Trade spokeswoman Pam Erickson said. “They ended up with the stock in their portfolio by no action of their own.” E-Trade sold its BoysToys shares in September, she said.