FBI says fraud targets online brokerages

Tens of millions of dollars have been looted from online brokerage accounts in a fast-growing fraud that targets hotel guests and Internet cafe patrons, FBI officials say.

The scams cost New York-based E-Trade Financial Corp. $18 million in last year’s third quarter to reimburse customers whose accounts were pilfered. TD Ameritrade Holding Corp. said it spent $4 million.

The Justice Department unsealed its first criminal charges in such cases in March. Five civil complaints have been brought by the Securities and Exchange Commission since December. Several more cases are in the pipeline, an SEC official said.

Brokerages have paid customers for losses in the recent spate of losses, although not all brokerages have policies requiring reimbursement.

The fraud relies on a variation of the so-called pump-and-dump scheme in which a stock is illegally hyped to inflate its price. In the latest twist, plotters install keystroke-logging programs on computers in hotel business centers and Internet cafes to steal user names and passwords.

The ring gains access to the brokerage accounts, liquidates their assets and uses the money to buy stock in companies whose shares the ring has already acquired. Because the stocks involved are thinly traded, their prices rise and the gang then sells its own shares for a profit.

In one case, a man returned from a five-day fishing trip to learn that his account, which had held $180,000 in cash and securities, was $200,000 in the red.