Feds Move Against Online Trading Criminals

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March 07, 2007 11:34 AM

Customers of Merrill Lynch, E*Trade and other major online brokerage firms are being targeted by a ring of Eastern European cybercriminals, federal law enforcement officials tell ABC News.

The Securities and Exchange Commission said today it has moved against the ring which they believe illegally accessed trading accounts at seven top firms from computers in Russia, Latvia, Lithuania and the British Virgin Islands. 

Authorities say the ring took control of customers' investments and switched them to penny stocks they controlled in order to temporarily drive up their prices, ultimately leaving the investors with portfolios that were worthless.

A federal judge yesterday evening agreed to an SEC request to freeze $3 million in an account at a U.S. branch of an Eastern European bank, which investigators say belongs to the criminals. 

Using illegally-obtained passwords and user logins, the crooks allegedly accessed dozens of trading accounts at such major online brokerages as E*Trade, Schwab, TD Ameritrade, Fidelity, Scott Trade, Vanguard and Merrill Lynch, according to the SEC complaint. After inflating the stocks' values, the criminals sold off their holdings, leaving their victims with next to nothing.

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From December 2005 to December 2006, the group pulled its scam 15 times with 15 different securities, the complaint states. Together, they compose one of the biggest such criminal endeavors discovered to date, one source close to the investigation told ABC News.

"We at the SEC have certainly seen an increase in the combination of ID theft, securities fraud and hacking," John Stark, the commission's chief Internet enforcement officer, told ABC News recently.

Combined, investors are thnought to have lost around $2 million to this most recent scam when the criminals sold off their holdings in more valuable investments to buy up thousands of shares of soon-to-be-worthless penny stocks, according to a federal law enforcement official familiar with the case.  The firms reimbursed the customers for their losses, he said.

A Merrill Lynch spokesman said his firm notified the SEC after noticing irregular trading activity in some of its accounts.

The scheme is becoming an increasingly popular form of cybercrime. In January, the SEC charged a 21-year-old Florida man for running a similar scam. The SEC said the man made over $82,000 after illegally manipulating trading accounts at many of the same brokerages, according to its charges.