Federal investigators are focusing on an uptick in identity fraud hitting customers of online brokers, including E*Trade and TD Ameritrade Holding Corp
.
E*Trade said during its third-quarter financial report that a surge in Web-based fraud forced the New York-based online broker to reimburse customers $18 million, and is drawing the attention of Securities and Exchange Commission and other regulatory agencies.
The identity theft allowed hackers to engage in so-called “pump-and-dump” schemes in which perpetrators used customer money to buy obscure stocks, then sell shares for a profit.
“E*Trade, like a number of our competitors, experienced a significant increase in losses resulting from fraud related to identity theft,” E*Trade said. The fraud “has become a focus of the SEC and other regulatory agencies.”
“This activity is nothing new to our industry,” Katrina Becker, a TD Ameritrade spokesperson said.
Becker did not commenting on the extent or cost of the fraud TD Ameritrade endured, but noted that ID theft is the cost of doing business.
The SEC had no comment on any ongoing investigation, John Heine, a spokesperson for the regulatory agency, told internetnews.com.
Neither the FBI nor the NASD, an internal regulatory agency of the brokerage industry, returned calls seeking comment.
While reassuring E*Trade’s systems are safe and secure, “we continue to
take steps to deter unauthorized activity in our customers accounts,” the
company said.
The broker said that it is working with regulatory and law enforcement officials, along with technological and operational
changes.
The company said it is “confident that these combined efforts will help reduce this fraud.”
News of numerous attacks on online brokers mirrors a status report released by Symantec last month, which found that financial services were hit by 84 percent of fraud attacks.
Online fraud schemes can become multi-billion-dollar headaches.
Consumers may lose more than $56 billion to identity fraud during 2006, according to Javelin Strategy & Research. That’s up from around $54 billion last year, according to the research firm.