Criminals outside the United States finessed their way into accounts held by customers of E*Trade and Ameritrade to engage in some profitable pump and dump stock fraud.
Instead of relying on millions of spammed messages exhorting recipients to purchase stocks and drive up their value, criminals in Eastern Europe and Thailand took ownership of the whole pump and dump cycle of stock fraud.
A Bloomberg report on the scheme cited losses of $18 million at E*Trade and an unspecified amount at Ameritrade as the brokerages reimbursed customers for bogus trades made from their accounts.
These trades happened as criminals managed to gain access to brokerage accounts. The scam worked very simply as we'll show here:
1) Criminals buy up shares of low-priced over the counter stocks.
2) They use accounts they have compromised at brokerages to purchase more shares, driving up the price of that stock.
3) Those responsible for the crime sell off their previously purchased shares at a profit.
Investigators from the FBI, SEC, and NASD are still trying to figure what happened. None of them are talking about the criminal probe right now. But E*Trade's COO suggested the crime happened on a massive scale:
"The perpetrators were more organized, and it was a bigger issue this quarter than it had ever been before,'' E*Trade Chief Operating Officer Jarrett Lilien said in an interview. "It wasn't just hitting one company, it was hitting everybody.''
One focus of the investigation should be into how the criminals obtained access to brokerage accounts to perpetrate the illicit trades. We won't be surprised if it turns out a piece of Trojaned malware figured prominently in the identity theft part of the scheme.
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