Crime ring used Schwab, TD Ameritrade in fraud

An Eastern European crime ring netted at least $733,000 in illegal profit using trading accounts at TD Ameritrade Holding Corp. and six other firms, in the biggest fraud yet uncovered by a U.S. probe of online stock manipulation.
The ring was traced to 20 residents of Russia, Latvia, Lithuania and the British Virgin Islands, the Securities and Exchange Commission said in a lawsuit filed in U.S. District Court in Washington. The group maintained trading accounts in the U.S. through Riga, Latvia-based JSC Parex Bank, the SEC said.
Brokerage firms lost at least $2 million in the scheme, which emerged as part of a wider investigation of Internet-savvy criminals who use other people’s accounts to pump up stocks and dump them later at inflated prices.
Since December, the SEC has brought similar cases against a 41-year-old Russian man who allegedly stole $354,000 and a 21-year-old Florida man who got $83,000.
“This action stems from a modern-day, technological version of the traditional pump-and-dump market-manipulation scheme,” the SEC said in the complaint.
The fraud ring also targeted customers of Charles Schwab Corp., E*Trade Financial Corp., Merrill Lynch & Co. and closely held Scottrade Inc., Vanguard Brokerage Services and Fidelity Investments, according to the lawsuit.
In a separate statement last Wednesday, the SEC said it obtained an order freezing $3 million of assets held in the Latvian bank’s U.S. trading account.
The SEC, FBI, U.S. Secret Service and NASD, the largest private regulator of brokerages, began the probe into online trading fraud in late 2005, according to court filings. So far, firms have reported at least $22 million in losses because of the illegal trading schemes.
The manipulation announced last week occurred from December 2005 through December 2006 and involved at least 15 stocks traded on the Nasdaq Stock Market, the SEC said.
The criminals bought thinly traded stocks, then used stolen passwords to enter the online trading accounts of unwitting brokerage customers, the SEC said. They then liquidated the stocks in the compromised accounts and used the proceeds to buy shares of the targeted stocks. The rapid buying drove up the price, enabling the criminals to sell the targeted stocks held in their own accounts for a profit.
The criminals stole the passwords using “phishing” software and other computer tools that enabled them to observe users’ keystrokes from remote locations, according to the complaint.
“The investigation is very much ongoing,” Stark said. “We want to find out who actually owns these accounts and who is perpetrating these violations.”