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Brokerages lose $22M to hackers in three months
Published: 2006-10-26

Two American brokerage houses have written off $22 million in fraud losses on their third quarter financials, citing spyware, stolen identities and hacker fraud as the cause.

In a recent Reuters news article, two online discount brokerages have admitted to major losses from hackers stealing their customer's identities and then committing fraud. TD Ameritrade has said that it cost $4M in their third quarter from customers whose accounts had been hacked. E*Trade Financial also reported losses, but said that online identity theft by hackers cost them $18 million in the same period. Both brokerages offer guarantees to their customers to replay clients who've lost money through this kind of fraud.

Also reported by InformationWeek, the reported losses show that identity theft by hackers using standard methods, such as spyware, viruses and trojans, can have a significant impact on online brokerage losses.

The Security and Exchange Commission (SEC) has finally admitted that some of the fraud may be committed in conjunction with modern pump-and-dump stock manipulation scams. The scams attempt to artificially inflate a stock through promotions commonly found in spam e-mails. Cyber thieves can then use compromised client brokerage accounts to sell the inflated stock and make hard cash.

Posted by: Kelly Martin
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