SEC Freezes $3 Million Seen Stolen In Account 'Intrusions'
Wednesday 03/07/2007 1:01 PM ET - Dow Jones News
(Third paragraph notes use of North Carolina brokerage firm; information from SEC lawyer added, starting in sixth paragraph.) By Judith Burns
Of DOW JONES NEWSWIRES
WASHINGTON -(Dow Jones)- U.S. securities regulators obtained an emergency court order freezing $3 million of proceeds in a Latvian account allegedly used to scam investors and manipulate trading by hacking into online brokerage accounts.
Account intrusions hit seven U.S. brokerage firms, costing about $2 million in losses, and allowed the unknown manipulators to pull in more than $700,000 in profits, the Securities and Exchange Commission said. U.S. authorities said the manipulations appear to have begun in December 2005 and continued for at least a year.
The SEC announced Wednesday that it obtained a court order late Tuesday to freeze assets in an account at JSC Parex Bank, based in Riga, Latvia, and at Pinnacle Capital Markets, in Raleigh, N.C., which handled U.S. trading for the Latvian account. The action is the third brought by the SEC in recent months alleging market manipulation through intrusions in online U.S. brokerage accounts.
In the latest case, the SEC said unknown intruders hacked into online accounts of unsuspecting brokerage customers, placed unauthorized orders to buy shares in tiny companies, and then sold those shares from their own accounts once the price rose.
Accounts at E*Trade Securities (ETFC), Scottrade Inc., TD Ameritrade Inc. (AMTD), Vanguard Brokerage Services, Fidelity Investments, Merrill Lynch (MER) and Charles Schwab & Co. (SCHW) were hacked into, according to the SEC's complaint.
Hackers penetrated computers used by online brokerage customers, not the brokerage firms' own systems. About 40 accounts were raided, and it appears all the losses were absorbed by the brokerage firms, according to John Reed Stark, head of the SEC's office of Internet enforcement, in Washington, D.C.
"We're not aware of any customer who was not made whole," Stark said in a telephone interview.
U.S. authorities said they could not immediately identify the manipulators since trading was done through an omnibus account handling trades for 20 different accounts in Russia, Latvia, Lithuania and the British Virgin Islands.
"We don't know who they are," said Stark. He said the hackers covered their tracks online by using hijacked Internet accounts.
Court papers identified 15 stocks manipulated through the online intrusions: Bluefly Inc. (BFLY), BriteSmile Inc. (BSML), DepoMed Inc. (DEPO), Dura Automotive Systems Inc. (DRRAQ), I-Many Inc. (IMNY), Integrated Alarm Services Group Inc. (IASG), Netguru Inc., Netwolves Corp. (WOLV), Onvia Inc. (ONVI), Orchid Cellmark Inc. (ORCH), Remote Dynamics Inc. (REDI), Repligen Corp. (RGEN), Tapestry Pharmaceuticals Inc. (TPPH), Valentis Inc. (VLTS), and WTS Dime Bancorp Inc.
Stark said the SEC's investigation into the matter is continuing.
-By Judith Burns, Dow Jones Newswires; 202-862-6692; Judith.Burns@dowjones.com
> Dow Jones Newswires
03-07-07 1300ET
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