ID thieves hit customers at TD Ameritrade, E-Trade

Overseas hackers broke into customer accounts at two popular online stock brokerages, TD Ameritrade Holding Corp. and E-Trade Financial Corp., in a "pump and dump" stock-trading scheme that led to at least US$22 million in losses.

The attacks, which took place during the last three months, were launched by identity thieves in Eastern Europe and Asia who primarily used keylogging software delivered via Trojan horses or other malware to steal users' confidential information as they logged onto public computers or their own infected machines, TD Ameritrade CIO Jerry Bartlett said in an interview Tuesday.

The hackers then logged into existing customer accounts -- or created dummy accounts -- to buy shares in little-traded stocks, driving prices up so they could sell their own previously purchased shares for a profit.

TD Ameritrade said in its investor conference call Tuesday that it had spent US$4 million to compensate customers who suffered losses after their accounts were broken into.

E-Trade confirmed in an investor conference call on Oct. 18 that it had spent $18 million to compensate customers. CEO Mitchell Caplan told investors that E-Trade has cut its losses to "almost zero" in the past three weeks after beefing up its security. The FBI, U.S. Securities and Exchange Commission and the National Association of Securities Dealers are working together to uncover the fraud.

"This is an industrywide issue," said TD Ameritrade Chief Operating Officer Randy MacDonald.