SEC foils Craig's List identity theft scammers

The Securities and Exchange Commission took action last week to stop a sophisticated Internet scheme that stole the identities of unsuspecting individuals and netted more than $66,000 in illicit profits in just seven weeks.

In a complaint filed in the U.S. District Court for the Eastern District of New York, the SEC alleged that one or more unknown traders conducted their entire online account intrusion scheme over the Internet and concealed their identities by, among other things, fraudulently opening brokerage accounts in the names of individuals who responded to a job advertisement on the Web site Craig's List.

"While con artists continue to find new ways to defraud online brokerage customers, our efforts to protect U.S. investors from these account intrusion schemes continue to be a top priority of the Enforcement Division," said Linda Chatman Thomsen, director of the SEC's Division of Enforcement.

"Even when hackers hide behind stolen identities, this case shows that SEC action can take the profitability out of the scheme," said David Nelson, regional director of the Miami Regional Office. "While our main focus is on the securities law violators, there is a reminder here about how important it is to safeguard personal identifying information."

According to the SEC's complaint, the unknown traders posted an advertisement on Craig's List beginning in February 2007 for a job with a fictitious Latvian brokerage firm, AWE Trading, Inc. Individuals who responded to the advertisement provided their personal information, including Social Security numbers and dates of birth to AWE via the Internet for purported company background checks. The unknown traders then used this personal information to open securities trading accounts online at Interactive Brokers LLC without the individuals' knowledge.

The SEC's complaint further alleges that, on multiple occasions between March 8 and April 24, 2007, the unknown traders gained unauthorized, online access to accounts held by customers of various retail brokerage firms. They purchased and sold at least 18 securities listed on the New York Stock Exchange and NASDAQ. The unknown traders simultaneously bought and sold the same securities in the accounts they opened fraudulently, profiting from the change in trading volume and stock prices generated by the unauthorized transactions.

The SEC's complaint charges the unknown trader defendants with violating Section 17(a) of the Securities Act of 1933 and Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 by engaging in the complex securities account intrusion scheme. The complaint also seeks a final judgment permanently enjoining the unknown traders from further violations of the securities laws and ordering them to repatriate assets of the fraudulent scheme they hold outside the U.S., to disgorge their ill-gotten gains, and to pay civil money penalties. The Commission's complaint identifies Interactive Brokers, which fully cooperated in the staff's investigation, as a relief defendant because it currently holds cash and securities related to the scheme. In April 2007, Interactive Brokers detected suspicious trading in the involved accounts, suspended activity and froze the funds in the account.

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