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Anatoly Russ, 25, used stolen user names and passwords for seven online brokerage accounts to place orders that offset his own trading in iShares Lehman Aggregate Bond Fund options, the Securities and Exchange Commission said. It said online brokerage account holders at E-Trade Securities, TD Ameritrade and Scottrade didn't know about the trading, which was done with funds in their accounts.
Russ ensured profits by placing his own orders to buy options contracts at artificially low prices and offsetting them with trades from the online brokerage accounts that he broke into, the SEC said. It claimed Russ then sold the options at artificially high prices, using buy orders from the online accounts he tampered with. The SEC estimates Russ pulled in at least $88,465, which he wired to a Latvian bank account, while online account holders, who would have lost upward of $339,000, were made whole by the brokerage firms.
Online brokerage account intrusions aren't new, but earlier incidents involved so-called "pump and dump" schemes in which the intruder uses others' accounts to sell shares at inflated prices. In this case, the trader was both a buyer and a seller, something that U.S. regulators said they haven't seen previously.
The SEC suit, filed in federal court in Manhattan, said the alleged account intrusions occurred over several weeks in August and September 2006 and involved four series of option contracts on the Lehman bond fund. The options were so thinly traded that on some days, Russ' trading accounted for nearly all of the market activity, according to the SEC. It wants to fine Russ, have him return his allegedly ill-gotten trading gains, with interest, and obtain a court order barring him from such violations in the future.
Russ isn't believed to be represented by a lawyer and couldn't be reached immediately for comment. U.S. officials believe he resides in Novaya Ladoga, Russia. Source: http://www.forbes.com/feeds/ap/2008/01/16/ap4540565
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