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U.S. Says Brokerage Account Was Hacked

Officials charge a man with stealing another person's online trading password to avoid $37,000 in options losses.

October 10, 2003|From Reuters

WASHINGTON — A Pennsylvania man hacked into another person's online brokerage account to trade options, U.S. officials charged Thursday, raising questions about the security of online trading accounts.

The U.S. attorney's office in Boston and the Securities and Exchange Commission said they filed criminal and civil securities fraud charges against Van Dinh, a 19-year-old resident of Phoenixville, Pa.

Concealing his identity to remotely capture other people's user names and passwords, Dinh tapped into the TD Waterhouse account of a Boston-area man, officials said.

Dinh then allegedly used the account and the man's identity to buy put options -- which are contracts to sell a stock -- in common shares of Cisco Systems Inc. that Dinh owned and wanted to sell.

The case marks the first such action brought by the SEC.

Several attempts to reach Dinh by telephone for comment were unsuccessful. He is not yet represented by an attorney.

A spokeswoman for TD Waterhouse, a subsidiary of Canada's No. 3 bank Toronto-Dominion Bank, said, "It is regrettable that an individual's personal computer was hacked and information was stolen. The TD Waterhouse system was not compromised and remained safe and secure for our customers."

The criminal and civil complaints were filed in federal court in Boston. The SEC said Dinh wanted to unload the options because Cisco's share price was higher than the options' strike price at which their owner could profitably sell Cisco shares.

An option gives the holder the right to buy or sell a security, such as a stock or bond, at a set price by a certain date.

On July 11, according to the SEC, Dinh used his own online account to place orders to sell his options contracts and then placed corresponding buy orders for 7,200 Cisco option contracts through the victim's account.

Dinh used about $47,000 from the Boston man's account and avoided losses of about $37,000 on his options, officials said.

From June 18 through June 27, Dinh bought 9,120 put options contracts at the strike price of $15 a share through an online trading account at Cyber trader.com, they said.

Each contract gave him the right to sell 100 shares at $15 a share until the expiration date of July 19 was reached. Dinh paid $10 per contract for a total of $91,200, they said.

Nine days before the expiration date, Cisco stock was trading at about $19, making his put options potentially worthless and putting Dinh at risk of losing the entire $91,200 he paid to buy the options, the officials said.

Prosecutors accused Dinh of mail and wire fraud, securities fraud and causing damage from unauthorized access to a computer. The SEC is seeking to force Dinh to pay the money he avoided losing and an unspecified amount in civil penalties.

The SEC said it had tracked down Dinh "within days" of being notified by the victim because Dinh left so-called cyber-fingerprints in a trail of e-mail accounts and Web sites that provide anonymity.

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