Hackers start daytrading - with your account

I can't remember when I last used a human broker.

A recent article in the Washington Post, however, points out certain risks involved in online trading. For example, in the third quarter, E*Trade suffered losses of $18 million because of hackers, mostly from Eastern Europe and Thailand. The company is not alone. TD AmeriTrade also had losses, but the amount was not disclosed.

Interestingly enough, the frauds are a new form of pump-and-dump. That is, a hacker takes over a customer's account and buys certain micro-cap stocks, allowing for a quick payday.

How do these hackers accomplish all this? It looks like they use spyware, which is often secretly installed on computers at libraries, airports and other public places.

The good news is that online brokers are making their customers whole. However, the law does not require them to do so.

I interviewed Scott Mitic, who is the CEO of TrustedID, a company that develops software to combat identity theft. According to him, "The increase in brokerage account fraud just shows that the target is always moving, as identity thieves hone in on the next easy target. It's a game of whack-a-mole; the thieves pop up tomorrow where no one is looking today. The lesson for American consumers is to be vigilant. Double-check URLS when logging into accounts. Use recently updated anti-spyware software. Don't trust any email you get from a bank. Avoid giving personal information to anyone who calls you, even if your caller ID appears to identity the caller as a company you know and trust. We're in an era where the problem isn't going to go away; as consumers we all just need to get smarter."

Tom Taulli is the author of various books, including the Complete M&A Handbook and operates InvestorOffering.com.