More on online brokerage fraud

The Washington Post has an article today about the the increase in online brokerage fraud.

E-Trade Financial Corp., the nation's fourth-largest online broker, said last week that "concerted rings" in Eastern Europe and Thailand caused their customers $18 million in losses in the third quarter alone.

To put that into perspective, E-Trade earned $128.1 million on revenue of $488.7 in their fiscal fourth quarter.

As I noted earlier, there are a lot of permutations to online brokerage fraud. The question is what is the best way to stop it? It is critical that customers be able to sell investments quickly or the online brokerages will be liable. So delaying transactions to avoid fraud would be problematic. I think the best thing that the brokerages could do is strong out-of-band transaction authentication combined with user education. They might even be better off doing strong transaction authentication and sticking with passwords for session authentication.