Two of the three men — Jaisankar Marimuthu, 32, of Chennai, India, and Thirugnanam Ramanathan, 34, a native of India and resident of Malaysia — were arrested in recent weeks in Hong Kong. The third, Chockalingam Ramanathan, 33, also of Chennai, India, is still at large.

All three face charges of conspiracy, fraud and aggravated identity theft after they allegedly hacked into online brokerage accounts in order to manipulate the prices of at least fourteen securities.

The pump and dump scheme, which occured between July and November 2006, has cost one brokerage firm at least $2m in losses. An estimated 60 customers and nine US brokerage firms were identified as victims.

Operating from Thailand and India, the men used their own online brokerage accounts to purchase shares of several thinly-traded stocks. They then hacked into the accounts of others using stolen usernames and passwords and bought back the same stocks to drive up the market price. The defendants then sold their own shares for a profit.

The complaint also alleges that the defendants opened new online brokerage accounts using stolen personal data, and then funded these accounts using hundreds of thousands of dollars taken from the account holders' own bank accounts.

The US Justice Department says the case marks the first time that individuals have been arrested overseas in connection with an online brokerage intrusion scheme perpetrated in the US.

Assistant Attorney General Alice Fisher says the case "demonstrates our commitment to aggressively investigate and prosecute these schemes wherever they originate".

In a related action, the SEC has filed a civil complaint against all three defendants in federal court in Nebraska.

Commenting on the case, SEC chairman Christopher Cox says: "Hackers who prey on American investors-no matter what continent they're operating from-are meeting their match with powerful adversaries in the Department of Justice and the Securities and Exchange Commission. We will go anywhere on earth to stop these thieves and hold them accountable."

Earlier this month the SEC obtained an emergency court order freezing $3 million contained in an online trading account held by a Latvia-based bank that has allegedly been used to run a "pump and dump" market manipulation scheme.

Furthermore last week the regulator suspended trading in 35 over-the-counter penny stocks that have been the subject of repeated spam e-mail campaigns.