The safeguard was unveiled today by VeriSign, Inc. (VRSN), the trusted provider of Internet infrastructure services for the networked world.

Aimed at organizations looking to minimize the costs and negative fall-out from fraud, the VeriSign Identity Protection (VIP) Fraud Detection Service Stock Trading Module is the first of its kind to protect traders at the transaction level, tracking behavior specific to stock trading scams. The module uses the VIP Fraud Detection Service's self-learning behavioral engine to spot pump and dump activity by tracking and weighing multiple factors including stock risk, user behaviors, how trading compares to typical fraudulent trades, and the network effect that occurs when many users are making similar trades.

The VIP Fraud Detection Service Stock Trading Module will help prevent losses attributed to stock manipulation schemes that artificially hype the price of a thinly-traded stock or penny stock. One type of scheme dupes legitimate traders into buying such a stock on rumor. Another scheme involves the takeover of user accounts and purchases penny stock in large quantities. In both cases, when the stock price rises, fraudsters quickly dump their shares, collecting gains for themselves and causing investors and brokerages to lose money.

To demonstrate the losses attributed to pump and dump schemes, in June 2008, Dow Jones Newswires reported that a particular pump and dump scheme involving stock from GTX Global netted more than $31 million in profits(1). And in the fall of 2007, Kiplingers.com reported that pump and dump schemes from spam campaigns alone cost investors billions of dollars a year, according to SEC estimates(2).

"New stock frauds are far more sophisticated than the 'traditional pump and dump' scams," said Chris Christiansen, program vice president, Security Products and Services at IDC. "The attacks enable criminals to fraudulently pump up an unknown stock's price via unauthorized purchases from co-opted accounts. VeriSign offers a unique service that protects traders at the transaction level and customers' accounts from being compromised."

Because VeriSign can detect the fraud while it's taking place, traders and brokerages are protected from potentially huge losses. Until now, brokerages had to rely on counter measures including restrictive stock trading or solutions that only alert brokerages after trading has taken place and the money is already gone.

"Fraud isn't just a cost of doing business, it also undermines consumer confidence," said Fran Rosch, vice president of Identity and Authentication Services at VeriSign. "With the new Stock Trading Module, we extended the existing functionality of our VIP Fraud Detection Service to proactively identify fraud before damage can be done. Preventing pump and dump types of schemes makes a huge difference, and it's one only VeriSign can provide."