Criminal activities targeting online brokerage accounts in Japan have surged, leading to a troubling trend of manipulated penny stocks on a global scale. Since the onset of this wave of fraud in February, losses have escalated to an alarming ¥100 billion (approximately $710 million or ₹6,070 crore), with no signs of abating. The perpetrators exploit hacked accounts to purchase low-volume stocks internationally, allowing earlier investors to profit at inflated prices.

Rising Threats in the Brokerage Sector

In response to this growing crisis, several Japanese brokerage firms have instituted a temporary halt on buy orders for particular stocks from China, the United States, and Japan. Prominent brokers, including Rakuten Securities Inc. and SBI Securities Co., have reported instances of unauthorized trading, revealing vulnerabilities in Japan’s market security protocols. These breaches pose a significant risk to the government’s initiative to encourage retirement investments among the populace, as victims express confusion over how their accounts were compromised, while brokers have largely not compensated for the losses incurred.

Personal Impact on Japanese Investors

Mai Mori, a 41-year-old part-time worker, shared her distressing experience. Her Rakuten Securities retirement account was hacked, resulting in unauthorized purchases of Chinese stocks that cost her ¥639,777, which equates to about 12% of her total investments. When she alerted Rakuten, they advised her to file a police report, but local authorities in Aichi prefecture declined to take action, claiming that Rakuten was the actual victim. Mori lamented, “The police indicated that most fraud victims often end up silently accepting their losses, leaving us feeling helpless.”

• Broker Responses:
  • Monex Group Inc. is assessing cases on an individual basis.
  • Matsui Securities Co. will follow industry guidelines for compensation.
  • Nomura Securities Co. has promised a flexible response based on individual circumstances.
  • Daiwa Securities Group Inc. is evaluating compensation policies for unauthorized trades.
  • Mitsubishi UFJ Financial Group Inc. aims to address each case promptly and sincerely.

Affected Investors Speak Out

One anonymous investor reported a staggering loss of around ¥50 million after his account was hacked for stock purchases. Alarmingly, he received a notification of unusual activity on his iPhone on April 16, but when he reached out to his brokerage, they were unable to freeze his account. Despite only ever investing in index funds, his account was leveraged to buy stocks, leading to significant financial losses.

Government and Regulatory Actions

In light of these troubling incidents, Japan’s government is urging brokerages to engage in open discussions regarding compensation for affected clients. Finance Minister Katsunobu Kato emphasized the need for “good faith” negotiations. The Japan Securities Dealers Association has joined the call for improved security measures, advocating for mandatory multi-factor authentication across member firms. Association chairman Toshio Morita criticized the prevalent denial of compensation, insisting that each case should be evaluated based on its unique circumstances.

The Surge in Fraudulent Trading

Fraudulent trading cases have skyrocketed from just 33 in February to 736 in early April, as reported by Japan’s Financial Services Agency. This surge jeopardizes the government’s goal to increase individual investment participation. A recent expansion of a tax exemption program for small investments had previously sparked a 20% increase in Nippon Individual Savings Accounts by the end of the previous year.

Understanding the Scam Techniques

Cybersecurity specialists, including Nobuhiro Tsuji from SB Technology, attribute these scams to techniques like adversary-in-the-middle attacks and infostealers. Criminals often lure victims to fake websites through phishing emails, capturing login credentials before redirecting them to legitimate sites. Additionally, infostealers can infect devices through malicious ads or emails, silently extracting sensitive information such as IDs and passwords.

Victims Unite

Many victims, including Mori, have taken to social media to share their experiences, considering collective legal action against the brokerages. However, the prospect of navigating legal battles proves daunting, leading some, like Mori, to contemplate leaving their brokerage altogether. She expressed her frustration, stating, “We feel utterly powerless in this situation.”

As the situation unfolds, the Japanese investment community remains on high alert, seeking answers and accountability amid a growing crisis in online trading security.