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Brokerage coughs up $375,000 for website breach

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US brokerage D.A. Davidson has agreed to pay $375,000 to settle charges that lax security practices allowed criminal hackers from Latvia to pilfer the confidential information of some 192,000 of its customers.

The charges stem from an attack on December 25 and 25, 2007, in which the hackers downloaded the confidential data by exploiting a SQL-injection vulnerability on Davidson's website. The firm only learned of the theft two weeks later, when one of the attackers sent a blackmail message that attached 20,000 customer records as proof their claims were genuine.

Davidson's security was "deficient in that the database was not encrypted and the firm never activated a password, thereby leaving the default blank password in place," according to a press release issued Monday by the Financial Industry Regulatory Authority. The body is a non-governmental regulator that oversees securities firms doing business in the US.

Regulators went on to say that Davidson also failed to employ an intrusion detection system on its network despite an April 2006 recommendation from outside security auditors that one be put in place.

The settlement comes a little more than two years after US prosecutors filed criminal conspiracy, extortion and fraud charges against four men for attacking Davidson's servers and then demanding money in exchange for keeping the breach quiet.

Defendants Aleksandrs Hoholko, Jevgenijs Kuzmenko, and Vitalijs Drozdovs pleaded guilty two weeks ago and are scheduled to be sentenced in June, according to documents filed in US District Court in Montana. The status of a fourth defendant, Robert Borko, was unclear.

Their hack is the second time in recent memory criminals have obtained highly confidential financial information by exploiting a SQL injection vulnerability. Many web masters regard the bugs as little more than a nuisance that have few practical consequences.

TJX hacker Albert Gonzalez was able to breach the the servers of credit card processor Heartland Payment Systems using the same form of attack. ®

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