All-Tech, Stock USA Day-Trading Firms Charged by NASD Washington, July 17 (Bloomberg) -- Day-trading firms All-Tech
Direct Inc. and Stock USA Inc. were charged by regulators with
supervisory failures, including All-Tech's widespread use of
allegedly misleading advertising.
Montvale, New Jersey-based All-Tech, one of the largest day-
trading firms, and San Diego-based Stock USA said they plan to
contest the National Association of Securities Dealers' charges.
The NASD complaints come as day-trading firms, which train
investors on their premises to make dozens of rapid-fire trades
each day, have come under increasing scrutiny from regulators and
Congress.
The NASD accused All-Tech and its chairman, Harvey Houtkin,
of making misleading statements in print and radio advertisements,
on television and the firm's Web site, and in a book.
Among Houtkin's statements cited were that ``day trading
gives one unlimited earnings potential'' and that ``most of my
customers have enjoyed successes virtually unheard of in the
trading community.''
The NASD also noted that All-Tech claimed that ``three in
ten'' and ``four in ten'' people trained as day traders become
successful.
The NASD contended that All-Tech lacks supporting data and
customer records to back these claims, and does not have written
procedures for determining the accuracy of advertising statements.
``We're reviewing the charges with our outside attorneys and
we are confident that we will prevail in an impartial forum,''
said All-Tech general counsel Linda Lerner.
A study by state securities regulators found last year that
70 percent of the traders at All-Tech's Massachusetts office lost
money.
All-Tech also was charged with failing to properly supervise
employees who arranged $131 million in loans between customers
when their account balances fell below minimum thresholds. Some
customers were repaid late or not at all, the NASD alleged. Some
of these loans involved fees ``at usurious rates'' and employees
who weren't properly registered with authorities, the NASD
alleged.
All-Tech also let Jeffrey Sadowski in its Chicago branch
provide training and execute trades for customers even though he
was barred from the securities industry by the Securities and
Exchange Commission, the NASD said. The NASD complaint charged
Sadowski, 52, with violating the SEC's 1988 order.
Sadowski's lawyer couldn't be reached for comment.
Stock USA allowed a person to recruit its customers and give
them investment advice even though he wasn't properly registered
and was barred from associating with a brokerage because of a
criminal conviction, the NASD alleged.
The person cited by the NASD was Harry Edward Bassett III,
who pleaded guilty in 1996 to making a false workers' compensation
claim, a misdemeanor, the NASD alleged. He was officially an
employee of Sagamore Capital Trading Inc., which occupied part of
Stock USA's Roslyn, New York office.
The NASD alleged Bassett made announcements to a roomful of
Stock USA traders suggesting that they watch certain stocks,
advised one customer about specific trades and conducted on-site
seminars. Bassett couldn't be reached for comment.
``This is an example of the NASD attempting to overreach in
an area that's real popular right now -- day trading,'' Stock USA
lawyer Jeffrey Kob said. ``We're not aware of any customer
complaints or any customer losses.''
Also charged was Stock USA president and principal owner
Ralph Mann.
Almost a year ago, disgruntled day trader Mark Barton went on
a rampage at two Atlanta day-trading firms, one of which was an
All-Tech branch office, killing 12 people and wounding 12 others
before killing himself.
Last February, the SEC accused All-Tech of making 103
unsecured loans of more than $3.6 million to customers to let them
keep trading when their account balances fell below required
levels. The firm is contesting those charges.
Last week, the SEC approved new rules requiring day-trading
firms to screen customers on their qualifications. About 7,000 day
traders in the U.S. account for as much as 10 to 15 percent of
Nasdaq Stock Market volume, a congressional study has found.
The Electronic Traders Association, an industry group,
says its member firms make clear to prospective clients that they
face risks -- and that only disciplined, market-savvy people
should try day trading, and then only if they have money they can
afford to lose.
--Neil Roland and Judy Mathewson in Washington (202) 624-1868 or
nroland@bloomberg.net /rp |
