Glenn, day traders beware. Especially if your on margin.
By REBECCA BUCKMAN
Staff Reporter of THE WALL STREET JOURNAL
Continuing their crackdown on "day trading" firms, Massachusetts securities regulators have accused All-Tech Investment Group Inc., Montvale, N.J., of several securities violations, including unauthorized trading, commingling customer funds and forging signatures to open fake accounts.
In a lengthy administrative complaint filed Thursday, the Massachusetts Securities Division also alleged that the firm allowed unregistered individuals in the Watertown, Mass., office to act as investment advisers and more generally used "deceptive marketing" to convince potential customers they could make profits trading with the firm.
Regulators pointed to a message from All-Tech Chief Executive Officer Harvey Houtkin on the company's Web site: "Some people claim I have found the key to financial independence -- Electronic Day Trading."
Mr. Houtkin and All-Tech's chief lawyer, Linda Lerner, say they received only one written complaint about the Watertown office and are angry that Massachusetts regulators didn't work with the company to resolve the issues in the complaint before filing it. Mr. Houtkin called regulators' efforts a "witch hunt," noting that the state filed complaints against two other day-trading firms earlier this fall.
Referring to some firm customers, he added: "They lose some money, and some people are just crybabies."
Day-trading companies such as All-Tech, which Mr. Houtkin opened in 1988, typically offer office space and computer equipment to small investors who want to trade stocks full-time, usually by zooming in and out of positions and capturing tiny price differentials in stocks.
While the high-pressure trading style can pay big dividends for some savvy investors, state securities regulators have recently voiced concerns that too many wide-eyed novices are getting burned, often after ponying up big bucks for training courses run by day-trading firms. Mr. Houtkin's company offers one 30-day course that costs $5,000, although the training wasn't mentioned in Massachusetts' most recent complaint.
"If people want to day trade, they can day trade. If they want to play the lottery, they can play the lottery," said Matthew Nestor, chief of enforcement for the state's securities division, part of the Office of the Secretary of the Commonwealth. "But in the securities industry, you've got to adequately disclose risk."
Mr. Houtkin says his company does tell new customers they can lose money trading and is "very careful" about predicting investor success. "We go out of our way to warn people," he said in an interview. "Our customers are very sophisticated, very knowledgeable. They know exactly what they're doing."
Mr. Nestor says the claims against All-Tech stem from an unannounced Nov. 13 visit to the firm's Watertown branch, as well as a follow-up investigation. The complaint alleges that the manager of the branch, Fred A. Zayas, fraudulently misused customer funds by moving money between accounts without investors' knowledge to cover "margin calls," ensuring that investors could keep making trades and racking up commissions for All-Tech.
Investors get a margin call, or a request to put up more money, when they have borrowed funds against the value of securities in their account and the value of those securities falls below a certain level. Mr. Zayas, who securities regulators say left All-Tech on Nov. 20, didn't return messages seeking comment. Mr. Houtkin and Ms. Lerner say he resigned.
The complaint, which names Mr. Houtkin, Mr. Zayas, All-Tech President Mark D. Shefts and two unregistered traders, also alleges that the unregistered traders managed other investors' money without being licensed as investment advisers, a practice considered a securities violation in some states. The two traders, with help from Mr. Zayas, also opened fake brokerage accounts, often with forged customer signatures, in a "systematic attempt" to keep investors' accounts open and active, Mr. Nestor says.
"We believe what we've alleged to be significant regulatory problems," Mr. Nestor said, noting that his division wants to revoke All-Tech's brokerage license and the licenses of Messrs. Houtkin, Zayas and Shefts. |
