Hey, if folks don't like E*Trade, no one is forcing them to stay. As soon as the Alpharetta, Georgia shop opens up, all of these complaints will fade away, in my opinion.
At any rate, here is an article from today's New York Times:
Despite Its System Failure, E*Trade's Stock Hangs Tough
By SAUL HANSELL
Internet stock traders are known, with some justification, as a hair-trigger lot, bidding up the shares of companies on the slightest hint of good news and dropping them with scorn at the first dimming of otherwise glowing prospects.
So why wouldn't E-vestors be bailing out of E*Trade Group after two days in which the online broker's trading system was down for hours at time?
If that wasn't enough, Eliot Spitzer, the Attorney General of New York, said Thursday that he would investigate the Internet trading industry after his office had received dozens of complaints about delayed orders and unavailable trading systems.
Yet E*Trade's stock hardly flinched. Sure, it fell $1.75 a share Thursday, to $53.50. But given the usual volatility of Internet companies, that is essentially unchanged. And that still leaves E*Trade's market value of $6 billion higher than more established, and decidedly more profitable, firms like Paine Webber,Bear, Stearns and Lehman Brothers.
Investors -- a good number of whom use E*Trade and its online rivals -- have apparently concluded that the company's problems and the cloud of complaints above the entire industry will not ultimately rain on the parade of online investing.
"Every other big broker in the space has also had problems and system outages," said Stephen C. Franco, an analyst with Piper Jaffray. "Investors accept that the brokers use cutting-edge technology that doesn't always work perfectly."
Franco released a report Thursday that indicated the number of online brokerage accounts last year doubled to 7.3 million, with total assets of $420 billion.
This growth has hardly slowed, even at brokers that have had well-publicized system failures. Franco said, for example, that Ameritrade was forced in the fourth quarter to pay $3.1 million to compensate customers whose orders were mishandled. Even so, only 3 percent of its clients closed their accounts during the quarter, he said.
"It is so difficult to move a brokerage account that people rarely do it," he said.
Of course, the usual crop of lawyers sprouted Thursday, threatening to file class-action suits to recover the losses E*Trade customers say they incurred from the unavailability of service.
Legal experts, however, said that winning such cases would be difficult, either as class actions or as individual suits. "We can't hold people liable for every honest mistake," said Lewis Lowenfels, an expert in securities fraud with Tolins & Lowenfels in New York. To win a case, he said, an investor would have to prove a broker with a system problem committed the financial equivalent of malpractice.
A more difficult challenge for online brokerage firms is posed by investors who placed orders to buy initial public offerings that were first priced at, say, less than $20 a share, then filled at closer to $100 a share.
Technically, the law provides little protection for investors who place market orders, which are filled at the best available price, rather than limit orders, which specify a maximum share price.
Lowenfels, though, said that some brokers might be vulnerable to complaints they violated rules requiring them to make sure that investments are suitable for their customers.
If a broker knew that a customer who placed an order to buy 1,000 shares of a stock at $20 would not have the resources to buy the stock if the best available price was $100 but executed the trade anyway, that client might have a case.
Maryann A. Waryjas, a lawyer with Jenner & Block in Chicago, argues that such laws have not been adjusted to take into account brokers that are machines, not people.
"Historically, your broker would call you back and tell you the I.P.O. had gone way up and that you couldn't get it for the offering price," she said. "The technology has gotten ahead of the rules."
As for E*Trade, its contract with its customers states that the company, which is based in Palo Alto, Calif., is not liable for system problems. But Lisa Nash, an E*Trade spokeswoman, said that it would still compensate customers who had legitimate claims that they were harmed.
"Rather than hiding behind what the legal agreement says, we will try to do what is right," she said. "We have a virtual brand. If people don't trust us, it weakens the power of the brand."
She declined to say how much the company expected to pay in compensation, but she said that fewer than 10,000 customers were affected. |
