E-Trade to Pay $20,000 to Settle NASD Charges

E-Trade Group Inc. (ticker symbol: EGRP) agreed to pay $20,000 to settle charges the online broker failed for 28 straight months to file required reports on “short” positions, or investments betting stocks would fall, the National Assn. of Securities Dealers said Tuesday.

All NASD member firms must keep records of short positions for Nasdaq securities in all customer and firm accounts and report the information monthly to NASD’s regulatory arm, the NASD said. In a short sale, an investor in effect borrows shares and sells them. Investors hope to profit if a stock’s price falls, so they can buy stock at a lower price to replace the borrowed shares.

The NASD said E-Trade’s securities unit, the second largest electronic broker-dealer, failed to submit short interest reports from June 1996 through September 1998.

“As soon as we discovered the issue, we corrected it immediately,” said Patrick Di Chiro, chief communications officer for E-Trade. “We put procedures in place to ensure we would always be fully in compliance.”

In settling the case, E-Trade neither admitted nor denied the charges. The agreement includes censure--essentially a notification of NASD disapproval--and an NASD Regulation finding that the company failed to set up and enforce reasonable, written procedures designed to prevent such reporting problems.

Tuesday’s action is the second NASD fine of E-Trade since spring. In May, E-Trade agreed to pay $20,000 to settle charges that it failed to respond to 17 different requests by NASD Regulation for information about customer complaints.

E-Trade shares rose 13 cents to close at $17.25 on Nasdaq. The stock is off 34% this year.