Regulators, Congress Target Day Trading
Regulators turned up the heat on the day-trading brokerage industry Thursday as a Senate committee aired alleged abuses of small investors and the National Assn. of Securities Dealers said it disciplined eight day-trading firms or individuals running them.
The investigative subcommittee of the Senate Governmental Affairs Committee held hearings in Washington to spotlight a staff study alleging widespread rule breaking or rule bending by day-trading firms eager to pull in customers.
Many such brokerages, the study said, accept customers who should not be engaging in such rapid-fire, high-risk stock trading. Some firms improperly raid customers’ accounts to make loans to other investors to keep them trading--and thus generating commissions, the study said.
Alyce Wenzel told senators that before her son Scott Webb was shot and killed by fellow day trader Mark O. Barton in Atlanta in July, she was unaware he had borrowed $30,000 from another investor.
“My son was not an appropriate person to be day trading based on his financial situation and background,” she said.
The day-trading industry defended its practices. “Risk disclosure and warnings were a constant theme in my communications with customers,” Barry Parish, the former manager of All-Tech Direct Inc.’s office in San Diego, testified Thursday.
Separately, NASD, the brokerage industry’s self-regulatory agency, brought disciplinary action in eight cases involving day-trading firms. Allegations included misuse of customers’ money, improper loans to customers, misleading ads and inadequate supervision of employees.
Some of the firms agreed to settlements without admitting or denying wrongdoing.
The firms or individuals, their location, penalties and status are 1800DayTrade.Com Inc., Richardson, Texas, censure and a $25,000 fine (settled); Donnelly & Co., Midland, Texas, censure and a $17,500 fine (settled); Self-Trading Securities Inc., Austin, Texas, no penalties specified (pending); LaSalle St. Securities LLC, Chicago, censure and a $13,000 fine (settled); Heath A. Butler, et al, New Orleans, no penalties specified (pending); Addison Securities Inc., Dallas, censure and a $37,500 fine (settled); James Han (no location given), no penalties specified (pending); Choice Investments Inc., Austin, censure and a $27,000 fine (settled).
