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Critics Corner: Click Here To Go On To Next Story

Critics Corner
Datek Online Gets Fined by SEC! Datek Online Brokerage Services Corp. fined for allegedly using its customers' money to pay some of its expenses. In the first investor-protection action against a company in the burgeoning Internet brokerage business, federal regulators have censured and fined Datek. While the alleged actions didn't cause any customers to lose money, the Securities and Exchange Commission maintained they violated the customer-protection provisions of the federal securities laws. Datek and its former chief financial officer agreed in a settlement to the censure and fines, totaling $60,000, the SEC announced. Datek, based in Iselin, N.J., is one of the nation's biggest online brokerages, processing more than 500,000 trades a day. With online customers now accounting for about a quarter of all retail stock trades, the mushrooming industry is expected to be pulling in some 10 million amateur investors by year's end. The SEC's action could be followed by similar moves against other online brokerages. The SEC has been conducting an extensive review of Internet trading firms nationwide. In addition to looking for violations of securities laws, the auditors have been examining how well firms execute orders and warn customers of trading risks. Earlier this month, SEC Chairman Arthur Levitt challenged the online brokerage industry to provide better warnings to its customers about the risks that come with investing on the Internet and to tone down advertisements that appear to promise quick riches. Henry Klehm, senior associate director of the SEC's Northeast regional office, said Customer-protection rules apply to everybody, including online brokerage firms. He said the Datek case was the agency's first action enforcing customer-protection rules against an online trading firm. The SEC alleged that Datek violated customer-protection provisions of the federal securities laws by failing several times to keep a required minimum balance in a bank account containing customers' money, and by withdrawing cash from the account to pay its own financial obligations. Brokerages are required to keep excess funds in the customers' account to ensure they will not use customers' money for their own operations. The regulators also charged that Datek kept inaccurate books and records and filed a false report of its financial situation last spring. Datek and its former chief financial officer, Moishe Zelcer, neither admitted to nor denied wrongdoing in the settlement. Datek and Zelcer agreed to be censured, to pay civil fines of $50,000 and $10,000, respectively, and to refrain from future violations of securities laws. Datek agreed to hire an independent consultant to review its internal policies, procedures and controls and to recommend changes that may be needed and Zelcer agreed to be suspended from the brokerage industry for 90 days! Well it's off to the races folks, I have a pony to bet on! - Cool Ray
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