The Securities and Exchange Commission censured Datek Online for using customer deposits for company expenses and handed Datek a $60,000 fine as part of a settlement reached this week.
Tuesday’s action, which marks the agency’s first intervention in the Internet stock trading market, may be followed by similar investigations involving violations of consumer protection provisions in Internet stock transactions, according to an Associated Press report.
The SEC accused Datek of repeatedly failing to maintain the required minimum balance in a bank account containing customers’ money and said Datek withdrew cash from the account to pay expenses. According to the report, none of Datek’s customers lost any money in the alleged transfers. Datek also allegedly kept inaccurate records and filed a false financial report last spring.
A quarter of all retail stock trades are now completed online. Datek recently announced an 49 percent increase in transaction volume during the first quarter of 1999, reaching a total of 3.3 million transactions. A recent Datek record hit 82,604 transactions in a single day.
While Datek neither admitted to nor denied wrongdoing, the company agreed to hire independent consultants to review internal policies and Datek’s former CFO, Moishe Zelcer, is suspended from the brokerage industry for 90 days, according to reports.
Securities and Exchange Commission chairman Arthur Levitt recently warned online brokerages of the need to “better inform and protect investors,” and reiterated that customer directives should be executed immediately. The agency also set up a
Investor Education Web Page.
