The regulatory arm of the
National Association of Securities Dealers
charged Monday that two day-trading firms --
-- failed to adequately supervise branch offices and employed people who had been barred from the securities industry, among other things.
The moves come as government and industry regulars have been increasing their scrutiny of day-trading firms and their activities.
, or NASDR, asserted that All-Tech Direct, one of the largest day-trading firms, allowed Jeffrey Sadowski, who initially co-owned and acted as de facto manager of All-Tech's Chicago office and later served as a consultant for subsequent owners of the branch, to actively participate in the Montvale, N.J.-based firm's trading activities, despite the fact that the
Securities and Exchange Commission
barred Sadowski from the industry in 1988.
NASDR charged All-Tech and several of its top executives with failing to properly supervise employees in five branches who arranged loans totaling $130 million from January 1998 to January 1999 between customers to cover margin calls, a practice known as "journaling."
All-Tech is already under intense SEC scrutiny. Earlier this year, the SEC
filed a lawsuit against All-Tech and another firm, Miami-based
, for providing loans to customers that exceeded the limits as defined by federal margin lending rules.
NASDR's allegations against All-Tech also accuse the firm of misleading advertisements, misleading statements on its Web site and in a book, including promises that "three in 10" and "four in 10" people trained as day-traders will become successful.
All-Tech did not immediately return a call for comment.
NASDR also charged San Diego, Calif.-based Stock USA and several top executives with allowing Harry Edward Bassett III to recruit and train prospective day-traders out of the firm's Roslyn, N.Y. office, even though Bassett was not a registered employee of Stock USA. Bassett was also barred from the securities industry as a result of a prior criminal conviction, NASDR said. Basset's attorney did not immediately return a call.
Jeffrey Kob, the partner with San Diego law firm
Miller Milove and Kob
who is representing Stock USA, said the firm intends to "vigorously oppose this thing." Kob cited Stock USA's Series 24 license, which essentially made Jason Mirodoli, the former manager of Stock USA's Roslyn office, responsible for day-to-day supervision of the firm (Miradoli has also been charged of failure to supervise by NASDR; his attorney did not immediately return a call).
Kob said he believes the NASDR is "over-reaching" in the case and he accused NASDR of using Stock USA to get publicity for its focus on day-trading.