Updated from 1:04 p.m. EST
Securities and Exchange Commission
announced Tuesday that it had sued
as well as nine people associated with the daytrading firms for providing loans to customers that exceeded the limits as defined by federal margin lending rules.
In the SEC's first-ever suit on daytrading margin-lending practices, the regulatory agency also charged some of the parties named in the suit with failing to disclose information about the terms of the loans.
All-Tech, which is based in Montvale, N.J., and seven of the accused people, including company executives and lower-level employees, are contesting the charges.
Investment Street, which is based in Miami, and two of the accused agreed to a cease-and-desist order and financial penalties of an undisclosed amount. The two individuals, Emilio Sardi, a company director, and Javier Saenz, Investment Street's president, have also been temporarily suspended from working with a broker-dealer.
, which provided administrative services for Investment Street, was also named in the charges, but agreed to a settlement.
"We will not allow daytrading firms to overextend margin and keep customers afloat so the firms may continue to generate commissions," Richard Walker, the SEC's director of the Division of Enforcement, said in a statement.
Company representatives for both companies did not return calls for comment.
The SEC asserted that throughout 1998, All-Tech and the seven individuals made 103 unsecured loans to customers in order to meet margin calls of more than $3.6 million. This allowed customers to meet margin calls and continue trading as their account balances fell below required levels. Margin loans are widely used by daytraders to purchase stocks and trade in high volume.
All-Tech now faces an evidentiary administrative hearing before an administrative judge.
The SEC said it found that from November 1997 through March 1999, Sardi and Saenz of Investment Street made at least 22 unsecured loans allowing customers to meet margin calls totaling $250,000. Investment Street also made loans using funds from Sardi's accounts.
Investment Street and Dynamic Trading also allowed individuals to conduct business transactions without registering with the proper regulatory agencies, according to the SEC.
Glenn Gordon, assistant regional director for the SEC's Southeast Regional Office, said Investment Street and Dynamic Trading were fined a total of $25,000. Sardi and Saenz were fined $5,500 each. Sardi has been suspended for 90 days from working at any brokerage/dealing firm and Saenz has been suspended for six months.
The SEC's charges are the first of their kind and follow calls from market regulators to implement stiffer controls on the daytrading market, which has burgeoned in the wake of the Internet boom. The
New York Stock Exchange
National Association of Securities Dealers
have proposed raising the margin requirements, and state securities regulators issued a report last August sharply criticizing the tactics that some firms use to lure customers into the risky daytrading framework.
All-Tech received national attention in July when a securities daytrader went on a shooting rampage in the company's Atlanta office as well as in the office of another daytrading firm, killing a total of nine people before taking his own life.