Skip to main content

Datek Online

, one of the 10 largest online brokerages, will soon announce the sale of a majority stake in the company to venture capital and private equity firms in a deal that will raise $700 million,

The New York Times

reported Wednesday.

The investment comes at a time when online brokerages are struggling to maintain the high growth rates they have experienced in previous years. Many are expanding their services to include financial advice and banking in an attempt to smooth out revenues. Datek, however, has stuck with its focus on executing trades cheaply and quickly.

Datek declined to comment on the report or the talks. The firm in August confirmed that it had reached an agreement to buy out its principle shareholders, Jeffrey Citron and Sheldon Maschler. They have been with Datek from the beginning, when the firm was a daytrading firm racking up regulatory problems. Datek is said to want to distance itself from Citron and Maschler.

Datek's troubles with regulators -- which according to the


continue with investigations by the

Securities and Exchange Commission

and the

U.S. Attorney for the Southern District of New York

-- have prevented it from raising funds in the past, both in the private and public markets. Datek's popular electronic stock trading system,


, also has suffered because of these problems, with its own

hopes of a spin-off being kept on hold while Datek cleans house.

Scroll to Continue

TheStreet Recommends

Both Island and Datek were left hanging in 1999 when

Vulcan Ventures

pulled a planned investment in them. Then

TD Waterhouse


, the online brokerage, pulled its investment in Island. (Vulcan is an investor in


, publisher of this Web site.)

In the end, Boston-based venture capital firm

TA Associates

and France's

Groupe Arnault

invested in Datek, pumping just under $200 million into the company.

According to the


, which cited executives close to the negotiations, TA Associates will invest in this round of financing, which will be lead by private equity firm

Bain Capital

. Bain will put in $300 million, the newspaper reported.

Citron and Maschler will get about $500 million for their stake, which equals about 52% of the company, the


reported. Citron stepped down as chairman and chief executive about one year ago.