All-Tech Investment Group
, news that the
Securities and Exchange Commission
had filed a complaint against it came as no surprise.
An expensive annoyance? Perhaps. But certainly not a jaw-dropper.
has been butting heads with securities regulators for most of the past decade -- first, for revolutionizing the role of the small investors in the
as the original
(small order execution system) bandit.
But he worked on the same side as the SEC when it came down on Nasdaq market makers and imposed order handling rules in 1997. Houtkin, a vocal opponent of how the large market makers interacted with SOES orders, was vindicated as the rules mandated that the customer receive the best bid or offer available.
Now, he's squaring off against regulators and the NASD again -- over All-Tech's role in the popular but increasingly scrutinized practice of daytrading. This could be just another skirmish for Houtkin, who wasn't named in the SEC's complaint, except that this time around he says the regulators have a bigger agenda.
He says the aim is to restrain the daytrading business that has taken investing out of the hands of brokers and put it directly into the hands of investors. The regulators, meanwhile, say they are concerned that investors are unaware of the risks they face.
"I wish it wasn't costly and time-consuming," Houtkin said last Friday as he waited for word to come down. "I'd love to joust."
Not only is the SEC lining up for a piece of him, but also Houtkin expects the
National Association of Securities Dealers Regulation
, the NASD's regulatory arm, to level complaints. Oh yeah, and Friday he'll be front and center at a
hearing on daytrading.
Houtkin's lawyer, Bill Singer of New York's
Singer & Frumento
, says that the NASDR called Friday to inform him that it, too, was planning to issue a complaint. This one would focus on All-Tech's advertising campaigns and on comments made by Houtkin during an interview on
. The NASDR declined to comment.
Houtkin, for his part, thinks it's no coincidence that All-Tech will make it into the news twice, maybe three times this week. "We believe it's a political agenda based on the Senate hearings taking place at the end of the week," Houtkin said.
According to the SEC, five All-Tech employees indirectly extended 103 loans in 52 All-Tech customer accounts, enabling customers to meet $3.6 million in margin calls. The complaint also names the firm.
This formalizes the kind of criticism the daytrading industry faced last summer after Mark Barton, an Atlanta daytrader who reportedly lost hundreds of thousands of dollars, went on a
shooting rampage, killing nine people including himself at two daytrading firms (including All-Tech). Like many daytraders, Barton's wins and losses were exacerbated by margin.
The Senate subcommittee will hold hearings on Thursday and Friday and also is expected to release a report on daytrading that has been in the works since the subcommittee was formed last May. Houtkin and James Lee, the head of the other firm targeted in the Atlanta shooting last summer,
, now part of
, are scheduled to testify on Friday. All-Tech traders, as well as the mother of a daytrader shot by Barton, are expected to testify on Thursday.
Margin Monkey Business
rules, broker-dealers can loan to their customers up to twice the amount of equity a customer has in their account to buy stocks. For instance, if an investor has $1,000 but wants to buy $2,000 worth of stock, the brokerage lends her that $1,000, and naturally collects interest.
But in order to increase their buying power, many daytrading firms allow customer-to-customer loans. That enables daytraders to leverage beyond that 2-to-1 to 10 times or even 20 times the amount of equity held in their accounts.
Unlike the other firm named in Tuesday's SEC complaint, an obscure Miami firm called
, All-Tech didn't settle the case. The reason, Singer says, is that the SEC didn't give All-Tech enough time to negotiate. SEC Assistant Regional Director Barry Rashkover declined to comment on this aspect of the investigation.
Singer says All-Tech first heard from the SEC four or five weeks ago when it called to inform him that it was considering issuing charges. No further word came, he says, until last week when the SEC's Rashkover called on Tuesday to tell him that the SEC had decided to issue charges.
On Thursday they discussed details of a settlement, including fines and suspensions. All-Tech decided Friday not to settle when it realized the complaint was going out Tuesday regardless of whether a settlement was reached, Singer says. "They had no interest in dealing," Singer said.
The SEC doesn't exactly agree.
"I can tell you that they have had full and fair opportunity to talk with us about the charges. They have had full and fair opportunity to present their position," Rashkover says.
Barring a settlement now, Rashkover says, an administrative law judge will rule on the charges and any sanctions or fines.
Somehow, Houtkin said last week, he will still be standing. "We've been through this so many times," he said. "It's always something."