Securities Regulators Lash out at Day-Trading Firms
WASHINGTON (AP) -- Day-trading firms mislead their investor- customers with promises of quick riches, fail to supervise their operations and make improper loans to customers to keep them trading, according to a report released today by state securities regulators.
A related analysis found that 70 percent of customers at one major day-trading firm lost money.
The report by the North American Securities Administrators Association resulted from a 7-month investigation of the growing day- trading industry. It comes 11 days after Mark O. Barton shot and killed nine people at two day-trading firms in Atlanta where he had traded and lost thousands of dollars.
"If day-trading firms want to become part of the mainstream, they need to play by the same rules the rest of Wall Street follows," said Peter Hildreth, president of the association, which represents securities regulators in the 50 states, Canada and Mexico.
"If they don't get their act together they will be under increasing regulatory pressure," said Hildreth, who also is New Hampshire's director of securities regulation.
The report said there are now 62 day trading firms operating with 286 offices around the country -- catering to roughly 4,000 to 5,000 traders.
These firms provide their trader-customers with computers and high-speed hookups to trading networks and charge commissions for each trade.
Day traders ride the tiniest ups and downs of the stock markets, squeezing profits by buying and selling shares rapidly. Thousands of dollars of their own money are on the line, requiring fast thinking and strong nerves.
The traders, many of whom have abandoned their regular jobs, are distinct from the 5 million or so amateur investors who occasionally trade on the Internet at home or at work.
The state regulators hired an independent consultant, Ronald L. Johnson of Palm Harbor, Fla., to look at one firm -- All-Tech Investment Group. Barton shot his victims at All-Tech's Atlanta office and at another firm, Momentum Securities, which had an office across the street.
Johnson, who based his analysis on a sampling of accounts at All- Tech, concluded that 70 percent of all day traders will lose and "will almost certainly lose everything they invest. …