SEC sues online day-trading firms

The Securities and Exchange Commission today sued two day-trading firms and charged them with lending too much money to their respective customers.
The SEC sued All-Tech Direct Inc. and seven people connected with the Montvale, N.J.-based day-trading company. The SEC claims that the seven people made 103 unsecured loans to help customers meet margin calls totaling more than $3.6 million. All-Tech Direct is contesting the charges.
Day-trading firms specialize in executing trades for so-called day traders by providing trading facilities equipped with computers and specialized software that allows customers to rapidly enter stock orders directly with market centers such as Nasdaq Stock Market Inc.
The SEC also reached a settlement with Miami-based Investment Street Co. The SEC charged the company had allowed day traders to continue trading despite their lack of funds to meet margin requirements between November 1997 and March 1999. Investment Street didn't admit or deny any wrongdoing in the case under the terms of the settlement.
The SEC claimed that one of Investment Street's directors, Emilio Sardi, and its president, Javier Saenz, made at least 22 unsecured loans to customers to help them meet margin calls totaling $250,000.
A margin call occurs when a customer who has been trading stocks on borrowed money, or a margin, has suffered a loss. If the loss lowers a trader's net worth below the limit required by the brokerage or regulators, the brokerage makes a margin call to the customer by asking them to sell stock or come up with additional money to cover the losses.
In its settlement, Investment Street agreed to cease-and-desist orders and undisclosed civil fines.