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E*Trade Securities Ordered to Compensate Investors for Losses
A National Association of Securities Dealers (NASD) arbitration panel awarded $203,333 to a customer of E*Trade Securities, as full reimbursement for his trading losses suffered in purchasing theglobe.com (TGLO).
Order Mishandling and Misrepresentations Regarding Margin Account Purchasing Power
The customer placed a market order in his margin account for the purchase of 5,000 shares of TGLO shortly before the market opened on November 13, 1998. TGLO was not priced because that day was the first day of its public trading.
The customer claimed that E*Trade had represented that it would not allow a purchase unless the customer had sufficient buying power in his margin account to cover the purchase.
TGLO's opening was delayed for approximately 2 hours due to tremendous demand for the stock. An E*Trade trader estimated that the price of TGLO would be no more than $27 per share. However, the customer argued that E*Trade should have assumed a far higher price due to market indications.
In fact, TGLO opened at $90.00 per share. The customer's order was filled in an amount almost three times his margin account purchasing power. The stock promptly fell in price.
Failure to Know Customer and the TGLO Order
The customer argued that E*Trade had a duty to know that the TGLO order was well above his financial means. E*Trade asserted that it was unable to review this customer's order given the extreme demand that TGLO presented on November 13, 1998. The customer countered that lack of capacity to appropriately review orders is no defense.
[Ed. Note: Eccleston & Associates, which sponsors www.fiancialcounsel.com, obtained the award.]
Source: Various, including Wall Street Journal, October 24, 2000, Chicago Tribune, October 29, 2000, and Chicago Sun - Times, October 27, 2000
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Sponsored by James J. Eccleston, an attorney representing stockbrokers, financial planners and
investors nationwide in arbitration, litigation and regulatory matters, and a shareholder with the law firm
Shaheen, Novoselsky, Staat, Filipowski & Eccleston
P.C.(www.snsfe-law.com). This Web site contains material
of general interest. It is neither intended to, nor constitutes, either legal advice or investment advice.
Always consult an attorney and/or investment advisor when building and protecting your wealth.
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