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In Focus
September 30, 2002
sing margin loans to buy stocks is a high-risk gamble. Just look at what the SEC says about it at http://www.sec.gov/investor/pubs/margin.htm.
As a result of this high risk, brokerage firms ordinarily cannot "rubber-stamp" approve margin accounts for customers. Firms must conduct some due diligence to determine a customer's financial wherewithal to sustain the adverse effects of using margin.
However, a recent New York Times article casts doubt upon the sufficiency of the margin approval process. The article contends that Salomon Smith Barney in particular became much more lax in approving margin accounts during the technology bubble. Salomon Smith Barney formerly had three pre-approval levels that margin loans had to go through in which compliance employees considered suitability. But during the bubble, margin loans reportedly were processed without any questions.
Fuel to the fire.
— James J. Eccleston
FinancialCounsel.com
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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.
All content Copyright © 2008 Advocate Capital Management, Inc. except where noted. All rights reserved.
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