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NY to probe Net brokers
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February 4, 1999: 4:23 p.m. ET
Attorney General Spitzer's inquiry comes as E-Trade battles second day of glitches
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NEW YORK (CNNfn) - New York State Attorney General Eliot Spitzer said Thursday he will launch a probe of online brokerage firms because his office has received dozens of complaints about delays and glitches in cyberspace trading.
The announcement from Spitzer comes as E*Trade Group (EGRP), one of the nation's best-known online brokers, suffered its second outage in as many days.
E*Trade spokesperson Lisa Nash said the glitch was similar to Wednesday's, which involved a software upgrade that caused unexpected tie-ups. Thursday's problem lasted from about 10 a.m. ET to around 12:45 p.m., and affected 40 to 50 percent of those who tried to make stock trades in that span.
That is just the type of problem cited by Spitzer for the launch of his office's inquiry.
"We are hearing from consumers who are saying 'I called in an order, I placed an order online, and it wasn't executed timely,' and as a result they lost money," said Spitzer, during an interview with CNNfn Thursday.
He said an inquiry is needed to head off such problems in an industry growing at a fast pace. "Consumers need to know who is liable when an order is placed and there is not a prompt execution," Spitzer said.
Internet trading on the rise
Investors funneled a record 340,000 trades a day through the Internet in the fourth quarter, up 38 percent from the third quarter, and trading volume in January is rising at the same clip, according to industry reports.
About one in seven stock trades now takes place online. Internet brokers have signed up some 7 million customers, and many expect that number to rise to more than 10 million by year's end.
The surge in Internet trading, however, has led to many system outages at brokers, frustrating many investors.
Aside from E*Trade, rivals Charles Schwab Corp. (SCH), and AmeriTrade Holding Corp. (AMTD) all have reported outages and software woes recently.
Shares of the E*Trade lost 1-3/4 to 53-1/2 Charles Schwab fell 1-11/16 to 66-5/16, and Ameritrade plunged 17-13/16 to 110-3/4 on Thursday.
But some of the relative newcomers in the online brokerage industry fared well, including broker J.B. Oxford (JBOH), climbing 3-7/8 to 15-7/8 and M.H. Meyerson (MHMY) up 4-15/16 to 12-3/8.
SEC warns investors
The glitches already have attracted the attention of regulators, prompting Securities and Exchange Commission Chairman Arthur Levitt to warn cyberspace investors that they can end up paying more for a stock than they thought because of system delays and Internet shares' wild price swings.
Stocks such as those of Internet media company Yahoo! Inc (YHOO) can gain or lose tens of dollars in the space of an hour.
Spitzer's office said it sent letters to several online brokers, asking them to provide information about their services. A spokesman wasn't immediately available to name the firms subject to the inquiry.
-- from staff and wire reports
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