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SEC sanctions online broker
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May 18, 1999: 7:25 p.m. ET
Datek Online and ex-CFO settle charges of financial impropriety, mingling funds
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NEW YORK (CNNfn) - In its first enforcement action against an online brokerage, the Securities and Exchange Commission Tuesday sanctioned Datek Online Brokerage and its former chief financial officer Tuesday for various financial improprieties, including mixing customers' money with Datek's own.
The Iselin, N.J. brokerage failed to segregate clients' money and kept shoddy records, the SEC said. It filed a false financial report in April 1998, the SEC said, and during that spring used clients' funds to pay its own expenses 12 times. The commission said it uncovered the violations during a regular inspection.
Datek repaid the money to clients accounts "relatively quickly," according to Henry Klehm, the SEC's investigator on the case. "Nobody lost any money here."
Klehm said the problems stemmed from operational growing pains as its business boomed. "They had to finance that growth, which was expanding in leaps and bounds."
Datek grew from around 150 employees at the time of the irregularities noted by the SEC to close to 500 now. It is the fourth-largest online brokerage, behind Charles Schwab, TD Waterhouse Securities and E*Trade. It is privately held.
The SEC also sanctioned Moishe Zelcer, who resigned as CFO and financial operations principal of the brokerage last July. "He realized he was not up to the job as we uncovered these variety of errors," said Rob Bethge, chief marketing officer for the online brokerage's parent, Datek Online Holdings.
Zelcer could not be reached immediately for comment. Neither Datek nor Zelcer admitted or denied the SEC's findings in the settlement. But Zelcer agreed to pay a fine of $10,000 and to stay out of the securities industry for 90 days.
Datek agreed to a $50,000 fine and said it would bring in an outside consultant to monitor its internal operations. It is finalizing its selection from three candidates the SEC recommended.
Datek has cooperated with the SEC to bolster the way it operates, Bethge said. "Over the course of the past year, we've made major strides in the operations side of the business." The brokerage has brought in close to 20 management professionals, he said.
-- by staff writer Alex Frew McMillan
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