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Regulators Target Web Traders

May 1, 2000

WASHINGTON (AP) _ Fourteen online trading firms or individuals have agreed to stop making claims that the trading strategies and systems they sell can bring investors easy money with little risk, federal regulators said Monday.

The Federal Trade Commission, the Commodity Futures Trading Commission and the Securities and Exchange Commission announced settlements with the firms in which they agreed to drop unsubstantiated claims of profits.

The federal agencies also warned consumers to be wary of false and misleading claims on Web sites touting trading strategies or systems.

``The Internet provides many benefits to the investing public, but it can also provide a means for some Web operators to make misleading or fraudulent claims about their investment strategies,″ said William Rainer, chairman of the commodities oversight agency. ``Today’s actions ... should help remind consumers to be very skeptical when someone promises amazing investment profits with little or no risk.″

The firms neither admitted to nor denied wrongdoing in the settlements with the three agencies.

The 11 firms or individuals cited by the CFTC for alleged fraudulent promotion of computerized trading systems and advisory services for commodities such as foreign currencies also agreed to pay civil fines of $10,000 each. The fines will be waived, however, if a firm can demonstrate it is unable to pay.

The three firms named by the Federal Trade Commission provide strategies for day trading, in which investors make bets on the tiniest changes in stock prices, squeezing profits by rapidly buying and selling shares electronically.

The online firms _ CompuTrade LLC, Granite Investments (also named by the CFTC) and Day Trading International of Kirksville, Mo. _ sold combinations of ``real time″ training, computer software programs, trading manuals, e-mail newsletters and mentoring services at prices from $79 to $4,995, the FTC said.

They made advertising claims such as ″... Make money regardless of the market going up or down″ and returns on investments of 2,041 percent, the agency said.

Under the settlements with the FTC, which have been approved by the agency’s commissioners but must be put out for 30 days of public comment before final adoption, the three firms must include this sentence in all future advertising: ``DAY TRADING involves high risks and YOU can LOSE a lot of money.″

``People who push day-trading systems or services as a sure way to make money are peddling pipe dreams,″ said Jodie Bernstein, director of the FTC’s Bureau of Consumer Protection. ``Day trading is a high-risk venture that’s likely to leave investors high and dry.″

The Securities and Exchange Commission announced a settlement of civil fraud charges against Robert Garganese and his online company, Genesis Trading, for allegedly using false and misleading advertising to lure day traders to his stock-picking service. Garganese is serving a one-year prison term for money laundering and telemarketing fraud, the SEC said.

Garganese and the company, without admitting or denying wrongdoing, agreed to refrain from future violations of securities laws and to publicize the SEC’s order to current and potential customers for a year.

The SEC and state securities regulators have warned investors about the risks of day trading, saying that some day-trading firms have misled customers by promising them quick riches and making improper loans to keep them trading.

An analysis commissioned by the group representing state regulators, released last summer, concluded that some 70 percent of all day traders end up losing money.

The day-trading industry has defended its practices, maintaining that most day traders can make money after six months or so.

The 11 firms and individuals cited by the CFTC are Oasis Publishing Corp., Mohammed Najib Taybi, John B. Reily, Paul Judd International Corp., First Financial Trading, Christopher Fernwick, R.S. of Houston Workshop, New Age Trading Techniques, Global Futures Exchange & Trading Co., Trendy Systems LLC and Granite Investments.


On the Net: Federal Trade Commission Web page on day trading: www.ftc.gov/bcp/conline/edcam/daytrade.

Securities and Exchange Commission page: www.sec.gov/consumer/daytips.htm.

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