NASD Regulation Fines All-Tech, Houtkin, and Other Execs $380,000 for Day Trading and Advertising Violations; Suspends Individuals
Nancy A. Condon
Washington, D.C.— NASD Regulation, Inc., today announced that it censured and fined All-Tech Direct, Inc., of Montvale, NJ, $250,000; and fined and suspended Harvey I. Houtkin, Chairman and CEO; Mark D. Shefts, President; and Harry Lefkowitz, Vice President of Operations for violating NASD rules in connection with All-Tech's day trading business. The Securities and Exchange Commission also announced settlements with All-Tech, Shefts and Lefkowitz at the same time.
In settling this case, All-Tech, Houtkin, Shefts and Lefkowitz neither admitted nor denied NASD Regulation's findings. The charges were contained in a complaint originally filed in July 2000.
NASD Regulation found that All-Tech, Shefts and Lefkowitz failed to supervise the activities of employees who routinely arranged loans between customers. The loans, known as "journaling," enabled customers to meet margin calls, allowing them to continue trading. NASD Regulation found that All-Tech employees misrepresented the risks associated with the loans by telling customers the loans were basically guaranteed with virtually no risk. While the journaling occurred nationwide, NASD Regulation focused on five branches and found that, in those five branches, from January 1998 to January 1999, over 4,800 journals were recorded, transferring over $130 million in loans between customer accounts. At times, non-registered persons arranged loans between customers who were located at different branches and did not know each other. In a number of instances, the interest to be paid by the borrowing customer to the lending customer was set at an excessive rate. Hundreds of journal forms lacked signatures or included photocopied signatures. On some of the forms non-registered persons signed as branch managers, while on others, traders signed without full authority.
NASD Regulation also found that All-Tech and Houtkin made statements which were misleading, unwarranted or without a sound basis in a number of print and radio advertisements, on the firm's Web site, during television appearances and in a book that was given out by the firm as sales literature. The statements included:
- "Most of my customers have enjoyed successes virtually unheard of in the trading community."
- "[A]nyone with the financial capability and desire has the opportunity to participate in the market with the same advantages as a market making pro."
- "If you meet parameters set forth in this guide…your probability of success will be exceptionally high."
- "Electronic Day Trading appeals to executives, retirees, graduating college students and anyone who recognizes the unlimited earnings potential and quality of life which an Electronic Day Trader may achieve."
- "Perhaps three in ten" and "four in ten" people trained as day traders will become successful.
NASD Regulation also found that All-Tech, Houtkin and Shefts violated NASD rules by permitting a statutorily disqualified person to participate actively in the firm's securities-related activities, even though he had been barred from the securities industry by the SEC in 1988. NASD Regulation further found that the firm, Houtkin and Shefts violated NASD rules by failing to properly register an individual who assisted in the management of two All-Tech branch offices, held himself out as a broker, and made recommendations to customers.
In addition to the $250,000 fine, All-Tech was also ordered to retain an outside consultant to review and make recommendations concerning the firm's policies and procedures as they relate to the matters covered by the settlement. Houtkin was fined $50,000, suspended from associating with any NASD member in all capacities for 15 days and suspended as a principal and supervisor for 105 days. Shefts was fined $50,000, suspended from associating with any NASD member in all capacities for 30 days and suspended as a principal and supervisor for 90 days. Lefkowitz was fined $20,000, suspended from associating with any NASD member in all capacities for 60 days and suspended as a principal and supervisor for 60 days.
NASD Regulation previously settled with the three other respondents named in the case. Jeffrey Sadowski was barred from associating with any NASD member, Michael Benson was suspended from associating with any NASD member for 30 days and fined $5,000 and David Niederkrome was suspended from associating with any NASD member for 10 days and fined $5,000.
The investigation leading up to this action was conducted by NASD Regulation's Enforcement Department with assistance from the Advertising Regulation Department. NASD Regulation thanked the SEC for its assistance with this case.
Investors can obtain more information about NASD Regulation as well as the disciplinary record of any NASD-registered broker or brokerage firm by calling (800) 289-9999, or by sending an e-mail through NASD Regulation's Web site.
The National Association of Securities Dealers, Inc., is the largest securities-industry, self-regulatory organization in the United States. It is the parent organization of NASD Regulation, Inc., the American Stock Exchange, LLC; and NASD Dispute Resolution, Inc. For more information about the NASD and its subsidiaries, please visit the following Web Sites: www.nasd.com and www.amex.com.