Press Releases

Attorney General's Page

Tour the AG's Office

Contact the AG's Office

Links to Other Sites



Privacy Policy


 |  Press Releases

Department of Law
120 Broadway
New York, NY 10271
Department of Law
The State Capitol
Albany, NY 12224
Monday, November 22, 1999

Spitzer and the Securities Industry Cooperate on Efforts to Inform Consumers

Attorney General Eliot Spitzer today released the results of a nine-month investigation into the online trading industry, and announced a cooperative venture with the industry to help inform consumers about the risks of trading over the Internet.

"Over the past few years, online trading has revolutionized the investment world, merging Wall Street and the home office for millions of consumers," said Spitzer. "With this new technology comes the need for new ‘rules of the road' for both investors and brokerage firms. As we're constantly finding, the information superhighway can be filled with potholes for the unsuspecting, unprepared or uninformed."

As a result of the investigation, Spitzer said the Securities Industry Association (SIA) will spend $500,000 on a public campaign to educate current and potential online investors about both the benefits and pitfalls of online trading. The campaign will include full-page newspaper advertisements and educational materials that will be jointly produced by the industry and Spitzer's office. The materials will be available in public libraries and on websites.

The Attorney General's investigation, which was prompted by numerous consumer complaints earlier this year, examined the practices of seven online brokerage firms and three other industry participants. The Attorney General's staff reviewed over 120,000 pages of documents and visited sites in five states. The investigation focused on the areas of disclosure, oversight, advertising and public education. As part of his job, Spitzer has both investor protection and consumer protection responsibilities.

In addition to the consumer education component, the 200-page report calls for increased disclosure by online firms in such areas as technology performance (including slowdowns and outages), customer services, and technology development so that consumers can make appropriate comparisons among firms when it comes to capacity, trade execution, and service.

Spitzer said that oversight for such changes and disclosure could be considered by the Securities and Exchange Commission (SEC), or self-regulatory bodies like the New York Stock Exchange (NYSE) and National Association of Securities Dealers (NASD).

Spitzer said that although many of the technological problems that plagued the industry earlier this year have been remedied, the continuing explosive growth in online investing demands that firms continually update, test and improve their technology to prevent problems in the future.

Spitzer also called for online firms to be more forthright in their advertising: "If you were to believe all the online advertising today, you would get the impression that investors have access to both instant trades and instant wealth, neither of which is true," he said.

Based on his findings, Spitzer is also providing consumers with advice regarding the online brokerage industry, including the following:

  • Making sound investment decisions requires much more than the click of a mouse; nothing can substitute for good old fashioned research and education;
  • Placing a trade via computer is not the same as executing the trade. The technology is not instantaneous, and a trade still has to go through many steps;
  • Cheap, easy and frequent trading does not equal successful trading. Trading over and over may be a good strategy for some, but for most, making long-term, sound investments is still the best advice;
  • Speed, access, and reliability of online services is dependent on system availability and will inevitably be subject to occasional delays;
  • Contrary to some claims, online investors are not directly connected to the market. Online trading gives the investor the opportunity to place a trade that previously had to be done by a broker, and;
  • Trading fees can be more complicated and expensive then they appear. Investors must read the fine print to see the cost of the trades they anticipate making.

"There is no question that online trading is here to stay and that's its dramatic growth will continue," said Spitzer. "We believe that the online brokerage industry can yield tremendous benefits for all participants -- investors, the corporate community, and the firms themselves -- but the industry must be responsive to the legitimate concerns of consumers.

"My office will continue to work with and monitor the industry to ensure that investors are adequately informed and protected. By doing so, we hope to smooth out as many rough spots as possible on this section of the information superhighway."

Spitzer added that if the guidelines and oversight recommendations contained in the report are inadequate, or go unheeded, and problems continue in the areas of disclosure, advertising, and system capacity and support, he reserves the right to consider more serious remedies to ensure that consumers have the knowledge and protection they need to safely trade online.

The investigation was conducted by the Attorney General's Investor Protection Bureau, headed by Eric Dinallo, and the Internet Bureau, headed by Caitlin Halligan. Assistant Attorneys General William Mohr, Jean Marie Cho and Joel Michael Schwarz worked on the investigation and contributed to the report.


Executive Summary (PDF)(38K)
Full Text (PDF) (410K)