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Can Etrade be held liable?
- Thread starter kizzy
- Start date
Since you obviously didn't read your agreement when you opened your account, here it is for you with your personal paragraph copied. I just went to www.etrade.com, clicked on Forms and Applications, and then Legal & Authorization. You can look up the whole agreement if you like.
https://us.etrade.com/e/t/estation/help?id=1209031000
6. TRADING PROVISIONS
(g) Purchases
I promise to pay for all securities purchased in my Account by addition of the appropriate cash amount on or before Settlement Date. Except for conditional offers for the purchase of new issues, E*TRADE Securities reserves the right to require that my Account contain Available Funds in an amount equal to or greater than the purchase price of the securities prior to the trade date. I am responsible for my orders, including any order that may exceed my Available Funds, and I will not rely on E*TRADE Securities to reject orders that exceed my buying power. If full funds are not available in the Account and my order is processed, I must promptly deliver payment to E*TRADE Securities for receipt on or before the Settlement Date. If payment is not received by Settlement Date, or as market conditions warrant anytime before or after settlement, E*TRADE Securities may in its sole discretion liquidate and close out any and all Securities and/or Other Property in my Account to satisfy my payment obligation, without prior notice and without regard for any previous demand or agreement concerning the time for payment. In the event my Account is liquidated, I will be liable for any Losses incurred by E*TRADE Securities.
https://us.etrade.com/e/t/estation/help?id=1209031000
6. TRADING PROVISIONS
(g) Purchases
I promise to pay for all securities purchased in my Account by addition of the appropriate cash amount on or before Settlement Date. Except for conditional offers for the purchase of new issues, E*TRADE Securities reserves the right to require that my Account contain Available Funds in an amount equal to or greater than the purchase price of the securities prior to the trade date. I am responsible for my orders, including any order that may exceed my Available Funds, and I will not rely on E*TRADE Securities to reject orders that exceed my buying power. If full funds are not available in the Account and my order is processed, I must promptly deliver payment to E*TRADE Securities for receipt on or before the Settlement Date. If payment is not received by Settlement Date, or as market conditions warrant anytime before or after settlement, E*TRADE Securities may in its sole discretion liquidate and close out any and all Securities and/or Other Property in my Account to satisfy my payment obligation, without prior notice and without regard for any previous demand or agreement concerning the time for payment. In the event my Account is liquidated, I will be liable for any Losses incurred by E*TRADE Securities.
My goal is to merely analyze your case -- I'll leave the value judgments to others.
Different security instruments have different margin requirements -- most of which are set by the exchanges -- some, however, are set by the federal government. Your facts, if applied to some derivative security that permits very high margin levels, would preclude your claiming negligence, unless you could show that you were permitted to trade such instruments, even after you told Etrade in your account application that you were a novice trader.
But, assuming that you were trading, let's say, INTC, for example, you would ordinarily restricted to 50% purchase and 35% maintenance margin. If you could show that these margin levels were legally coerced by governmental regulations, and that Etrade clearly permitted you to trade far beyond these levels, then you would have a case for negligence.
Above, in this thread, "spreadgod" has kindly (or perhaps unkindly, but whatever) produced a copy of Etrade's standard release agreement. Such contractual legal terms may be enforceable against you. However, courts occasionally refuse to enforce such agreements for public policy reasons, which might be applicable here. You could argue that there is an overarching public policy in favor of protecting novice investors from deceived into churning their account so as to produce commissions to the brokerage house -- this is one of the reasons that the SEC exists. Additionally, courts may refuse to enforce on grounds of unconscionableness, i.e., terms and conditions which are the product of no opportunity for meaningful negotiation combined with unreasonably favorable terms benefiting one of the parties.
Both of these theories are within the "broad" (and I mean broad) discretion of the court, and not easily subjected to an appeal. NASD arbitrators are usually ex brokerage corporate attorneys, and they will not have a great deal of sympathy for your position -- certainly not of the type that would be available in a civil court.
What you have going against you, based on your posts is: (1) you claim to be an economist, therefore you are at least an educated fool (-; and (2) you have stated that you knew that you were being permitted to trade beyond the policy limits ordinarily available, and yet you continued to trade. This is a pretty good showing that you have some responsibility in this matter, and no decent judge would let you off the hook completely.
An arbitration award is appealable to an appellate court, so you can theoretically fight your way up the food chain. However, as you get higher up, the cost of attorneys increases, and pretty quick you will owe more in attorney fees than you likely lost in this trading fiasco -- which is what puts the brakes on most of these types of complaints -- until they are so prevalent that a class action is filed.
I don't know how much money is at stake, however, if it's a number that would likely interest a news media outlet, you could use that potential leverage to possibly obtain a settlement (or, you could say the wrong things and be arrested for extortion, but that's beyond the scope of our conversation).
I'm writing these long winded responses to try to impart a little knowledge to the community that things are not always as black and white as everyone would like them to be. I don't think that you have a particularly good case, unless you can show that Etrade is doing this practice for some fraudulent motive, such as trading against its own accounts and sucking them dry before they realize what's happened. But, as I said before, such proof is very hard to come by. As an economist, if I were convinced of this level of conspiracy, I would try to get hired by Etrade and then sort things out from the inside.
But, absent something really juicy to hang your hat on, you will probably be tilting at windmills with all of this.
Back in 1999, my business partner (in a non-trading related business) had a Datek account with like $3000 in it. He wanted to buy some IPO when it opened trading. He entered a market order using the web based interface, and didn't get a confirmation so he entered another market order but didn't get a confirmation on that one either. So he did this several more times and then gave up.
Then like 20 minutes later, confirmation e-mails started to arrive for all of those orders he had entered and he discovered that he was long like $50000+ of the stock. (Remember this was with a $3000 account.) This was a common mistake back then using web-based brokers.
The funny thing is though that my partner actually got filled at significantly lower prices than what the stock was trading at once the confirmations came in. He immediately sold all of it and made around $13,000 off of the mistake.
He was worried that he would get in trouble or that Datek would take his money away, but nothing ever came of it. He lost a little bit of the money he made over the next few weeks, and eventually decided to give up while he was still ahead so he quit trading and closed out his account, keeping most of the money he made from his lucky mistake.
Then like 20 minutes later, confirmation e-mails started to arrive for all of those orders he had entered and he discovered that he was long like $50000+ of the stock. (Remember this was with a $3000 account.) This was a common mistake back then using web-based brokers.
The funny thing is though that my partner actually got filled at significantly lower prices than what the stock was trading at once the confirmations came in. He immediately sold all of it and made around $13,000 off of the mistake.
He was worried that he would get in trouble or that Datek would take his money away, but nothing ever came of it. He lost a little bit of the money he made over the next few weeks, and eventually decided to give up while he was still ahead so he quit trading and closed out his account, keeping most of the money he made from his lucky mistake.
I think many people repeat soundbites they overheard about this case without knowing the facts, I'm sure there is bias in this account too but if you havent read this I invite you to read and judge for yourself: http://www.lectlaw.com/files/cur78.htm
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And after reading more MCD info;
stiil see a lack of personal buyer responsibility there ,
and dont know any one who likes luke warm coffee.
You are correct that it was unkindly posted, only due to the fact that his complaint has nothing to do with him borrowing money, but that he lost money on his inept trading abilities. As you can see, it can go the other way.
Regardless, either account would have been given a Fed Call for the amount of bought securities the customer couldn't pay for. E-Trade and Datek, respectively, still have to settle the trades by settlement date and they pay for them OUT OF THEIR OWN POCKET. Yes, I say pocket because a lot of investors seem to think that just because it's a corporation, they can afford to front the money. In case people forget, this is the whole reason of the Crash of 1929 and the EXACT reason the Securities Act was written and the SEC created. It is the Federal Reserve that stipulates the amount of money that firms are allowed to loan out to customers. It's to protect the firms' solvency, NOT protecting the customer from himself. This whole complaint is akin to a borrower trying to default on his mortgage because he can't afford it, and trying to say it's the bank's fault for approving him for the mortgage in the first place.
So the firms lent their money. kizzy lost money, and E-Trade wants their money back (if the account is closed out and is still owed money, which it sounds like). GTG's partner made money, was given a Fed Call, but closed out the account at a profit. His firm was paid the money they lent by the customer selling and he actually made money with borrowed funds. Also, if he didn't sell they would have sold the position anyways to pay for the call. Maybe that's what happened to kizzy.
You seem awfully angry. Anyway:
The crash of 1929 was caused by the combination of the consolidation of financial power, i.e., money, in the accounts of a very few members of society (robber barons), and the simultaneous action by the Federal Reserve, in restricting the money supply, such that the spending power of those who actually produced the goods and services, was squeezed into near nonexistence (Hoover misunderstood how the market worked, and the political policies of the time, fed into constricting the money supply). When the individual couldn't spend, the economy stopped, and collapsed inward on itself (it had a complete blockage of the left main coronary artery). What followed was a decade of slowly relaxing the money supply and imposing antitrust laws so as to prevent any future fatal constrictions in the market.
The SEC regulations were (and are) intended to prevent investors, both big and small, from being destroyed financially in the event of a wide and fast swing in market prices, as a consequence of overleveraging themselves. Preventing such destruction benefits both the investor and the investment house, because, when many investors are harmed or frightened in a short period, they may all stop investing, and that will, once again, cause a coronary blockage in the economy.
So, kizzy has a theoretical case against Etrade for negligence, if he can prove that Etrade's system permitted him to leverage his account far beyond the public policy purpose intended by Congress and the SEC.
It's not a very good case, because kizzy isn't some single mom from Arkansas, who was sucked into opening an orange juice futures put, by a hungry commodities broker who owes money to his ex-wife for child and spousal support and who is about to be imprisoned for failure to pay.
But, it's a potential case, nevertheless and my job is to find cases -- so I found one for him. You may not like it because it offends your sense of personal responsibility, but I don't make value judgments about what a prospective client may need, unless the issue concerns an imminent likelihood of substantial bodily harm and/or death, or substantial financial injury due to future fraudulent or reckless behavior. For those narrow cases, I have a duty to advocate a more lawful course, and in some very narrow instances, to report unlawful behavior to the authorities or the court.
Otherwise, I just find the applicable legal theory, tell the client how much I charge, and then, if he/she accepts, I write the pleading and let the machinery of justice inexorably turn towards resolution.
Yes, I know I can come across a bit angry when it comes to the anti-responsibility generation and I wasn't meaning it to be directed towards you. As a licensed professional, I also sometimes forget what it's like to be a retail investor attempting to trade online on their own, without understanding all the rules.
Since we have this dialougue, do you think there should be a different set of standards for an investor who is placing a trade by themselves online versus placing a trade with a registered representative?