Earlier this week, OUT-LAW.COM reported that an arbitration
panel ordered E*Trade to pay $38,000 to another aggrieved investor
in respect of a misstated share price.
According to the latest decision, the customer placed a market
order in his margin account for the purchase of 5,000 shares in
theglobe.com shortly before the market opened on 13th November
1998. Theglobe.com was not priced because that day was the first
day of its public trading.
The customer claimed that E*Trade had represented that it would
not allow a purchase unless the customer had sufficient buying
power in his margin account to cover the purchase.
Theglobe.com’s opening was delayed for approximately 2 hours due
to tremendous demand for the stock. An E*Trade trader estimated
that the price of the shares would be no more than $27 each.
However, the customer argued that E*Trade should have assumed a far
higher price due to market indications.
In fact, theglobe.com opened at $90.00 per share. The customer's
order was filled in an amount almost three times his margin account
purchasing power. The stock promptly fell in price.
The customer argued that E*Trade had a duty to know that the
theglobe.com order was well above his financial means. E*Trade
asserted that it was unable to review this customer's order given
the extreme demand that theglobe.com presented on November 13,
1998. The customer countered that lack of capacity to appropriately
review orders is no defense.
The lawyer for the customer, James Eccleston, proclaimed the
award as a great victory for investors and for full service
stockbrokers. He said:
"This award reaffirms that on-line brokerage
firms such as E*Trade Securities have greater customer protection
responsibilities under the securities laws than simply to execute
trades in return for lucrative payment for order flow and margin
interest.”
Regarding stockbrokers, Eccleston said, “The E*Trade advertising
campaign has mocked the important role that many stockbrokers play
in serving investors. This case likely never would have happened
had a stockbroker been present.”
