```

[Senate Hearing 106-505]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 106-505

 
              DAY TRADING: EVERYONE GAMBLES BUT THE HOUSE

=======================================================================

                                HEARINGS

                               before the

                               PERMANENT
                     SUBCOMMITTEE ON INVESTIGATIONS

                                 of the

                              COMMITTEE ON
                          GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION

                               __________

                        FEBRUARY 24 AND 25, 2000

                               __________

      Printed for the use of the Committee on Governmental Affairs

                               

                    U.S. GOVERNMENT PRINTING OFFICE
64-133 cc                   WASHINGTON : 2000
_______________________________________________________________________
For sale by the Superintendent of Documents, Congressional Sales Office
         U.S. Government Printing Office, Washington, DC 20402

                   COMMITTEE ON GOVERNMENTAL AFFAIRS

                   FRED THOMPSON, Tennessee, Chairman
WILLIAM V. ROTH, Jr., Delaware       JOSEPH I. LIEBERMAN, Connecticut
TED STEVENS, Alaska                  CARL LEVIN, Michigan
SUSAN M. COLLINS, Maine              DANIEL K. AKAKA, Hawaii
GEORGE V. VOINOVICH, Ohio            RICHARD J. DURBIN, Illinois
PETE V. DOMENICI, New Mexico         ROBERT G. TORRICELLI, New Jersey
THAD COCHRAN, Mississippi            MAX CLELAND, Georgia
ARLEN SPECTER, Pennsylvania          JOHN EDWARDS, North Carolina
JUDD GREGG, New Hampshire
             Hannah S. Sistare, Staff Director and Counsel
      Joyce A. Rechtschaffen, Minority Staff Director and Counsel
                 Darla D. Cassell, Administrative Clerk

                                 ------                                

                PERMANENT SUBCOMMITTEE ON INVESTIGATIONS

                   SUSAN M. COLLINS, Maine, Chairman
WILLIAM V. ROTH, Jr., Delaware       CARL LEVIN, Michigan
TED STEVENS, Alaska                  DANIEL K. AKAKA, Hawaii
GEORGE V. VOINOVICH, Ohio            RICHARD J. DURBIN, Illinois
PETE V. DOMENICI, New Mexico         MAX CLELAND, Georgia
THAD COCHRAN, Mississippi            JOHN EDWARDS, North Carolina
ARLEN SPECTER, Pennsylvania
          K. Lee Blalack, II, Chief Counsel and Staff Director
      Linda J. Gustitus, Minority Chief Counsel and Staff Director
                     Mary D. Robertson, Chief Clerk

                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Collins.............................................. 1, 67
    Senator Levin................................................ 4, 68
    Senator Durbin...............................................    10
Prepared statement:
    Senator Akaka................................................   121

                               WITNESSES
                      Thursday, February 24, 2000

Deborah M. Field, Counsel, Permanent Subcommittee on 
  Investigations, on detail from the Securities and Exchange 
  Commission.....................................................     6
Alyce Wenzel, Mother of Scott Webb, former day trader who was 
  shot by Mark Barton in the Atlanta Office of Momentum 
  Securities, Huntley, Illinois..................................    12
Steve Buchwalter, Attorney for Amy Le, former customer of 
  Providential Securities, Encino, California....................    14
Carmen Margala, former customer of All-Tech Direct, Oceanside, 
  California.....................................................    17
Sandra Harlacher, former customer of All-Tech Direct, Solana 
  Beach, California..............................................    18
Justin Hoehn, Branch Manager, Momentum Securities, Atlanta, 
  Georgia........................................................    32
Fred Zayas, former Branch Manager, All-Tech Direct, Watertown, 
  Massachusetts..................................................    32
Barry Parish, former Branch Manager, All-Tech Direct, San Diego, 
  California.....................................................    32
Huan Van Cao, day trader at Providential Securities, Fountain 
  Valley, California.............................................    33

                       Friday, February 25, 2000

Lori A. Richards, Director, Office of Compliance, Inspections and 
  Examinations, Securities and Exchange Commission, Washington, 
  DC.............................................................    70
Barry R. Goldsmith, Executive Vice President, Enforcement, NASD 
  Regulation, Inc., Washington, DC...............................    72
Deborah R. Bortner, Director, Securities Division, Washington 
  State Department of Financial Institutions, Olympia, Washington    75
Harvey I. Houtkin, Chief Executive Officer, All-Tech Direct, 
  Montvale, New Jersey...........................................    91
Henry D. Fahman, President and Chief Executive Officer, 
  Providential Securities, Fountain Valley, California...........    94
James H. Lee, President, Momentum Securities, Houston, Texas.....    96

                     Alphabetical List of Witnesses

Bortner, Deborah R.:
    Testimony....................................................    75
    Prepared statement...........................................   206
Buchwalter, Steve:
    Testimony....................................................    14
    Prepared statement...........................................   128
Cao, Huan Van:
    Testimony....................................................    33
Fahman, Henry D.:
    Testimony....................................................    94
Field, Deborah M.:
    Testimony....................................................     6
    Prepared statement...........................................   122
Goldsmith, Barry R.:
    Testimony....................................................    72
    Prepared statement...........................................   179
Harlacher Sandra:
    Testimony....................................................    18
    Prepared statement...........................................   133
Hoehn, Justin:
    Testimony....................................................    32
Houtkin, Harvey I.:
    Testimony....................................................    91
Lee, James H.:
    Testimony....................................................    96
    Prepared statement with attachments..........................   212
Margala, Carmen:
    Testimony....................................................    17
    Prepared statement...........................................   131
Parish, Barry:
    Testimony....................................................    32
    Prepared statement with attachments..........................   135
Richards, Lori A.:
    Testimony....................................................    70
    Prepared statement with an attachment........................   174
Wenzel, Alyce:
    Testimony....................................................    12
    Prepared statement...........................................   126
Zayas, Fred:
    Testimony....................................................    32

                                Exhibits

                                                                   Page
* May Be Found In The Files of the Subcommittee

 1. GAdvertisements of On-Site Trading, Inc......................   242

 2. GLetter from Frank van der Lugt, Medipoint Data Systems, to 
  K. Lee Blalack, II, Chief Counsel and Staff Director for the 
  Permanent Subcommittee on Investigations, and Linda J. 
  Gustitus, Minority Chief Counsel and Staff Director for the 
  Permanent Subcommittee on Investigations, September 17, 1999...   244

 3. GLetter from Louis Russo, Taking Profits Publishing, to the 
  Permanent Subcommittee on Investigations staff, September 20, 
  1999...........................................................   247

 4. GLetter from Richard Kane, Coastal Technologies Group, to K. 
  Lee Blalack, II, Chief Counsel and Staff Director for the 
  Permanent Subcommittee on Investigations, September 9, 1999....   248

 5. GLetter from Kathy K. Cregan, CFO, 1800RETIREMNOW.com, Inc., 
  to Eileen Fisher, Investigator for the Permanent Subcommittee 
  on Investigations, November 10, 1999...........................   249

 6. G``Copies of Trades Made During the Live Course,'' Precision 
  Management Group, Inc..........................................   251

 7. GLetter from Brian Zavodnik, WinningDayTraders, to K. Lee 
  Blalack, II, Chief Counsel and Staff Director for the Permanent 
  Subcommittee on Investigations, undated........................   262

 8. GLetter from Ralph S. Janvey, Counsel for RML Trading, Inc., 
  to K. Lee Blalack, II, Chief Counsel and Staff Director for the 
  Permanent Subcommittee on Investigations, and Linda J. 
  Gustitus, Minority Chief Counsel and Staff Director for the 
  Permanent Subcommittee on Investigations, September 29, 1999...   267

 9. GNASAA Press Release, `` `Day trading' craze should give 
  investors pause, state securities regulators warn,'' November 
  25, 1998.......................................................   270

10. GArthur Levitt, Jr., U.S. Securities and Exchange Commission 
  Chairman, ``Plain Talk About On-Line Investing,'' speech to the 
  National Press Club, May 4, 1999...............................   272

11. GSyllabus, ``Professional Traders Group, Training Seminar,'' 
  January 4, 1999-January 29, 1999...............................   278

12. GInsider Trading Inc., Training Manual, ``Teachdaq School of 
  Stock Market Training: Day Trading 301,'' at Review Trading 
  Rules [selected pages reprinted in hearing record--full exhibit 
  retained in the files of the Subcommittee].....................   280

13. GOn-Site Trading, Inc., ``Introduction To Trading'' Training 
  Manual [selected pages reprinted in hearing record--full 
  exhibit retained in the files of the Subcommittee].............   283

14. GTraining Manual, ``Trading Psychology,'' The Stockcam 
  Institute, Inc. [selected pages reprinted in hearing record--
  full exhibit retained in the files of the Subcommittee]........   291

15. GAll-Tech's Boca Raton ``Branch Office Survey,'' June 22-24, 
  1997...........................................................   296

16. GAll-Tech's Seattle ``Branch Office Survey,'' June 5, 1997...   302

17. GAll-Tech's Chicago ``Branch Office Survey,'' June 4, 1997...   308

18. GLetter from Susan H. Tregub, Counsel for Hahna Global 
  Securities, to Wesley M. Phillips, Investigator for the 
  Permanent Subcommittee on Investigations, December 3, 1999.....   314

19. GLetter from Laurence Briggs, Chief Executive Officer, 
  InvestIn.com Securities Corp., to K. Lee Blalack, II, Chief 
  Counsel and Staff Director for the Permanent Subcommittee on 
  Investigations, and Linda J. Gustitus, Minority Chief Counsel 
  and Staff Director for the Permanent Subcommittee on 
  Investigations, November 18, 1999..............................   327

20. GTradescape's ``Trader Performance Analysis,'' January-June 
  1999...........................................................   338

21. G``Trader Statistics,'' www.broadwaytrading.com..............   340

22. GSEALED EXHIBIT: Broadway Trading, Inc., Profitability Data 
  for 1998.......................................................     *

23. GSecurities Division, Washington State Department of 
  Financial Institutions, Report to the United States Senate 
  Permanent Subcommittee on Investigations: ``Day Trading 
  Practices in Washington State, September-November 1999,'' 
  February 10, 2000..............................................   365

24. GLetter from David Laurent, Chief Operating Officer, Andover 
  Brokerage, LLC, to K. Lee Blalack, II, Chief Counsel and Staff 
  Director for the Permanent Subcommittee on Investigations, 
  November 15, 1999..............................................   395

25. GGeneric letter from Harvey Houtkin, undated.................   397

26. GLetter from Stephanie Rosenblatt, Esq., Counsel for All-
  Tech, to K. Lee Blalack, II, Chief Counsel and Staff Director 
  for the Permanent Subcommittee on Investigations, and Linda J. 
  Gustitus, Minority Chief Counsel and Staff Director for the 
  Permanent Subcommittee on Investigations, November 12, 1999....   398

27. GLetter from Stephanie Rosenblatt, Esq., Counsel for All-
  Tech, to K. Lee Blalack, II, Chief Counsel and Staff Director 
  for the Permanent Subcommittee on Investigations, and Linda J. 
  Gustitus, Minority Chief Counsel and Staff Director for the 
  Permanent Subcommittee on Investigations, January 20, 2000.....   414

28. GAll Tech Investment Group Corporate Organization Chart, 
  August 16, 1999................................................   416

29. GHarvey I. Houtkin, CRD No. 251066...........................   417

30. GMark D. Shefts, CRD No. 709147..............................   444

31. GIn re: All-Tech Investment Group, Inc. and Mark Sheets 
  [sic], 1990 N.J. Sec. LEXIS 171, (No Number in Original), June 
  25, 1990.......................................................   496

32. GIn re: Domestic Securities, Incorporated, 1989 N.J. Sec. 
  LEXIS 404, (No Number in Original), April 25, 1989.............   498

33. GIn re: Domestic Securities, Incorporate and Harvey I. 
  Houtkin, 1990 N.J. Sec. LEXIS 170, OAL Docket No. BOS 03957-89, 
  June 26, 1990..................................................   516

34. GRe: Approval of the pending application for registration of 
  All-Tech, 1993 Fla. Sec. LEXIS 49, Admin. No. 93.471.DOS, 
  December 7, 1993...............................................   518

35. GAll-Tech Investment Group, Inc.'s Branch Office Manual, 
  ``Branch Procedures'' [selected pages reprinted in hearing 
  record--full exhibit retained in the files of the Subcommittee]   522

36. GFred A. Zayas, CRD No. 2816153..............................   542

37. GExperienced Customer Letter of Understanding for Carmen 
  Margala, September 10, 1998....................................   544

38. GCustomer Letter of Understanding for Yusef Liberzon, October 
  12, 1998.......................................................   545

39. a. GSEALED EXHIBIT: New Account Approval-B for Carmen 
  Margala, September 11, 1998....................................     *

    b. GREDACTED: New Account Approval-B for Carmen Margala, 
  September 11, 1998.............................................   546

40. GAll-Tech ``Frequently Asked Questions,'' undated............   547

41. GAll-Tech ``Experienced Trader Qualification,'' undated......   552

42. a. GSEALED EXHIBIT: New Account Approval-B for Georgia Sweet 
  Bovee, July 13, 1998...........................................     *

    b. GREDACTED: New Account Approval-B for Georgia Sweet Bovee, 
  July 13, 1998..................................................   553

43. a. GSEALED EXHIBIT: New Account Approval-B Form for Yusef 
  Liberzon, October 12, 1998.....................................     *

    b. GREDACTED: New Account Approval-B Form for Yusef Liberzon, 
  October 12, 1998...............................................   554

44. GMarilyn Sherman, ``Funds Transfer Authorization,'' June-
  August 1999....................................................   555

45. GE-mail messages from Angus Beal to Georgia Bovee, et al.....   567

46. GE-mail message from Stephanie Rosenblatt, Counsel for All-
  Tech, to Deborah Field, Counsel for the Permanent Subcommittee 
  on Investigations, January 18, 2000............................   586

47. GAll-Tech training material entitled ``Reasons to Initiate a 
  Trade''........................................................   587

48. GHarvey I. Houtkin and David Waldman, Secrets of the SOES 
  Bandit (1999)..................................................     *

49. GRushmore Financial Services, Inc.--``Disclosure Statement''.   588

50. GAll-Tech Training Group, Inc.--``Disclosure Statement''.....   589

51. GAccount Decline Letter from Mark Shefts to Sandra Harlacher 
  [sic], November 28, 1997.......................................   590

52. GAll-Tech Training Group, Inc. Manual, ``Welcome to All-Tech 
  Training Group''...............................................   591

53. GSan Diego ``Branch Office Survey,'' August 4, 1997..........   592

54. GAll-Tech document entitled ``Supervision,'' August 23, 1999.   597

55. a. GCommonwealth of Massachusetts, Securities Division, 
  ``Administrative Complaint,'' Docket No. R-98-77, December 10, 
  1998...........................................................   601

    b. GCommonwealth of Massachusetts, Securities Division, 
  ``Amendment to Administrative Complaint,'' Docket No. R-98-77, 
  May 3, 1999....................................................   633

56. GCommonwealth of Massachusetts, Securities Division, 
  ``Stipulated Order,'' Docket No. R-98-77, May 3, 1999 (for 
  Respondents All-Tech, Messrs. Shefts, Houtkin and Lefkowitz)...   636

57. GCommonwealth of Massachusetts, Securities Division, 
  ``Stipulated Order,'' Docket No. R-98-77, May 19, 1999 (for 
  Respondents Messrs. Zayas, Belbel and Powell)..................   638

58. a. GIn re All-Tech, Docket No. R-98-77, ``Offer of 
  Settlement,'' May 3, 1999......................................   640

    b. GIn re All-Tech, Docket No. R-98-77, ``Offer of 
  Settlement,'' May 10, 1999.....................................   644

59. GLetter from Stephanie Rosenblatt, Counsel for All-Tech, to 
  Debra Fields, Esq. [sic], Counsel to the Permanent Subcommittee 
  on Investigations, January 4, 2000.............................   645

60. GLetter from Stephanie Rosenblatt, Counsel to All-Tech, to 
  Deborah Field, Esq., Counsel to the Permanent Subcommittee on 
  Investigations, January 18, 2000...............................   647

61. GInternal Memorandum from Franklin I. Ogele, Chief Compliance 
  Officer for All-Tech, to Steven Plotnick, Branch Office 
  Manager, re: Detroit Branch Audit, May 6, 1999.................   649

62. GInternal Memorandum from Franklin I. Ogele, Chief Compliance 
  Officer for All-Tech, to Fabian Norwood and Frederick Vetter, 
  re: Falls Church, VA Branch Audit, June 28, 1999...............   654

63. GInternal Memorandum from Franklin I. Ogele, Chief Compliance 
  Officer for All-Tech, to David Niedekrome (BOM) and Michael 
  Benson, Branch Office Manager, re: Seattle Branch Audit, July 
  27, 1999.......................................................   659

64. GFrederick M. Benson, CRD No. 2876856, ``Employment History''   666

65. GTyped notes, September 22, 1998, produced by Georgia Bovee..   674

66. GBoston ``Branch Office Survey Results,'' June 18, 1997......   675

67. GInternal Memorandum from Franklin I. Ogele, Chief Compliance 
  Officer for All-Tech, to David Thompson, Branch Manager for 
  Dallas, Texas Branch File, re: Dallas Branch Audit, June 25, 
  1999...........................................................   685

68. GLetter from Providential Securities, Inc. to Wesley 
  Phillips, Investigator for the Permanent Subcommittee on 
  Investigations, undated........................................   689

69. GLetter from Henry D. Fahman, CEO, Providential Securities, 
  Inc. to Wesley M. Phillips, Investigator for the Permanent 
  Subcommittee on Investigations, December 3, 1999...............   690

70. GHenry D. Fahman, CDR No. 1952649............................   692

71. GLetter from NASD Regulation, Inc., NASD Arbitration No. 98-
  03309, August 11, 1999.........................................   697

72. GKwang Ho Kim (also known as Keith Kim), CRD 1752502.........   707

73. G``Customer Acknowledgment of Risk,'' Providential 
  Securities, Inc................................................   709

74. GAmy Le, ``Acknowledgment of Liability,'' Hahna Global 
  Securities, June 6, 1998.......................................   713

75. GProvidential Securities advertisement.......................   714

76. GLetter from Stephen P. Harbeck, General Counsel, Securities 
  Investor Protection Corporation (SIPC), to Wesley M. Phillips, 
  Investigator for the Permanent Subcommittee on Investigations, 
  November 30, 1999..............................................   715

77. GHolly C. Clark, Written Complaint to Oregon's Division of 
  Finance and Corporate Securities, August 26, 1999..............   716

78. GProvidential Securities, Inc., General Supervisory 
  Procedures and Compliance Manual, October 1998 [selected pages 
  reprinted in hearing record--full exhibit retained in the files 
  of the Subcommittee]...........................................   722

79. a. GSEALED EXHIBIT: New Account Approval-B for Kiem Van Dao, 
  July 26, 1999..................................................     *

    b. GREDACTED: New Account Approval-B for Kiem Van Dao, July 
  26, 1999.......................................................   723

80. a. GSEALED EXHIBIT: New Account Approval-B for Hon V. Bui and 
  Huong H. Ly, April 6, 1999.....................................     *

    b. GREDACTED: New Account Approval-B for Hon V. Bui and Huong 
  H. Ly, April 6, 1999...........................................   724

81. a. GSEALED EXHIBIT: New Account Approval-B for Bedar Samee, 
  February 1, 1999...............................................     *

    b. GREDACTED: New Account Approval-B for Bedar Samee, 
  February 1, 1999...............................................   725

82. a. GSEALED EXHIBIT: New Account Approval-B for Clara B. and 
  Daryl Larry Grabowski, April 13, 1999..........................     *

    b. GREDACTED: New Account Approval-B for Clara B. and Daryl 
  Larry Grabowski, April 13, 1999................................   726

83. a. GSEALED EXHIBIT: New Account Approval-B for Shao-Shin Liu, 
  undated........................................................     *

    b. GREDACTED: New Account Approval-B for Shao-Shin Liu, 
  undated........................................................   727

84. GIndependent Contractor Agreement between Hahna Global 
  Capital Management, Inc. and Huan Van Cao, May 1998............   728

85. GLetter from Susan H. Tregub, Attorney for Tae Goo Moon, to 
  Eugene Horwitz, Special Investigator for NASD Regulation, 
  September 29, 1999.............................................   729

86. GLetter from Huan Van Cao, Senior Vice President of Hahna 
  Global Capital Management, Inc. to Brenda Richardson, March 20, 
  1998...........................................................   749

87. a. GSEALED EXHIBIT: New Account Approval-B for Amy Le, 
  undated........................................................     *

    b. GREDACTED: New Account Approval-B for Amy Le, undated.....   750

88. GAmy Le's Loan Authorization to Lori Assunto, Margin 
  Department, Penson Financial Services, July 6, 1998............   751

89. GHuan Van Cao bankruptcy filing in the United States 
  Bankruptcy Court, October 22, 1999, Case number: 99-40177......   752

90. GLetter from Henry D. Fahman, President of Providential 
  Securities, Inc., to Wesley M. Phillips, Investigator for the 
  Permanent Subcommittee on Investigations, undated..............   791

91. a. GSEALED EXHIBIT: New Account Approval-B for Holly C. 
  Clark, April 26, 1999..........................................     *

    b. GREDACTED: New Account Approval-B for Holly C. Clark, 
  April 26, 1999.................................................   792

92. GProvidential Securities, Inc.'s Customer Acknowledgment of 
  Risk for Holly C. Clark, April 13, 1999........................   793

93. GLetter from Robert S. Bennett, Counsel, Momentum Securities, 
  Inc., to K. Lee Blalack, II, Chief Counsel and Staff Director 
  for the Permanent Subcommittee on Investigations, January 20, 
  2000...........................................................   798

94. GMomentum's Current Organizational and Ownership Structure 
  Chart, undated.................................................   801

95. GLetter from James H. Lee, Principal for Momentum Securities, 
  Inc., to Robert Garza, NASD Regulation, Inc., District 6, June 
  21, 1999.......................................................   802

96. GResume of Scott A. Webb, undated............................   805

97. GLetter from Scott Webb to Alyce Wenzel, April 1998..........   806

98. a. GSEALED EXHIBIT: New Account Approval-B for Scott Allyn 
  Webb, July 28, 1998............................................     *

    b. GREDACTED: New Account Approval-B for Scott Allyn Webb, 
  July 28, 1998..................................................   807

99. a. GSEALED EXHIBIT: New Account Approval-B for Spyderstorm 
  Capital, LLC, July 29, 1998....................................     *

    b. GREDACTED: New Account Approval-B for Spyderstorm Capital, 
  LLC, July 29, 1998.............................................   808

100. GAccount Guarantee Agreement between Scott Allyn Webb and 
  Spyderstorm Capital, LLC, July 29, 1998........................   809

101. GPromissory Note between Gerald Simpson and Scott Webb, July 
  29, 1998.......................................................   811

102. GSyllabus for Professional Traders Group Training Seminar, 
  January 4, 1999 to January 29, 1999............................   815

103. GMomentum Securities, Inc. Branch Examination, Atlanta, 
  Georgia, September 15-17, 1998.................................   822

104. GMomentum Securities, Inc. Branch Examination Charts, 
  Atlanta Georgia, March 5, 1999.................................   832

105. GLetter from Saul S. Cohen, Counsel for Momentum Securities, 
  Inc., to Glynna C. Parde, Esq., Chief Investigator and Senior 
  Counsel for the Permanent Subcommittee on Investigations, 
  November 17, 1999..............................................   835

106. GMomentum Journal Authorizations into the Claypool Account..     *

107. GLetter from Scott H. Maestri, NASD Regulation Examiner, to 
  William Cathriner, Vice President, Momentum Securities, Inc., 
  August 10, 1999................................................   840

108. GLetter from William Cathriner, Chief Compliance Officer, 
  Momentum Securities, Inc., to Scott H. Maestri, NASD Regulation 
  Compliance Examiner, August 23, 1999...........................   845

109. GMomentum Securities, Inc. ``Brokerage Operations Manual,'' 
  July 1999......................................................     *

110. G``Written Supervisory Procedures for Momentum Securities, 
  Inc.,'' March 31, 1998.........................................     *

111. a. GSEALED EXHIBIT: New Account Approval-B for Benchmark 
  Trading Fund, Ltd., April 14, 1998.............................     *

     b. GREDACTED: New Account Approval-B for Benchmark Trading 
  Fund, Ltd., April 14, 1998.....................................   850

112. a. GSEALED EXHIBIT: New Account Approval-B for Henry M. 
  Castro, September 29, 1998.....................................     *

     b. GREDACTED: New Account Approval-B for Henry M. Castro, 
  September 29, 1998.............................................   851

113. a. GSEALED EXHIBIT: New Account Approval-B for Amit 
  Berstein, September 29, 1998...................................     *

     b. GREDACTED: New Account Approval-B for Amit Berstein, 
  September 29, 1998.............................................   852

114. a. GSEALED EXHIBIT: New Account Approval-B for Lunker 
  Investments Corporation, December 2, 1998......................     *

     b. GREDACTED: New Account Approval-B for Lunker Investments 
  Corporation, December 2, 1998..................................   853

115. a. GSEALED EXHIBIT: New Account Approval-B for Flora Siman, 
  July 7, 1998...................................................     *

     b. GREDACTED: New Account Approval-B for Flora Siman, July 
  7, 1998........................................................   854

116. GLetter from Lily A. Camet, Counsel for Momentum Securities, 
  Inc., to Brian C. Jones, Investigator for the Permanent 
  Subcommittee on Investigations, December 20, 1999..............   855

117. a. GSEALED EXHIBIT: New Account Approval-B for Hung C. Chan, 
  January 21, 1999...............................................     *

     b. GREDACTED: New Account Approval-B for Hung C. Chan, 
  January 21, 1999...............................................   858

118. a. GSEALED EXHIBIT: New Account Approval-B for Minder Singh, 
  November 6, 1998...............................................     *

     b. GREDACTED: New Account Approval-B for Minder Singh, 
  November 6, 1998...............................................   859

119. a. GSEALED EXHIBIT: New Account Approval-B for Larry L. 
  Hartman, October 19, 1998......................................     *

     b. GREDACTED: New Account Approval-B for Larry L. Hartman, 
  October 19, 1998...............................................   860

120. a. GSEALED EXHIBIT: New Account Approval-B for Michael St. 
  John Dinsmore, March 13, 1997..................................     *

     b. GREDACTED: New Account Approval-B for Michael St. John 
  Dinsmore, March 13, 1997.......................................   861

121. a. GSEALED EXHIBIT: Momentum Securities, Inc., New Account 
  Paperwork Check List for Charles R. Lande, Jr., July 19, 1999..     *

     b. GREDACTED: Momentum Securities, Inc., New Account 
  Paperwork Check List for Charles R. Lande, Jr., July 19, 1999..   862

122. a. GSEALED EXHIBIT: Momentum Securities, Inc., New Account 
  Paperwork Check List for Manfred Pojar, July 1, 1999...........     *

     b. GREDACTED: Momentum Securities, Inc., New Account 
  Paperwork Check List for Manfred Pojar, July 1, 1999...........   891

123. GMomentum Securities, Inc., ``Preliminary Results,'' 
  February 1999 [selected pages reprinted in hearing record--full 
  exhibit retained in the files of the Subcommittee].............   921

124. GDeclaration of James William Lauderback, Vice President of 
  Momentum Securities, Inc., January 12, 2000....................   934

125. GMomentum Securities, Inc., ``SEC Commentary `Day Trading: 
  Your Dollars at Risk,' '' New Account Paperwork................   935

126. GLetter from James H. Lee, President, Electronic Traders 
  Association (ETA), to Jonathan Katz, Secretary, United States 
  Securities and Exchange Commission (SEC), October 11, 1999.....   937

127. GNotice of Filing of Amendment No. 1 to the Proposed Rule 
  Change by the National Association of Securities Dealers, Inc. 
  Relating to Opening of Day-Trading Accounts,'' File No. SR-
  NASD-99-41.....................................................   941

128. GNotice of Filing of Proposed Rule Change To Amend NYSE Rule 
  431 (``Margin Requirements''), File No. SR-NYSE-99-47..........   952

129. G``Proposed Rule Change by National Association of 
  Securities Dealers, Inc.,'' File No. SR-NASD-00-03, cover 
  letter.........................................................   958

130. GLetter from Joan C. Waller, Counsel for Cornerstone, to 
  Joseph M. Gonzales III, Investigator for the Texas State 
  Securities Board, October 26, 1999.............................     *

131. GLetter from Joan C. Waller, Counsel for Cornerstone 
  Securities, Corp., to K. Lee Blalack, II, Chief Counsel and 
  Staff Director for the Permanent Subcommittee on 
  Investigations, November 15, 1999..............................   989

132. GNASD Regulation, Inc. arbitration claims for Sandra 
  Harlacher, Carmen Margala, et al. (1999).......................  1005

133. GSEALED EXHIBIT: All-Tech Branch Office Agreements..........     *

134. GWritten Supervisory Procedures for Summit Trading, Inc., 
  last amended (March 19, 1999)..................................     *

135. GTraining Manual, ``The Fundamentals of Successful Day 
  Trading,'' Cornerstone Securities Corporation, 1999............     *

136. GMomentum Securities, Inc., ``House Systems and Trading 
  Rules Acknowledgment,'' July 27, 1998..........................  1066

137. GLetter from Robert S. Bennett, Counsel for Momentum 
  Securities, Inc., to K. Lee Blalack, II, Chief Counsel and 
  Staff Director for the Permanent Subcommittee on 
  Investigations, February 18, 2000..............................  1067

138. GSEALED EXHIBIT: Permanent Subcommittee on Investigation 
  Deposition of Huan Van Cao, December 28, 1999..................     *

139. GSEALED EXHIBIT: Permanent Subcommittee on Investigation 
  Deposition of Lisa Esposito, November 29, 1999.................     *

140. GSEALED EXHIBIT: Permanent Subcommittee on Investigation 
  Deposition of Henry D. Fahman, December 15, 1999...............     *

141. GSEALED EXHIBIT: Permanent Subcommittee on Investigation 
  Deposition of Harvey Houtkin, December 7, 1999.................     *

142. GSEALED EXHIBIT: Permanent Subcommittee on Investigation 
  Deposition of James H. Lee, December 22, 1999..................     *

143. GSEALED EXHIBIT: Permanent Subcommittee on Investigation 
  Deposition of Barry Scott Parish, November 30, 1999............     *

144. GSEALED EXHIBIT: Permanent Subcommittee on Investigation 
  Deposition of Fred A. Zayas, December 16, 1999.................     *

145. GMemoranda prepared by K. Lee Blalack, II, Chief Counsel and 
  Staff Director for the Permanent Subcommittee on 
  Investigations, dated February 22, 2000, to Permanent 
  Subcommittee on Investigations' Membership Liaisons, regarding 
  February 24 and 25, 2000 Day Trading Hearings..................  1073

146. GU.S. General Accounting Office Report, Securities 
  Operations: Day Trading Requires Continued Oversight, GAO/GGD-
  00-61, February 2000...........................................  1100

147. GReport of Examinations Of Day-Trading Broker-Dealers, 
  Office of Compliance Inspections and Examinations, United 
  States Securities and Exchange Commission, February 25, 2000...  1140

148. GThe Lazy DayTrader home page, www.lazytrader.com...........  1186
149. GTerra Nova New Account Form................................  1187

150. G``Case Study Witnesses,'' chart prepared by the Permanent 
  Subcommittee on Investigations.................................  1188

151. G``The Importance of Risk Capital,'' excerpt from Harvey I. 
  Houtkin's book, Secrets of the SOES Bandit.....................  1189

152. G``Providential Day Trading Customer Account Forms That Fail 
  to Include Required Financial Information on Income and/or Net 
  Worth'' chart prepared by the Permanent Subcommittee on 
  Investigations.................................................  1190

153. G``Scott Webb Frequently Borrowed Funds From Momentum 
  Customer Gerald Simpson to Cover Margin Loans, chart prepared 
  by the Permanent Subcommittee on Investigations................  1191

154. GLetter from Sandra H. Harlacher to the Permanent 
  Subcommittee on Investigations, March 1, 2000, regarding her 
  February 24, 2000 Subcommittee testimony.......................  1192

155. GLetter from Lori A. Richards, Director, Office of 
  Compliance Inspections and Examinations, United States 
  Securities and Exchange Commission to Senators Collins and 
  Levin, March 21, 2000, regarding margins loans and letters of 
  authorization..................................................  1193

156. GLetter from James H. Lee, Momentum Securities, Inc., to 
  Senator Carl Levin, March 6, 2000, regarding views on the 
  profitability of Momentum customers and reaction to the State 
  of Washington profitability study..............................  1195

              DAY TRADING: EVERYONE GAMBLES BUT THE HOUSE

                              ----------                              

                      THURSDAY, FEBRUARY 24, 2000

                                       U.S. Senate,
                Permanent Subcommittee on Investigations,  
                  of the Committee on Governmental Affairs,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 9:30 a.m., in 
room SD-342, Dirksen Senate Office Building, Hon. Susan 
Collins, Chairman of the Subcommittee, presiding.
    Present: Senators Collins, Levin, and Durbin.
    Staff Present: K. Lee Blalack, II, Chief Counsel and Staff 
Director; Mary D. Robertson, Chief Clerk; Deborah Field, 
Counsel, Detailee/SEC; Brian C. Jones, Investigator; Wesley 
Phillips, Detailee/GAO; Eileen M. Fisher, Investigator; 
Elizabeth Hays, Executive Assistant; Linda J. Gustitus, 
Minority Chief Counsel and Staff Director; Bob Roach, Counsel 
to the Minority; Felicia Knight and Steve Abbott (Senator 
Collins); Anthony Pitago (Senator Specter); Anne Bradford 
(Senator Thompson); Nanci Langley and Glenn Sauer (Senator 
Akaka); Marianne Upton, Darla Silva, and Jadie O'Dell (Senator 
Durbin).

              OPENING STATEMENT OF SENATOR COLLINS

    Senator Collins. Good morning. The Subcommittee will come 
to order.
    Today, the Permanent Subcommittee on Investigations 
continues its examination of day trading. Last fall, the 
Subcommittee began its investigation with an overview hearing. 
After several months of investigation, we will now draw back 
the curtain and provide an in-depth look at the practices of 
three day-trading firms representative of the industry.
    Day trading involves taking positions in stocks for very 
short periods of time, usually minutes or hours, but rarely 
longer than a day. Day traders seek small increments of profits 
from moment-to-moment fluctuations in the price of a stock. The 
firms that cater to day traders provide their customers with 
high-speed computer access and real-time market quotes, both of 
which are necessary to take advantage of small changes in stock 
prices.
    Over the course of 8 months, the Subcommittee has 
investigated 15 day-trading firms which reported a total of 
about 12,700 day trading accounts. While a day trader could 
open more than one account, the Subcommittee's review indicates 
that the number of day traders is significantly higher than 
most of the earlier estimates. For example, at our hearing last 
fall, we heard testimony that there were about 5,000 day 
traders at approximately 60 firms. Our analysis suggests that 
the number is at least double that.
    Commission income, which is normally generated on a per 
trade basis, is the primary source of revenue for most day-
trading firms. The day-trading firms we investigated charged an 
average commission of $16 per trade. In the aggregate, those 
firms estimated that the average customer executes about 29 
trades each day. Consequently, the average day trader must 
generate a minimum trading profit of over $450 each and every 
day simply to break even. On an annualized basis, assuming 20 
trading days per month, that means the average day trader must 
generate a trading profit of more than $111,000 to achieve 
profitability for the year.
    As the testimony today will show, most day traders are not 
breaking even. In fact, they are losing money, big money. The 
consumers who will testify before us today, for example, lost 
tens of thousands of dollars.
    The same cannot be said, however, for the day trading 
industry. It seems to be doing quite well. The 15 firms that we 
examined reported aggregate gross revenues of over $491 million 
in 1999 and aggregate profits of about $144 million. The 
Subcommittee found that the industry is growing by leaps and 
bounds. Indeed, the revenues of day-trading firms that we 
analyzed grew by a whopping 276 percent from 1997 to 1999.
    Everyone, even the industry, appears to agree that day 
trading is highly speculative and extremely risky. Both the 
Chairman of the SEC and the President of NASAA, that is the 
State Securities Regulators Association, went so far as to call 
day trading gambling during the Subcommittee's hearing last 
fall. The Electronic Traders Association, the trade 
organization for the industry, objects strongly to that 
analogy, contending that day trading requires skill, state-of-
the-art technology, and hard work.
    That may be true, but many day traders seem comfortable 
with the comparison to gambling. The president of 1 day-trading 
firm was quoted in the press as saying that day trading is like 
blackjack. Documents obtained by the Subcommittee also indicate 
that some firms consider day trading to be essentially 
gambling.
    I would draw everyone's attention to the exhibit we have 
posted.\1\ This is a listing of trading tips from a day-trading 
firm called Insider Trading. You will note that Insider Trading 
cautions its customers not to get greedy. It states, ``When you 
reach your goal, stop and quit trading. Try not to be greedy 
and still trade. Remember you are gambling and most likely will 
lose what you have made.''
---------------------------------------------------------------------------
    \1\ See Exhibit No. 13 which appears in the Appendix on page 283.
---------------------------------------------------------------------------
    I believe that day trading can be fairly compared to 
certain types of gambling. For inexperienced traders, it is 
little more than a game of chance. I reached this conclusion 
based primarily on data showing that only a small percentage of 
day traders ever make money. Our investigation indicates that 
the small percentage of day traders who are successful 
generally start with large amounts of risk capital and 
substantial experience.
    The best evidence that we have suggests that a significant 
majority of all day traders, more than 75 percent, lose money, 
and for the novice under-capitalized trader, there is almost no 
chance of success.
    A document produced to the Subcommittee by the firm All-
Tech Direct sums up my concern about the profitability of day 
trading. When the branch manager for All-Tech's Seattle office 
was asked to comment on the progress of his 51 customers, he 
wrote, ``Overall, good. We need to have a couple of people 
making money.'' In fact, when interviewed by the Subcommittee 
staff, the branch manager estimated that only 10 percent of his 
Seattle customers were profitable. Even more striking, the 
branch manager of the Los Angeles office of another day-trading 
firm, Providential Securities, stated that none--none--of his 
office's day-trading clients ever made money. In fact, he 
estimated that the average customer lost approximately $50,000.
    Because of the poor success rate of most day traders, one 
might wonder how is it that the industry has grown? After all, 
why would people give up good secure jobs or put their savings 
at risk to pursue a day-trading career when their chances of 
making money were very small? The reason, of course, is that 
most people who lost money, including the customers that we 
will hear from today, simply did not fully appreciate the risk.
    While some day-trading firms give their consumers very good 
risk disclaimers, on the whole, the industry has failed to 
disclose adequately just how risky this speculative activity 
is. Many day-trading firms improved their written risk 
disclosures only after regulatory and Congressional scrutiny 
increased the last year, and as today's testimony will show, 
written risk disclosures are often contradicted by oral 
statements that minimize the risk through promises of big 
profits or cannot lose systems.
    Even when the written risk disclosures are provided, they 
are often undermined by deceptive advertising or other hype. As 
an example of this, I would refer to Exhibit No. 148.\1\ In 
this instance, this is the Web site for Lazy Day Trader. It 
entices potential customers with an unbalanced and exaggerated 
testimonial which says, ``This is the only business I know of 
where there is absolutely no limit ever as to how much I can 
earn. I am doubling my money every 3 months buying and selling 
stocks. I have developed a simple method to determine what to 
buy and sell, how much, and when to buy and sell, which 
everyone can follow. You can start with as little as $2,500 and 
still make money.'' It goes on to say, ``You do not even have 
to understand economics, the stock market, or international 
finance.''
---------------------------------------------------------------------------
    \1\ See Exhibit No. 148 which appears in the Appendix on page 1186.
---------------------------------------------------------------------------
    In other words, what this Web site is holding out is the 
promise that with very little capital and no understanding of 
the markets, the average person can get rich by following Lazy 
Day Traders' cannot lose system. If only it were that easy.
    What is most disturbing about these types of misleading 
claims is that they often appeal to the very people who have 
limited investment experience. Press reports have noted that 
day trading attracts many young people because it is computer 
intensive, fast paced, and offers the tantalizing prospect of 
quick riches.
    The customers of Landmark Securities are a good example. 
The Subcommittee staff conducted an analysis of Landmark 
Securities' new account forms and found that 42 percent of the 
firm's customers were 26 years old or younger and that their 
disclosed median income and net worth of these young traders 
was only $30,000.
    These data really highlight the most troubling finding of 
our investigation. Most day-trading firms have accepted 
customers whose stated financial condition or investment 
objectives are inconsistent with the firm's own internal 
policies governing the opening of new accounts. They are simply 
not suitable for day trading.
    We will hear testimony today from several former day 
traders whose disclosed financial conditions were well below 
the minimum requirements of their respective firms. Ironically, 
however, these firms must be commended for having any minimum 
requirements at all. Twenty percent of the firms we examined 
maintained no minimum financial requirements to open a day 
trading account. In light of this evidence, it probably should 
not be surprising that so many day traders eventually fail.
    Let me conclude my opening statement by reaffirming that I 
have no intention of proposing a ban on day trading. If an 
investor who has adequate capital is fully informed of the 
risks of day trading and still elects to pursue this 
speculative strategy, then so be it. But if day-trading firms 
fail to disclose the risk and entice unsophisticated investors 
with misleading ads or exaggerated claims of profitability, 
regulators and the industry must put a stop to it. Consumers 
who choose to day trade must be warned that they could easily 
lose their entire investment.
    It is now my pleasure to recognize my distinguished 
colleague and the Ranking Minority Member of the Subcommittee, 
Senator Carl Levin.

               OPENING STATEMENT OF SENATOR LEVIN

    Senator Levin. Thank you, Madam Chairman. First, let me 
commend you and your staff on the extraordinarily fine work 
that you have done in preparing us for these hearings. You have 
been able to sift through the hype that surrounds day trading 
and to get to the real-life consequences of this latest ``get 
rich quick'' fad. For many, as the work of you and your staff 
has revealed, the real story of day trading is too often large 
losses and broken promises.
    In our world of instant everything, from cellular 
communications to microwave cooking to E-mail and hot mail, and 
under the influence of a rising stock market, it is not 
surprising that many people are attracted to instant stock 
trading, as well. Buying into a company one minute, getting out 
of that the next. Day trading is clearly a phenomenon of our 
times.
    Though considered a product of the investment world, day 
trading does not involve investing. Where a normal investor 
might execute 10 trades a year, a day trader typically might 
execute 100 trades a day. Day trading has absolutely no 
connection to the value of the companies whose stock is being 
traded. As the SEC Chairman, Arthur Levitt, described it, day 
trading is more like gambling than investing.
    It is argued that day trading utilizes advances in computer 
technology to provide average Americans with access to 
securities markets that had previously been available only to 
professional traders, thereby bringing Wall Street, it is 
argued, closer to Main Street. While that may have an element 
of truth, day trading also has serious problems with 
unscrupulous hustlers who use day trading to promote ``get rich 
quick'' schemes to untrained consumers.
    Given the size of the stakes at risk, tens of thousands of 
dollars, losses can mount pretty quickly. The PSI staff, our 
Subcommittee staff, has learned that when there are losses, the 
hustlers are there to facilitate loans of more money at 
usurious rates to clients trying to recover their stake. The 
longstanding rules that were developed to protect investors 
simply fail to address some of the new practices in the field 
of day trading.
    The hearings that we are holding here will help us 
understand what might be done to provide effective standards of 
consumer protection and to protect the integrity of our 
markets. Last year, I asked the GAO to conduct a study of the 
day trading industry. Its analysis included a review of the 
examinations of 67 day-trading firms and their branches which 
had been conducted by the SEC and the regulatory arm of the 
National Association of Securities Dealers, NASD Regulation, 
Inc., and an in-depth exam of seven of the largest day-trading 
firms. Those seven firms account for 80 percent of all day 
traders and 80 percent of all day trading volume. Today, we are 
releasing the results of the GAO's work and it affirms the work 
of the Subcommittee staff.
    Because of the lack of data, GAO stated that it was unable 
to verify the extent of profitability in the industry, nor was 
it able to assess the impact of day trading on the volatility 
of the market. GAO reported that day-trading firms admitted 
that most consumers will lose money initially, but the firms, 
they said, also contended that a majority of traders who traded 
more than 6 months made money.
    This claim directly contradicts the most extensive study on 
profitability, which was conducted by the Washington State 
Department of Financial Institutions. In that study, Washington 
State looked at every account for the life of the account in 
five of the seven day-trading firms in that State, and it 
reviewed a sample of accounts in the other 2 day-trading firms. 
The Washington study concluded that 77 percent of the traders 
were unprofitable, and that for the 23 percent that were 
profitable, it concluded that the profits were small compared 
to the size of the other losses.
    The Subcommittee investigation has looked behind the claims 
of day-trading companies and found how some day-trading firms 
skirt the rules, use loopholes, and take advantage of their 
customers in the pursuit of profits. We will hear how employees 
of some day-trading firms traded on behalf of clients, although 
not licensed to do so, forged customers' signatures and made 
unauthorized transfers of customer funds, opened accounts for 
customers when their assets did not meet the firm's own minimum 
requirements, and established fictitious accounts for customers 
so that they could continue to trade after their original 
accounts were closed due to insufficient assets.
    We will hear how the top executives of some day-trading 
firms employed exaggerated and deceptive ads touting the 
profitability and suitability of day trading, hired unqualified 
individuals to run branch offices and provided them with very 
little training, ran inadequate, and at times, virtually 
nonexistent compliance programs, and are reducing minimum 
customer asset requirements to levels lower than what they 
concede are necessary to have a reasonable chance of success in 
day trading.
    Again, I want to commend our Chairman for her determined 
leadership in this area, and I commend the Subcommittee staff, 
particularly the Majority staff that has done the heavy lifting 
in this investigation, for their very professional, thorough, 
and revealing work.
    The evidence and testimony presented over the next 2 days 
will underscore the fact that day trading may work for some, 
but it is a dangerous game for the average consumer. The stakes 
for the consumer are high, again, tens of thousands of dollars. 
The promoters of day trading profit whether their clients win 
or lose, and in some cases, they even stack the deck. Just like 
in Las Vegas, in the world of day trading, the only guaranteed 
winner is the house. Thank you.
    Senator Collins. Thank you, Senator Levin.
    I am pleased to welcome our first witness this morning, 
Deborah M. Field. Ms. Field is a counsel to the Subcommittee 
and has been on detail to the Subcommittee from the Securities 
and Exchange Commission since September of last year. Ms. Field 
will provide an overview of the Subcommittee's 8-month 
investigation of the day trading industry.
    Pursuant to Rule 6, all witnesses who testify before the 
Subcommittee are required to be sworn, so I would ask that you 
stand and raise your right hand. Do you swear the testimony you 
are about to give will be the truth, the whole truth, and 
nothing but the truth, so help you, God?
    Ms. Field. I do.
    Senator Collins. Thank you. Please proceed.

     TESTIMONY OF DEBORAH M. FIELD,\1\ COUNSEL, PERMANENT 
 SUBCOMMITTEE ON INVESTIGATIONS, ON DETAIL FROM THE SECURITIES 
                    AND EXCHANGE COMMISSION

    Ms. Field. Thank you, Chairman Collins, Senator Levin, and 
Members of the Subcommittee. My name is Deborah Field and I am 
counsel to the Permanent Subcommittee on Investigations. I am 
currently on detail to the Subcommittee from the Securities and 
Exchange Commission. I have been a member of the SEC's Division 
of Enforcement for about 2 years. Prior to joining the SEC, I 
was an attorney with the law firm Wilmer, Cutler, and 
Pickering, where I worked in the firm's securities enforcement 
and litigation practice. As counsel to the Subcommittee, I have 
been intimately involved with the staff's investigation of the 
day trading industry. Today, I am presenting a brief overview 
of that investigation.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Field appears in the Appendix on 
page 122.
---------------------------------------------------------------------------
    The Subcommittee staff conducted this investigation by 
casting a wide net. We examined the largest day-trading firms 
and some that were very small. The Subcommittee sent detailed 
and comprehensive document requests to 19 day-trading firms. In 
response, those firms produced approximately 50,000 pages of 
documents and at least 10 videotapes containing advertisements.
    In addition to reviewing all of these materials, 
Subcommittee staff interviewed or deposed over 100 people. 
These witnesses included chief executive officers and other 
employees of day-trading firms, former and current day traders, 
gambling experts, academics, and authors. We also spoke with 
State and Federal securities regulators and representatives of 
self-regulatory organizations.
    Based on the evidence gathered by the Subcommittee, we 
narrowed our focus to three day-trading firms, All-Tech Direct, 
Providential Securities, and Momentum Securities. The staff 
conducted a detailed examination of these three firms.
    While some of our findings pertain to potentially illegal 
conduct, such as forgery and unauthorized trading, perhaps the 
most disturbing evidence gathered by Subcommittee staff relates 
to business practices that are, under the current regulatory 
framework, entirely legal. Perhaps the single most important 
finding of this investigation was that many firms allow and 
even encourage unsuitable customers to day trade. Contrary to 
their own internal policies, many firms have routinely failed 
to gather the information about their prospective customers 
that is necessary to determine whether those customers are 
suitable for day trading. Frequently, customers end up losing 
tens of thousands of dollars, losses that they cannot sustain.
    I would like to direct your attention to Exhibit No. 78.\1\ 
This is a page from the compliance manual of Providential 
Securities. As you can see, Providential advises its employees 
that, ``Living in such a litigious society, brokers need to 
take special care in gathering complete and accurate financial 
information about their customers. You must take the time with 
your clients to assess their situation on a regular basis and 
make recommendations based on your fact-finding mission. 
Suitability is the key to client recommendation.''
---------------------------------------------------------------------------
    \1\ See Exhibit No. 78 which appears in the Appendix on page 722.
---------------------------------------------------------------------------
    However, I would like to now direct your attention to this 
next exhibit, Exhibit No. 83,\2\ which shows that Providential 
frequently disregarded its own compliance manual. This new 
account form contains virtually no information about the 
prospective day trader. Providential did not document the 
customer's employer, credit references, or tax status, and even 
though Providential supposedly requires its day traders to 
disclose a minimum income of $50,000 and a minimum net worth of 
$200,000, it opened this new account without documenting this 
customer's net worth or income. And, Providential had an 
initial deposit requirement, yet no initial deposit amount is 
written on this form. It is hard to imagine what basis the firm 
had for determining that this customer was suitable for day 
trading.
---------------------------------------------------------------------------
    \2\ See Exhibit No. 83b. which appears in the Appendix on page 727.
---------------------------------------------------------------------------
    Even when day-trading firms have gathered the pertinent 
information, many have accepted customers whose disclosed 
financial condition did not meet their own criteria for opening 
day trading accounts. For example, firms have opened day 
trading accounts based on new account forms indicating that 
customers' investment objectives were income or long-term 
growth, two objectives commonly understood to be at odds with a 
high-risk day-trading strategy. In fact, we reviewed over 300 
All-Tech new account forms that contained objectives that were 
inconsistent with day trading.
    We have also uncovered evidence that some day-trading firms 
altered new account forms to make their customers appear more 
suitable for day trading. I would like to now direct your 
attention to Exhibit No. 149.\1\ This is a new account form 
produced to the Subcommittee by Terra Nova Trading. As you can 
see from this form, this customer initially indicated that his 
income and net worth were $24,000 and $15,000, respectively. 
These figures were then crossed out and someone wrote $30,000 
in each category. As you may have guessed, Terra Nova's minimum 
financial requirement for day traders is $30,000 of income and 
$30,000 of net worth.
---------------------------------------------------------------------------
    \1\ See Exhibit No. 149 which appears in the Appendix on page 1187.
---------------------------------------------------------------------------
    The Subcommittee staff asked Terra Nova about the changes 
to this account form as well as four others. Terra Nova 
informed the Subcommittee that its employees made these 
changes, but contended that they were made ``with the knowledge 
and consent of the customer based on information received from 
the customer.'' However, we found 50 Terra Nova new account 
forms that were similarly altered. It is hard to believe that 
50 customers first provided the firm with incorrect financial 
information and then later informed the firm that their net 
worth and income were actually $30,000 or more.
    Some day-trading firms who formerly maintained sound 
minimum financial requirements for opening new accounts have 
lowered their standards. They have done so to compete with 
other day-trading firms who have weak minimum requirements or 
no standards at all. These firms are now accepting customers 
whom they previously considered unsuitable for day trading. 
These firms readily admit that they are doing so because they 
do not wish to lose the commission revenue generated by those 
customers.
    Not only do firms accept new customers that they know have 
very little chance of success, they also allow, and even 
encourage, those customers to trade beyond their means. For 
instance, the Subcommittee staff found that many day-trading 
firms systematically arrange for customers who cannot satisfy 
margin calls to obtain from other customers short-term loans at 
high interest rates. The firms then manage all of the 
administrative and clerical functions attendant to servicing 
those loans. As an example, we found that Momentum Securities 
used one customer's account to lend almost $10 million to 52 
customers in a single month. These margin loans often exceeded 
$100,000.
    We also found that day traders end up paying exorbitant 
commission fees throughout the course of the trading day. 
Although the fees per trade are not necessarily high, day 
traders may make up to 50 or even 100 trades per day, thereby 
generating significant fees. That means that day traders may 
spend much of their time and capital just trying to break even 
before accruing one cent of profit.
    Another troubling finding of our investigation related to 
the quality of the management and supervision of day-trading 
firms. Some day-trading firms have hired unqualified personnel 
to manage their branch offices. For example, some firms have 
hired branch managers who have little or no prior experience in 
the securities industry and some who were not even licensed. 
They have also failed to adequately train and supervise branch 
personnel after they were hired. And, despite their claims to 
teach customers everything necessary for day trading, many day-
trading firms have provided their customers with poor training, 
training that gives customers a false sense of security about 
day trading and their likelihood of success. For that training, 
customers paid thousands of dollars, and in fact, most day 
traders end up losing money.
    The testimony over the next 2 days will focus primarily on 
the case study firms All-Tech, Providential, and Momentum. I 
would like to now direct your attention to Exhibit No. 150.\1\ 
We have prepared this chart to help you understand the 
relationships between the hearing witnesses and the case study 
firms.
---------------------------------------------------------------------------
    \1\ See Exhibit No. 150 which appears in the Appendix on page 1188.
---------------------------------------------------------------------------
    Today, you will hear from former customers of these firms 
or their representatives. They will be followed by former and 
current branch managers of the firms, as well as one third-
party trader. The chief executive officers whose names appear 
on the second line of the chart will each testify tomorrow 
morning. Harvey Houtkin is the CEO of All-Tech, Henry Fahman is 
the CEO of Providential, and James Lee is the President of 
Momentum.
    In conclusion, the Subcommittee's investigation uncovered 
many disturbing, and in some cases illegal, practices by the 
day trading industry. Chairman Collins, I would be pleased to 
answer any questions that you and the Subcommittee Members 
might have.
    Senator Collins. Thank you very much, Ms. Field. I want to 
commend you for your excellent overview of the investigation 
and also to thank you for the expertise that you have brought 
from your position with the SEC's Enforcement Division to the 
Subcommittee. Your expertise in SEC and securities matters, and 
particularly on the enforcement side, have greatly assisted the 
work of the Subcommittee.
    I just want to ask you one question and it deals with an 
issue that you touched on in your statement. You mentioned that 
while day traders may not be paying that much per trade as a 
commission, that because they trade so frequently, they end up 
paying exorbitant commissions and that makes it very difficult 
for them to turn an actual profit. It is one reason the losses 
are so great for most day traders, is that a fair summary?
    Ms. Field. Yes, Chairman Collins, that is a fair summary. 
They make so many trades a day that when added up in the 
aggregate, it often accounts for a tremendous portion of their 
losses.
    Senator Collins. The Subcommittee's estimate is that the 
day traders, on average, at the firms that we surveyed would 
actually have to make more than $111,000 a year just to pay 
commissions. Have you discussed the issue of commissions with 
the regulators and do you have some idea of whether the 
Subcommittee's findings are similar to the findings of the SEC 
and the State regulators?
    Ms. Field. Yes, Chairman Collins, I have done that. I spoke 
with the regulators and what I understand from my in-depth 
conversations with them is that our findings are actually quite 
conservative. There is another study that is coming out that I 
think we will probably hear about later in this hearing which I 
think would show that our estimates are quite conservative and 
that, in fact----
    Senator Collins. You mean on the low side?
    Ms. Field. Yes, exactly. When I say conservative, I mean 
being on the low side, and that, in fact, it may be that the 
number could be quite a bit higher, depending on an individual 
trader's strategy.
    Senator Collins. I bring up this issue because I believe 
that if most day traders were told when they were opening an 
account that they would have to clear more than $111,000 a year 
just to pay the commissions before they earned a cent of profit 
for themselves, that many of those day traders, potential 
customers, would decide not to engage in day trading. It would 
help them better understand how risky this business is and how 
high the commissions are.
    Ms. Field. I would certainly agree with that.
    Senator Collins. Thank you, Ms. Field.
    Ms. Field. Thank you.
    Senator Collins. Thank you very much. Senator Levin.
    Senator Levin. I just want to thank you for your work. It 
is extraordinarily helpful, professional, balanced, and 
thorough, and I just am most appreciative and I know every 
Member of this Subcommittee has benefitted from it. Thank you.
    Ms. Field. Thank you, Senator Levin.
    Senator Collins. Senator Durbin, welcome. If you have any 
opening statement you want to make at this time, feel free to 
do so.

              OPENING STATEMENT OF SENATOR DURBIN

    Senator Durbin. In the interest of getting to the 
witnesses, I would like to just submit this for the record and 
thank you for your work on this.
    Senator Collins. Thank you, Senator.
    [The prepared statement of Senator Durbin follows:]

                  PREPARED STATEMENT OF SENATOR DURBIN
    I'd like to thank Senator Collins and Senator Levin for holding 
this hearing on the rapidly growing practice of ``day trading.'' The 
electronic day-trading industry has attracted thousands of individual 
investors who engage in the risky practice of riding the stock market's 
ups and downs, trying to squeeze out profits by rapidly buying and 
selling shares.
    The advent of the electronic communication networks and the 
Internet has dramatically changed the nature of the securities market 
and has made day trading possible for people other than traditional 
brokers. Today's market is more of a populist place--the masses on Main 
Street now have almost as much information as the aristocrats who long 
ran Wall Street. Armed with instant information from the Internet and 
CNBC, and enabled by rapid trading systems, people with very little if 
no investment experience are becoming day traders.
    The passion for trading by ordinary investors hasn't just affected 
a few select stocks, however. It has reshaped the entire market 
landscape. Since 1996, the size of the average trade on the Nasdaq has 
dropped 50 percent, to just under 700 shares. What's more, the old 
philosophy of buy and hold has gone out the window. The average Nasdaq 
stock is now held for just 5 months down from 2 years a decade ago. 
Meanwhile, trading volumes has surged--the month of January was the 
busiest ever for both Nasdaq and the New York Stock Exchange. With an 
estimated 10 to 15 percent of Nasdaq trading volume attributable to day 
traders, their impact on the markets will continue to grow.
    Hand in hand with the frenetic pace of trading is increased 
volatility. While we have all heard the countless stories about day 
traders who make it big, the other side to that coin is others who lose 
everything. As Securities Exchange Commission Chairman Arthur Levitt 
emphasized in his testimony before this Committee last fall: Day 
trading is VERY RISKY.
    Of the reported 287 day-trading firms nationwide, 29 are in my home 
State of Illinois. This figure does not include the number of firms 
that individuals may access over the Internet. The Illinois Securities 
Department in the Secretary of State's office is currently 
investigating several complaints filed against day-trading firms. A 
chief concern of Illinois officials is that day traders receive very 
limited education for what is a very sophisticated market, causing some 
traders to mortgage their homes and sell other possessions to continue 
the practice.
    I share the Committee's concern in ensuring that people engaging in 
day trading know what they are getting into. I welcome today's 
opportunity to learn more about the risks of day trading, its impact on 
the securities market and its effect on investor behavior.
    Finally, I want to welcome Ms. Alyce Wenzel who is here today from 
Huntley, Illinois and will share the tragic story of her son, Scott 
Webb. Thank you.

    Senator Collins. I would now like to welcome our second 
panel of witnesses this morning. Each of these witnesses was 
formerly a customer of either Momentum, Providential, or All-
Tech day-trading firms, or they are here today on behalf of 
former customers of the three day-trading firms that have been 
the focus of the Subcommittee's investigation.
    Our first witness is going to be Alyce Wenzel of Huntley, 
Illinois, a constituent, I realized belatedly, of Senator 
Durbin. Ms. Wenzel's son, Scott Webb, was a day trader at 
Momentum's office in Atlanta, Georgia, for 1 year before he was 
tragically shot and killed last summer. Ms. Wenzel will discuss 
how her son came to be a day trader, his financial condition at 
the time, and his experiences day trading at Momentum.
    Our next witness will be Steve Buchwalter, who is an 
attorney for Amy Le, a former customer of Providential in Los 
Angeles. Mr. Buchwalter is testifying on behalf of Ms. Le, who 
unfortunately is very ill and unable to come to Washington. Mr. 
Buchwalter will tell us how Ms. Le was induced to open a day 
trading account by a Providential day trader named Huan Van Cao 
and how Mr. Cao fared when he day traded Ms. Le's life savings.
    Next, we will hear from Carmen Margala and Sandra 
Harlacher, who are both former customers of All-Tech. They will 
discuss how they were first attracted to day trading at All-
Tech and their experiences trading at the San Diego branch 
office.
    I want to thank you all for coming forward this morning and 
I would ask that you all stand so that I can swear you in. Do 
you swear that the testimony you are about to give to the 
Subcommittee will be the truth, the whole truth, and nothing 
but the truth, so help you, God?
    Ms. Wenzel. I do.
    Mr. Buchwalter. I do.
    Ms. Margala. I do.
    Ms. Harlacher. I do.
    Senator Collins. Thank you. Before this panel begins, I 
just want to thank you all again for testifying. I know that it 
is very difficult to come forward and publicly discuss your 
experiences day trading. No one likes to admit that they have 
lost money. None of us likes to admit that we have made 
mistakes or investment decisions that did not work out well, 
and I know that it is especially hard to do this in a public 
setting. So I want to thank you very much for being willing to 
come forward. Your testimony is so important to us and it is so 
important to other people who may be considering day trading. I 
believe that by sharing your experiences, you will save many 
other people the financial losses and the embarrassment and 
pain that you have experienced. So I want to just personally 
express my appreciation to you and to commend you for coming 
forward.
    Ms. Wenzel, we are going to start with you. Again, I also 
want to personally express to you my sorrow over the loss of 
your son, and I know I speak for not only the Subcommittee 
Members but everybody here in doing so. Would you please 
proceed.

TESTIMONY OF ALYCE WENZEL,\1\ MOTHER OF SCOTT WEBB, FORMER DAY 
  TRADER WHO WAS SHOT BY MARK BARTON IN THE ATLANTA OFFICE OF 
             MOMENTUM SECURITIES, HUNTLEY, ILLINOIS

    Ms. Wenzel. Thank you, Senator Collins, Senator Levin, and 
Members of the Subcommittee. My name is Alyce Wenzel and I 
appreciate the opportunity to share my story with all of you 
here today. I do so on behalf of my son, Scott Webb.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Wenzel appears in the Appendix on 
page 126.
---------------------------------------------------------------------------
    As many of you know, Scott was a day trader at Momentum 
Securities in Atlanta, Georgia, who was senselessly murdered by 
Mark Barton on July 29, 1999. The loss of my son continues to 
haunt me today and it is still very difficult to talk about the 
incident and to reflect about him.
    Particularly troubling, though, is what I have learned 
about the world of day trading subsequent to his death. In 
fact, I wish I knew as much back then about this practice as I 
do now because I would have done everything within my power to 
keep Scott from getting involved in day trading in the first 
place. My hope is that by communicating the story of my son 
today, others interested in day trading might better understand 
the many risks and dangers associated with this industry.
    To begin, my son was an extremely bright, enthusiastic, and 
a very thoughtful person. He was also a very hard worker. 
Despite this, he experienced a number of setbacks in the months 
leading up to 1998. Among them, he lost the job that he loved 
at Enterprise Rent-a-Car, and then again, he was let go from 
Dean Witter for not meeting required quotas as a broker. I 
recall being concerned about his confidence and spirit after 
these layoffs.
    Shortly thereafter, though, he called me to say that he had 
found a new way to make a living, day trading. I admit, at the 
time, I knew little about day trading, but based on how 
optimistically Scott described the practice, it sounded like a 
positive step for him. My daughter corroborated his optimism 
about day trading when she indicated that Scott told her, ``I 
think I have finally found my niche.''
    He informed us that he was going to relocate to Atlanta 
from St. Louis with a friend and start day trading at a company 
called Momentum Securities. In preparation for this, he 
traveled to Tyler, Texas, to be trained. While there, Momentum 
put Scott up in a lavish apartment, and as my daughter 
described, wined and dined him. With that, he packed up and 
moved to Atlanta with expectation of being a successful day 
trader.
    Not long after Scott arrived, Scott started having 
troubles. His credit record was poor, a point illustrated by 
the fact that his father had to cosign for his car loan. He 
also had very little cash resources, so once again, he turned 
to his father, who loaned him $30,000 for his day trading 
activities. In addition, Scott did not have any other sources 
of income at the time, and this concerned me. Despite all of 
these facts, Momentum allowed my son to open a day trading 
account. After his death, I learned that Scott also borrowed 
$30,000 from a Momentum customer from Tyler, Texas, on the day 
he opened his account. Unbelievably, he did so at an annual 
interest rate of 18 percent.
    With the capital he was able to scrape together, Scott 
started trading. Based on what he confided to me, my daughter, 
and his girlfriend, my son lost money from the beginning. And 
in addition to the obvious pressures that accompany financial 
strains, I noticed a very real effect on Scott in general. His 
girlfriend described him as depressed often about his financial 
situation. When I spoke with him, he was not himself and he 
appeared to be under extreme pressure and stress. Right before 
his death, I called Scott to inquire if he was going to attend 
his cousin's wedding in California, and he responded that his 
financial situation was such that he did not know whether he 
had the money for a plane ticket for the event.
    As I sit here today, I still cannot understand why my son 
was allowed to trade at Momentum. He made decisions that never 
should have been presented to him as an option for a person in 
his financial situation. And I firmly believe that he was not 
adequately prepared for the harsh realities of day trading. I 
also am surprised that he was hired by Momentum to train other 
customers. Scott had a gift for working with others, but given 
the fact that he had not been successful as a day trader 
himself, it does not make sense to me that Momentum would ask 
him to show people how to trade.
    After his death, I was shocked to learn that Scott had 
tried day trading before he moved to Atlanta and was not 
successful. All told, he lost approximately $10,000 of borrowed 
money. Sadly enough, Momentum officials knew this before he 
opened the account with them, and yet they still allowed him to 
trade.
    My son was not an appropriate person to be day trading 
based on his financial situation and his background experience. 
For these reasons, he should never have been at Momentum in the 
first place. I hope my words provide comfort to all of those 
who lost family and friends on that awful July day. I also hope 
that by hearing Scott's story, people will take a closer look 
at day trading and realize the incredible risks inherent to 
this practice. By doing so, they might avoid some of the 
insurmountable pressures my son experienced. Thank you very 
much for inviting me here.
    Senator Collins. Ms. Wenzel, again, thank you so much for 
your testimony.
    Ms. Wenzel. You are welcome.
    Senator Collins. I know this is extremely difficult for 
you, but I think that you can take a lot of comfort that by 
coming forward, you are sparing others the pain and the 
financial losses that your son experienced. So I really 
appreciate your testimony.
    Ms. Wenzel. Thank you, Chairman.
    Senator Collins. Mr. Buchwalter.

 TESTIMONY OF STEVE BUCHWALTER,\1\ ATTORNEY FOR AMY LE, FORMER 
    CUSTOMER OF PROVIDENTIAL SECURITIES, ENCINO, CALIFORNIA

    Mr. Buchwalter. My name is Steve Buchwalter. I am an 
attorney whose practice regularly entails representing 
investors against brokerage firms and brokerage firms against 
investors. A client of mine, Ms. Amy Le, was invited here today 
to tell you her stories about her experiences with day trading. 
Unfortunately, Amy's health has prevented her from being here 
today and I have been invited to tell you her story in her 
stead.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Buchwalter appears in the 
Appendix on page 128.
---------------------------------------------------------------------------
    I recently read a Washington Post article entitled, ``Day 
Trading's Showcase Victim,'' and that article essentially 
asked, where were the other victims? I have read the article, 
and I can tell you I have spoken to many of the victims. I know 
other attorneys who have spoken to many of the victims. And I 
believe Chairman Collins had it right. Most people do not like 
people to know that they have lost money. They feel stupid. 
They do not want to advertise that fact. So it is a situation 
where most people simply do not come forward.
    Day trading has been around for a while. In the older days, 
we simply called it churning. It has become popular recently 
with most of the investors making the decisions themselves, and 
it takes time for these problems to work their way through the 
system, and I am speaking of the legal system here. I can 
assure you, we are seeing more and more problems coming to our 
office every month. I would say, right now, approximately 10 
percent of our cases contain at least some element of day 
trading in them. Make no mistake about it, a problem is out 
there and the problem does exist.
    In general, the two biggest problems with day trading seem 
to be the lack of disclosure of the risks of day trading to the 
customer as well as the whole day-trading strategy and whether 
or not that is suitable for the investor. Quite frankly, most 
investors do not know the risks that they are going to be 
expected to put up with when they open up an account. We have 
seen trading that is just so unfathomable that we could not 
understand the risks, and we have been doing this for years.
    In Amy's case, this was outright fraud. At the time she met 
her broker, Huan Van Cao, she was working part-time for minimum 
wage. She worked 1 day a week, made minimum wage, worked a 
Sunday. She was also a full-time mother with very minimal 
experience when it comes to investing. This was her first 
brokerage account. Mr. Cao, who was a smooth-talking, well-
dressed man, walked into Amy's store and after a brief 
conversation he gave her his business card. The card identified 
him as senior vice president of a brokerage firm. He told her 
he was also an attorney. Amy was very impressed, a stockbroker 
and attorney. She asked him, why would an attorney also want to 
be a stockbroker? His response was, it is just so easy to make 
money day trading. Then he went ahead and suggested that she 
open an account.
    After several conversations going back and forth, she was 
invited to the brokerage firm of Providential Securities, where 
Mr. Cao worked. At first, she was very hesitant, and she even 
left very hesitant. After numerous phone calls from Mr. Cao, 
Amy did agree to meet at the office. He had a big office, right 
next to the president's. After all, he was the executive vice 
president of the firm. He proceeded to get out his computer, a 
couple clicks, showing her how much money there is to be made 
with just a click of the mouse.
    Amy was very impressed, especially after he showed her some 
of his other clients' accounts. He went so far as to show her 
an account where he said there was a $1 million profit in it. 
She then agreed to open up an account and she signed a document 
which allowed Mr. Cao to place trades in her account without 
her prior authorization.
    Her initial deposit was only $10,000. When she wrote out 
her check, her hands were trembling. Mr. Cao noticed that her 
hands were trembling and told her not to worry. He went so far 
as to say how fortunate she was to have someone like him 
trading for her. She invested the remainder of her life 
savings, $26,000, after she received glowing reports from Mr. 
Cao as to how much money she was making. It was a lie. She was 
losing money.
    At the time, Amy was driving around in an old beat-up car. 
Living in Southern California, she wanted to have a car with 
air conditioning. She was ecstatic when Mr. Cao asked her 
between a Mercedes, BMW, and a Lexus, what kind of car do you 
like best? She asked Mr. Cao, ``Is my account doing that 
well?'' He said yes. He further told her that she should go out 
and start shopping now because it takes a little bit of time to 
buy a car. Again, at that time, she was really losing money.
    Amy's monthly statements appeared to show the account was 
losing money, as well. Mr. Cao told her that because of the 
turnover in the account or the fact that because of day 
trading, by the time you get your statements, most of the 
positions are probably closed out anyway and that fact that the 
brokerage firm was miscalculating the value of her long 
positions, she was really making money. And the fact that she 
was continuously making money was consistently referred to her. 
All those statements were lies. The truth was, over $36,000 
invested, she had lost $22,000 in just 3 weeks. However, based 
on Mr. Cao's assertions, she still thought that she was making 
money.
    While she was still believing that she was making money, 
she made her last deposit. This last deposit was the life 
savings of Amy's mother. It was $12,000 and the money was 
earmarked to renovate Amy's grandparents' or her mother's 
parents' burial plots in Vietnam. Amy made this perfectly clear 
to Mr. Cao, and in fact, he wrote a letter to her saying how he 
understands how important this money is and reemphasizing how 
careful he is going to be. That same letter also talked about 
his successes with other clients. That was another lie.
    Every time that Amy talked to Mr. Cao, she was falsely told 
that she was making money. In her eyes, it was strange that 
these statements that she was making money contradicted the 
monthly statements that she was receiving every month. She 
became very puzzled, very concerned, and she was doing whatever 
she thought she could to try and find out whether or not Mr. 
Cao's statements were true. She would look through every 
document she ever got, she would find names and she would call 
names. She would call the names on the statement. She would 
call the names on the faxes. She finally found someone that 
would talk to her. The person that talked to her said, ``You 
are losing money.''
    When she confronted Mr. Cao with this, she was told that 
the person that she talked to was new. She had no idea what she 
was talking about, but if Amy felt uncomfortable, he would go 
ahead and buy out her account. She deposited $48,000. He 
offered to give her $48,000. He even had a contract written 
out. It was signed by both parties. Amy went to the offices of 
Providential in order to turn over the contract and get her 
check. At that time, Mr. Cao told her that he was not really 
going to go through with it. Amy became very upset and she 
started crying. Apparently, Mr. Cao took that as a personal 
affront. He saw that there was no more money to be made from 
Ms. Le and threatened that if she did not stop crying, he would 
lock down the building, call security to have her escorted out, 
and ruin her credit.
    Amy immediately left, went home, faxed Providential a 
letter saying, liquidate my account and send me my money. They 
did do that. When all was said and done, she lost in excess of 
$35,000, which is almost completely her net worth or her life 
savings, in just 2 months. She also found out that Mr. Cao was 
not licensed as a stockbroker, nor was he an attorney. He also 
told her that he had the authority to investigate other firms 
on behalf of the NASD. That was not true, either. It had all 
been a lie. Amy realized that Mr. Cao was a predator and she 
was just his prey.
    At that point, she contacted my office. We filed an 
arbitration with the National Association of Securities Dealers 
Arbitration Department asking for her money back. Providential, 
strangely enough, disavowed any knowledge of Cao's activities. 
The NASD awarded Amy all of her money back plus interest. The 
award was split up between the various respondents, including 
Providential. Amy did receive a partial payment of a little bit 
more than $13,000 when Mr. Cao filed for bankruptcy. She has 
not seen one penny of the rest of her award.
    Amy feels like she did everything right. She invested with 
a licensed stockbroker. She visited the brokerage firm. Her 
broker guaranteed to make her whole when there were losses. 
When he did not, we filed an arbitration. The arbitrators 
awarded her all of her money back, plus interest. She still has 
not seen her money.
    Amy, like other investors, had no idea what she was getting 
into, no idea. Her $48,000 deposit bought almost $1 million in 
securities in just 2 months. We have seen cases where an 
account with only $100,000 in it bought over $200 million in 
securities in just 1 month--$200 million. That is a trade every 
1.3 minutes. We have seen investors' losses so high where even 
the firm cannot make good, the firm or the investor cannot make 
good on the losses. In that particular instance, the SEC 
stepped in and closed the firm down. Somebody is paying for 
these people's losses. Maybe it is the brokerage firms. Maybe 
it is us as taxpayers. There is a problem here and it will not 
go away without your assistance. Thank you.
    Senator Collins. Thank you, Mr. Buchwalter. I hope you will 
convey to Ms. Le our hope for her speedy recovery.
    Mr. Buchwalter. Thank you.
    Senator Collins. Thank you for your testimony. Ms. Margala.

  TESTIMONY OF CARMEN MARGALA,\1\ FORMER CUSTOMER OF ALL-TECH 
                 DIRECT, OCEANSIDE, CALIFORNIA.

    Ms. Margala. Good morning. My name is Carmen Margala. I 
reside in Oceanside, just north of San Diego, California, and I 
am a former client of All-Tech Investment Group. Prior to my 
experiences at All-Tech, I bought and sold some stocks, mostly 
on a long-term basis, but had never engaged in day trading of 
securities.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Margala appears in the Appendix 
on page 131.
---------------------------------------------------------------------------
    In approximately August 1998, I saw an All-Tech television 
commercial which made it appear quite easy to make money and 
achieve financial independence as a day trader at All-Tech. The 
commercial featured Barry Parish, the manager of All-Tech's San 
Diego office and the ad stated that I could start with as 
little as $10,000.
    At the time, I was not employed, I had no income, and I was 
looking for a new profession, so I contacted Mr. Parish by 
telephone and then met with him at the All-Tech office. Mr. 
Parish explained that people make money by trading and scalping 
the difference between the bid and the ask price of a stock, 
and then demonstrated this on a computer program. When I asked 
whether people were making money doing this, he told me that 
they were.
    Mr. Parish provided me with forms to open an account at 
All-Tech, and when I returned with the forms, Mr. Parish told 
me that I needed $20,000 to open the account. Neither Mr. 
Parish nor anyone else ever discussed risk or my tolerance for 
risk, my background, goals, or objectives, past experiences, my 
financial position, or anything else other than how much money 
I could deposit in the All-Tech account. Since I did not have 
much money or significant net worth, I opened the account with 
$20,000. I paper traded my account for 1 month and then began 
live trading so that I could earn an income.
    I experienced problems with the trading equipment that All-
Tech provided to us. For example, I repeatedly experienced 
inaccurate quotes. At times, the quotes appeared to have been 
delayed as much as 13 minutes. All-Tech set up a special 
computer line for Mr. Parish which would at least provide him 
with accurate quotes, but even these were sometimes behind the 
market. The inaccurate quotes resulted in losses in my All-Tech 
account.
    The trading software or system also allowed the purchase of 
any amount of stock, regardless of what was in my account. 
Without knowing it, I generated a number of margin calls, which 
Mr. Parish then arranged for other clients to cover. Further, 
during much of the time I was at All-Tech, the system could not 
even show me the status or balances in my account. To encourage 
trading, the upgraded computers were given to those persons 
that executed the highest number of trades.
    The atmosphere in the trading room at All-Tech was like a 
circus. Mr. Parish would sometimes play games, directing 
clients to buy or sell. If there were losses, Mr. Parish would 
cover the losses. If there were gains, they would end up as a 
credit for the benefit of Mr. Parish.
    Mr. Parish allowed one All-Tech client to trade other All-
Tech clients' accounts. A fellow All-Tech client told me that 
Mr. Parish personally provided him with clients' accounts to 
trade. Neither of these people had a broker's license of any 
kind.
    Mr. Parish would sometimes stand in front of his computer 
in the All-Tech trading room and shout out to the room or to an 
individual client to load to buy. Other times, Mr. Parish would 
give instructions to get ready to sell stocks which he had 
picked.
    All-Tech applied enormous pressure to trade our accounts. 
Mr. Parish would sometimes stand next to me or other All-Tech 
clients who were seated in the room and tell us what to trade 
and when to trade. In addition to the pressure to constantly 
trade, Mr. Parish made it very difficult to focus upon what we 
were doing.
    Other forms of trading pressure at All-Tech were indirect. 
For example, Mr. Parish oftentimes discussed other All-Tech 
clients and made statements such as, ``He just comes in to take 
up space. I need people that trade.''
    All-Tech also pressured its clients to cover other clients' 
margin calls. At times, Mr. Parish simply shouted the margin 
call request across the trading room. These requests were not 
limited to clients within All-Tech's San Diego office. The 
added pressure of trading with margin money loaned by other 
clients was very stressful for me.
    Eventually, I realized that what All-Tech had told me about 
making money and day trading was false and I left All-Tech. 
Unfortunately, before I left All-Tech, I sustained tens of 
thousands of dollars in losses, due in part to the commissions 
which All-Tech realized from my account. Thank you.
    Senator Collins. Thank you very much, Ms. Margala. We 
really appreciate your sharing your experience so candidly with 
us today.
    Ms. Harlacher, please proceed.

 TESTIMONY OF SANDRA HARLACHER,\1\ FORMER CUSTOMER OF ALL-TECH 
                DIRECT, SOLANA BEACH, CALIFORNIA

    Ms. Harlacher. I reside in San Diego, California, and am a 
former client of All-Tech Investment Group. Prior to trading at 
All-Tech, I had minimal investment experience and I had never 
day traded or short-term traded securities.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Harlacher appears in the Appendix 
on page 133.
---------------------------------------------------------------------------
    In early 1997, I saw a couple of different All-Tech 
advertisements on television. The ads made day trading look 
easy and simple. The ads stated that All-Tech could level the 
playing field with the professionals and show me everything I 
needed to know to make money as a securities day trader. The 
ads portrayed day trading as a new career which would give me 
the opportunity to earn as much money as I wanted and become 
financially independent for life. The impression given was that 
day trading was simple and easy and anyone could do it.
    After seeing the television ads, I visited All-Tech's 
office in San Diego, California, and then attended a seminar 
presented by Harvey Houtkin, the CEO of All-Tech, at a hotel in 
La Jolla, California. During the seminar, Mr. Houtkin extolled 
the virtues of the All-Tech system and stressed that All-Tech's 
training course and All-Tech's methods had created a level 
playing field which enabled the average individual to trade 
with professional market makers on equal terms and enabled the 
average individual to do well day trading in the stock market. 
Mr. Houtkin promised that All-Tech would teach everything one 
needed to know to be successful in the stock market. Mr. 
Houtkin and All-Tech implied that if you had the slightest bit 
of intelligence, you could make money day trading, and this 
gave me the strong impression that it involved little or no 
risk at all.
    I paid $3,000 and took All-Tech's training course. The 
course was taught in All-Tech's San Diego office on a Saturday 
and a Sunday. The All-Tech course did not teach me how to be 
successful in the stock market. Rather, All-Tech taught me how 
to use the software and trained me to enter orders as 
frequently as possible to generate commissions for All-Tech. No 
one at All-Tech ever discussed risk or my tolerance for risk, 
my background, goals, or objectives, past experiences, my 
financial position, or anything else. At All-Tech, none of this 
information seemed to matter. Furthermore, although some 
written documents contained disclosures, All-Tech led me to 
believe that anyone with ordinary intelligence simply could not 
fail at this.
    I lost a tremendous amount of money trading at All-Tech and 
left All-Tech after only a few months. I realized that I did 
not know what I needed to know, and I had not been taught by 
All-Tech what I needed to be successful day-trading stocks. 
Additionally, the monies I lost were a sizeable portion of what 
I had been able to accumulate over my lifetime and it will be 
extremely difficult at this point in my life to try to earn 
those monies back.
    After I left All-Tech, I decided to pursue a proper 
education and took courses on technical analysis and read 
numerous books about the stock market in general and analyzing 
and trading in the stock market in particular. I also studied 
for, took, and easily passed the Series 6, 7, and 63.
    My education after leaving All-Tech made me realize how 
little All-Tech had taught me. I was trading at All-Tech, but 
did not know enough to realize that I really did not know what 
I was doing. All-Tech had basically trained me to enter orders 
but had not taught me why. The bottom line at All-Tech was that 
they wanted you to trade and trade often. All-Tech set me and 
others up for failure because they taught virtually nothing 
about how the market works, the strategies of the market 
makers, order flow, or the price action of stocks. Perhaps even 
more importantly, All-Tech taught me nothing about money 
management or risk management. Further, the staff at All-Tech 
constantly reiterated that anyone could be successful day 
trading. The risks attendant to day trading were either never 
discussed or extremely downplayed.
    During the few months I was at All-Tech, I also found that 
the environment was more conducive to failure than to success. 
Mr. Parish was constantly harassing me and others, often making 
suggestions regarding which stocks to buy and sell, including 
when to buy and sell. When I was hesitant to trade, he would 
egg me on, telling me that I would never get experience or 
learn how to trade or make up my losses unless I traded often.
    After I had been at All-Tech for a while, I realized that 
most people were losing and not making money. When I suggested 
to Mr. Parish that he was going to lose his clients if most of 
them continued losing money, he told me that he was not 
concerned because there was always another body around the 
corner. I left soon after that comment.
    Senator Collins. Thank you very much, Ms. Harlacher. I am 
very impressed that after your experience, you went to such 
great lengths to become very educated and actually took your 
securities exams, and I will be asking you in a moment what the 
benefit of hindsight and that education has given you as you 
look back on your experience.
    Ms. Wenzel, one of the concerns that I have is that often 
times first-time day traders have no idea of how risky day 
trading is. You mentioned that your son, Scott, told you how 
excited he was about embarking on this new career and how 
optimistic he was about his chances of success. Do you think 
that he had any concept, any idea when he decided he was going 
to day trade for a living just how risky and speculative this 
activity was?
    Ms. Wenzel. No, I do not, and the reason I say that is 
because whenever he went to Atlanta, he thought he was going to 
be rich, he was going to have this lavish lifestyle, and 2 
weeks after he was in Atlanta, when I talked to him, he was a 
different person.
    Senator Collins. Because by then he had started losing 
money already?
    Ms. Wenzel. Then, I think the realities were beginning to 
set in. I had no idea that he had borrowed another $30,000 from 
Momentum. All his money was borrowed to begin with, but his 
father, we could have dealt with that. But he was in so deep, 
he felt he probably could not get out. He had to keep going, 
and he was stressed. The first time I saw him after he came 
home from Atlanta, I could see in his eyes, Scott had lost some 
weight and he was very, very stressed.
    Senator Collins. And he had gone through a difficult 
period. He had lost two jobs. He was not currently employed. As 
you said, all of the money he used to open his account was 
borrowed. He had very little cash. His credit record was not 
good. You subsequently learned he had lost money at a previous 
firm. Is it your impression that Momentum was aware of his poor 
financial condition and the fact that it was borrowed money--
they were obviously aware of some of it, because they arranged 
for the money to be borrowed--when they approved him as a 
client?
    Ms. Wenzel. Well, if they were not aware, they should have 
been aware, because they should have checked. If anyone has to 
come in and before they even get started they have to borrow 
$30,000, that has to tell you something. And I am sure the 
stress he was under, because he kept that from his family. None 
of us knew that. We thought he was--just the money his father 
had loaned him was what he was going to get started with. In 
the meantime, with all this other stress, not letting anyone 
know, and then losing it on top of it and being down all the 
time, he was under a tremendous amount of stress. He was 
covering from all sides. I do not think he even knew where to 
turn.
    Senator Collins. One of my concerns is that day-trading 
firms are enticing perhaps naive individuals like your son who 
are investing money they cannot afford to lose. In this case, 
it was not even his money, is that correct?
    Ms. Wenzel. That is correct.
    Senator Collins. Ms. Margala, when you went to inquire 
about opening up your account and you found you were enticed by 
this ad that again appeared to offer the prospect of each 
riches, did anyone sit you down at the firm and say, now, wait 
a minute. Your financial situation really is not that strong 
and you could lose a lot of money day trading. Did anyone warn 
you of the risks involved?
    Ms. Margala. No, no one did. That was not even discussed. 
In actuality, what occurred is I asked if anybody was making 
money and several people were pointed out to me as making 
money.
    Senator Collins. Mr. Buchwalter, when Amy Le opened her 
account, and we have a copy of her new account form which I 
think you have been provided with a copy of--if not, I will ask 
the Subcommittee clerk to give you a copy, as well--this form 
indicates that Ms. Le did not provide her information on her 
net worth. It also shows that she checked income as her 
investment objective. Do you know what Amy Le's financial goal 
was for opening a day trading account with Providential and Mr. 
Cao?
    Mr. Buchwalter. Her goal was to basically beat the 6.25 
percent interest rate that the CDs were charging. What she 
really wanted to get out of this was an air conditioned car. 
She had no idea what she was getting into, and the reason why 
income was checked is because it was at the top of the list, 
and what she said was top of the list would be less risky. It 
is the farthest away from short-term growth. It is the farthest 
away from long-term growth. It is the top of the list. It 
should be the least risky.
    Senator Collins. So she felt that by switching to day 
trading, that she was actually moving to an investment that 
would give her a higher rate return but that was not 
particularly risky, is that fair?
    Mr. Buchwalter. As a matter of fact, what she was told is 
that Providential had two different programs, one where they 
would guarantee a return of 20 percent and one where they would 
do the day trading for you. Mr. Cao recommended the day trading 
for you because the returns are higher, the risk is lower. His 
particular words were, ``If a stock starts to drop, my computer 
tells me. I immediately click the sell button. How can you 
lose?'' And ``how can you lose'' seemed to be the theory 
throughout any risk disclosure. How can you lose? This is not 
risky. How could you lose? Can I lose money? How could you 
lose?
    Senator Collins. And Ms. Le was working, you said, part-
time at minimum wage. This really was her life savings, is that 
correct?
    Mr. Buchwalter. It was more than just her life savings. It 
was also her mother's life savings, yes.
    Senator Collins. So this was not what we would commonly 
consider to be risk capital, money that she could afford to 
lose?
    Mr. Buchwalter. Correct, and they went so far as to arrange 
loans for Amy, also.
    Senator Collins. Now, this new account form also indicates 
that she initially funded her account at Providential with a 
$10,000 deposit. Did you know that at the time that Ms. Le 
opened her account, that Providential's stated minimum deposit 
requirement was $50,000 and not $10,000? Is that a fact you 
subsequently learned?
    Mr. Buchwalter. That is a fact I subsequently learned, but 
the important thing is, right now, we see a blank on the bottom 
right where it says required signature. That was eventually--
sometime during the hearing, we got that back signed by a 
corporate officer of Providential, which means by signing that, 
the officer says that he has read everything, everything is 
proper, she is suitable for this, and he also signed something 
saying that he knew Amy for a year when they have never met.
    Senator Collins. And this was signed by an official of 
Providential?
    Mr. Buchwalter. A corporate officer, right.
    Senator Collins. The corporate officer. I bring up that 
fact because, as you well know, Providential has tried to wash 
its hands of this case and put the blame entirely on Mr. Cao. 
Could you tell us the results of the arbitration, the National 
Association of Securities Dealers, and what the findings were 
of NASD on the issue of who was responsible for the losses in 
Ms. Le's account?
    Mr. Buchwalter. Well, the first thing I would like to say 
is that the broker of record for her account was a corporate 
officer of Providential. When I mentioned that she received 
$13,000 back, that was paid for by Providential Securities and 
that was the part of the award that they were responsible for. 
By being held responsible for at least part of the award, I 
would say that the NASD panel felt there was some liability. 
Maybe they felt that at a certain point, Providential should 
have known what was going on and that is the time that they 
should have stopped it. It is very hard to read into the minds 
of arbitrators, but that is the way I took it.
    Senator Collins. Did Mr. Cao have total discretion over Ms. 
Le's account at all times? Did he trade as he wished, or 
pursuant to her direction?
    Mr. Buchwalter. He had pretty much total discretion except 
he was not allowed to take funds out of the account. Other than 
that, he can pretty much do whatever he wanted.
    Senator Collins. And in California, it is my understanding 
that a person who trades for another has to be licensed as an 
investment advisor, is that correct?
    Mr. Buchwalter. After a certain amount of clients----
    Senator Collins. A certain number of customers?
    Mr. Buchwalter [continuing]. Which Mr. Cao did exceed.
    Senator Collins. And, to your knowledge, was Mr. Cao 
registered as an investment advisor in California?
    Mr. Buchwalter. He was not.
    Senator Collins. And to date, Mr. Cao has not paid Ms. Le 
the money that the arbitrator ruled that he owed her, is that 
correct?
    Mr. Buchwalter. I believe approximately 2 months after we 
received the award, Mr. Cao filed for bankruptcy.
    Senator Collins. Thank you. Ms. Margala, did you know at 
the time that you opened your account that All-Tech's minimum 
standards required at least a $50,000 deposit?
    Ms. Margala. No, I did not.
    Senator Collins. So no one said to you when you went 
forward to open your account originally with $10,000 that you, 
in fact, to meet their requirements needed $50,000?
    Ms. Margala. No. As a matter of fact, the commercial that 
sort of lured me into this whole thing stated that the minimum 
requirement was $10,000. That was all you needed to trade, to 
open an account, was $10,000, not the $50,000.
    Senator Collins. And was the $20,000 that you ultimately 
used to open your account, was it risk capital? Was it money 
that you could afford to lose?
    Ms. Margala. It was not money I could afford to lose. It 
was savings. I was unemployed at the time and that was money 
that we were using for our livelihood, for a nest egg. It was 
not money I could afford to lose.
    Senator Collins. Ms. Harlacher, I mentioned that I was 
impressed that you went on to learn a great deal about the 
securities industry. Now, it is my understanding from your 
testimony that you took All-Tech's 2-day training course and 
you paid good money for it. You paid $3,000 for that course. 
Based on what you know now, how would you evaluate the quality 
of All-Tech's training course?
    Ms. Harlacher. I think it was totally inadequate. All it 
really taught you to do was operate the software and to make as 
many trades as possible and to rack up as many commissions as 
possible for All-Tech, and All-Tech charged $25 a trade at that 
time, and they also encouraged you to trade no less than 1,000 
shares of any particular stock at one time, but they taught you 
nothing about the price action of stocks, how to read charts, 
technical analysis, fundamental analysis, nothing like that.
    Senator Collins. So, really, the course taught you the 
mechanics of how to trade quickly and often, is that fair?
    Ms. Harlacher. Right. In other words, what they taught you 
was to scalp for eighths and quarters, or in other words, churn 
your account. Basically, that is all they taught you. They were 
interested in you trading as often as possible and that is all 
that seemed to matter.
    Senator Collins. My time has expired. I am just going to 
ask you one more question. I understand that when you first saw 
an All-Tech advertisement, that you went in person to the San 
Diego branch office and you attended the seminar. At any point 
along the way, in the training course, when you were talking 
with All-Tech officials at the San Diego office, did anyone 
explain to you how much you might be racking up in commissions 
each day through all these trades and how risky it was and that 
the probability was that, at least initially, you were going to 
lose your money?
    Ms. Harlacher. Not at all.
    Senator Collins. Thank you very much. Senator Levin.
    Senator Levin. Thank you, Madam Chairman, and I want to 
thank all of our witnesses for coming forward.
    First, Ms. Margala, you said that you first paper traded 
your account before you did live trading, so that you went 
through a process of using a computer to see what you would 
gain or lose if you actually bought or sold, but not actually 
buying or selling, as I understand it.
    Ms. Margala. That is right.
    Senator Levin. Did you lose money when you paper traded?
    Ms. Margala. No, I did not.
    Senator Levin. Did you make money?
    Ms. Margala. Oftentimes, yes, money was made.
    Senator Levin. How do you explain that you made money when 
you paper traded, but later on you lost money?
    Ms. Margala. That is a good question. That is a question I 
asked Mr. Parish at one point, and how it was explained to me 
was that paper trading is different in that there is actually a 
live person there who fills out a sheet and somehow walks it 
to--I am not sure exactly how it works, but the general gist of 
it is that they can--if you want several shares of a certain 
stock, they can give it to you because it is like Monopoly. It 
does not mean anything. So it is not an adequate representation 
of live trading.
    Senator Levin. How long did you engage in paper trading 
before you started the real thing?
    Ms. Margala. From 3 weeks to a month.
    Senator Levin. You were given, you said in your testimony, 
inaccurate stock quotes by the company. At times, their 
computers were running behind, or for other reasons, they gave 
you inaccurate quotes, and you said that the inaccurate quotes 
resulted in losses in your All-Tech account. If those quotes 
had been accurate, do you know whether or not you would have 
made money? Can you tell whether you would have made money in 
those cases where you were given inaccurate quotes?
    Ms. Margala. There is no way for me to determine that, but 
what I can determine is, because as soon as you purchased that 
stock, you are an instant loser if the stock was going down. 
For instance, if not myself, another client purchased a stock, 
$200 stock, bought $1,000 shares of it, and as soon as he 
purchased it, it was down 20 points, so he was an instant loser 
because of the timing difference, and that had occurred to me 
and a lot of the losses I sustained at All-Tech was because of 
the bad quotes.
    Senator Levin. I want to ask you about margin calls, buying 
on margin. Each of you, how were you notified about the margin 
call, or were you notified about the margin call? Ms. 
Harlacher, let me ask you first.
    Ms. Harlacher. I cannot actually recall ever having a 
margin call. I tried to be very careful not to have one. I 
was--I had become aware of what the ramifications of margin 
were and I did not want to get into that situation.
    Senator Levin. All right. Ms. Margala.
    Ms. Margala. You were not always notified, to answer your 
question. Sometimes, and often, Barry Parrish would come up and 
tell me that I had a margin call, which I did not know about. I 
did not even know how I had generated it or why I would have 
it. But I think what is important to state here is that the 
computer allowed me to buy whatever I wanted, then there was no 
tabulation in the system that showed me where my account was 
at. So, in essence, it is whatever was in my account at the 
time, I could purchase even $1 million worth of stock, and 
that, of course, would generate a margin call.
    Senator Levin. So you were not cut off automatically by the 
computer when that happened?
    Ms. Margala. No.
    Senator Levin. Now, when you did generate a margin call, 
did you then have to borrow money from somebody to cover it?
    Ms. Margala. What happened----
    Senator Levin. Was there a short-term loan that was made to 
you by somebody to cover that?
    Ms. Margala. There was, yes.
    Senator Levin. And how often did that happen?
    Ms. Margala. Actually, that only happened to me, I believe, 
on three separate occasions, and it is a major reason why I 
never went back to All-Tech. For me, it was so much stress, 
that on top of learning about my money, to be worried about 
paying other people back, it was an insurmountable amount of 
pressure for me.
    Senator Levin. Did they tell you how much interest you were 
going to be paying for those short-term loans?
    Ms. Margala. I believe there was no interest, not that I 
know of. I do not know.
    Senator Levin. They did not describe to you what the 
circumstances were?
    Ms. Margala. No.
    Senator Levin. OK. Mr. Buchwalter, can you tell us about 
margin calls for Ms. Le?
    Mr. Buchwalter. Yes. Amy's situation was a little bit 
different, where she was not the actual person in the firm 
doing the trading. She had Mr. Cao for that. Mr. Cao would 
receive any notices of margin calls. They would not be 
forwarded to Ms. Le. At one specific time, Mr. Cao telephoned 
Ms. Le with great news that the president of the company has 
approved a new program for small businesses to help them out by 
funding them. She was asked to sign some documents in blank, 
and those blank documents basically authorized a partner of one 
of the corporate officers of Providential to make loans to Amy 
Le. They would fill it out when they wanted to fill it out. 
They would submit it. So there was margin calls and margin 
calls were filled by loans that were generated by one of the 
presidents of the brokerage firms through his partner. The 
interest rate was $10.20 a day, which equated out to 18 
percent, which according to California is considered loan 
sharking.
    Senator Levin. I am sorry, $10 a day per what?
    Mr. Buchwalter. Ten-dollars-and-twenty-cents a day, and I 
think it was about a $21,000 loan.
    Senator Levin. So for $10.20, you could borrow $20,000 for 
a day, is that what it came down to?
    Mr. Buchwalter. Correct.
    Senator Levin. OK. Do you have anything, Ms. Wenzel, on 
that subject that you know about?
    Ms. Wenzel. I honestly do not know anything about the 
margin call. I have learned things since Scott's death that he 
had had numerous margin calls, but I honestly do not know.
    Senator Levin. All right. And again, Mr. Buchwalter, the 
money that was covering the margin, that came from the company 
or one of its officers, is that correct?
    Mr. Buchwalter. It came from--we have seen a prospectus and 
the prospectus was for a new type of investment for 
Providential investors, and what the prospectus asked you to do 
is put up money, and when you put up money, you become a 
partner in this investment. The prospectus basically guaranteed 
the investor, the people that put up this money, that so many 
of Providential's customers are going to need this margin 
money, are going to trade beyond their means, that they could 
guarantee the investors 10 percent return. And it happens to be 
a little bit easier when your agents are doing the trading, 
which is in Amy's case.
    Senator Levin. So on the one hand, they are charging people 
to train them to become day traders, making money off that, 
making gobs of money off the trades, the thousands of trades, 
hundreds a day, tens of thousands a month that each trader is 
doing. Each of those trades puts money into the pocket of the 
company.
    Mr. Buchwalter. Correct.
    Senator Levin. And then you are saying that that same 
company is telling other people, hey, we have got all these 
other customers of ours that are going to get into trouble, 
have to borrow money short-term, and if you will give us money, 
we will lend it to them and guarantee you a 10 percent return 
on money which we then lend to those other customers of ours?
    Mr. Buchwalter. That is correct.
    Senator Levin. That is a triple whammy.
    Mr. Buchwalter. And it helps when you are in the position 
to make it so, to control the amount of trading, where you are 
in a position to control the amount of margin that needs to be 
borrowed, and when you are in the position to put up the money.
    Senator Levin. And then when you get above your margin 
call, we will find other people who will lend you the money. We 
will pay them 10 percent and then, presumably, keep 8 percent 
for ourselves. If it is an 18 percent interest rate, OK, on 
that assumption, if they are paying people 10 percent for 
putting money into that pot, lending it to the customer who is 
above the margin at 18 percent, then the company is making 8 
percent on that money, as well, under that hypothesis, is that 
right or not?
    Mr. Buchwalter. I could not go that far. From what I have 
seen, the interest went into the lender's account. But this was 
before that investment program got set up. One of my clients 
was solicited with that program, and once we saw it, it gave us 
a bigger picture of what was going on. Whether or not that 
program actually went through, I do not know, but I do know 
that it was the partner of one of the officers of Providential 
that was arranging for the loans.
    Senator Levin. And presumably making some money on that?
    Mr. Buchwalter. Absolutely.
    Senator Levin. To each of you, when you indicate you were 
not told about risk, did you ask about risk? Let us start with 
Ms. Harlacher.
    Ms. Harlacher. Not really.
    Senator Levin. And if you did ask about risk, what was the 
response?
    Ms. Harlacher. The risk was never really a factor. It was 
stressed to such an extent how much money could be made in this 
profession, as they called it, and they reiterated time and 
again that they would teach us everything that we needed to 
know in order to be successful. The risk never seemed to be a 
factor whatsoever.
    Senator Levin. So you did not make any specific inquiry, 
what is the risk here?
    Ms. Harlacher. I might have in passing, but it seemed so 
inconsequential, it just did not seem material.
    Senator Levin. Thank you. Ms. Margala.
    Ms. Margala. Senator Levin, I asked if people were making 
money and I was told yes, so, therefore, I assumed that that 
was the case. As far as me asking, what is the risk, I do not 
know that I ever did that.
    Senator Levin. OK, thank you. Ms. Buchwalter.
    Mr. Buchwalter. Amy did. The response was, how could you 
lose?
    Senator Levin. How could you lose? Ms. Wenzel, do you want 
to comment?
    Ms. Wenzel. I cannot answer that because I do not know.
    Senator Levin. Thank you.
    Senator Collins. Thank you. Senator Durbin.
    Senator Durbin. Thank you, Madam Chairman. As I listen to 
this testimony about day trading, I come to the conclusion that 
Tony Soprano would be a better expert witness than Louis 
Ruckheyser to describe what is going on here. This sounds an 
awful lot like gambling and it appears that it is stacked 
against those who are new to the business.
    I would like to ask just a few questions about some of the 
experiences you have had. Ms. Wenzel, yours is the most tragic. 
To lose money is one thing, but a son is just devastating.
    Ms. Wenzel. We could have handled the money.
    Senator Durbin. Sure. Let me ask you about your son's 
source of money. You mentioned that your husband or his father 
had loaned money to him as part of this undertaking?
    Ms. Wenzel. Yes, he did. He loaned him $30,000 to get 
started with.
    Senator Durbin. Do you know any other sources of funds for 
your son's trading?
    Ms. Wenzel. Scott had no other sources. I remember when he 
first told me that he was going to be doing this venture, he 
had told me that his father had loaned him the money and that 
was pretty much it. I mean, he never--I assumed that that was 
all he was going to need to get started with whatever he was 
doing. None of us, until after his death, even knew that the 
company had loaned him this other money. We were shocked.
    Senator Durbin. How much was loaned to him by the company?
    Ms. Wenzel. Thirty-thousand dollars at 18 percent.
    Senator Durbin. Over and above the father's loan?
    Ms. Wenzel. Yes, to open the--to get started.
    Senator Durbin. Were there any other sources of loans that 
you were aware of for your son's trading?
    Ms. Wenzel. None that I am aware of.
    Senator Durbin. And his education and training prior to 
doing this, did it involve any experience with this field?
    Ms. Wenzel. To my knowledge, no. The only--if you want to 
call it experience--he was at Dean Witter for a short period of 
time, I think probably a year, and he did not meet his quota 
so, therefore when the year was up, then he was let go because 
he had not met his quota. And I had no idea that he had done 
any day trading after he left Dean Witter. That was, again, a 
surprise.
    Senator Durbin. I might ask these other questions of the 
other witnesses because you have no personal knowledge of what 
was in your son's mind at certain times, but thank you again 
for being here.
    Ms. Wenzel. Thank you.
    Senator Durbin. Ms. Margala and Ms. Harlacher, we are 
concerned about warning people about risk and whether adequate 
warnings are being given. Would it have made any difference to 
you? If we had told you you could lose it all in a matter of a 
day or a week, would it have made any difference?
    Ms. Margala. Absolutely. As I said, I was unemployed at the 
time. If I knew that that money could have been lost just like 
that, I would not have done it. Also, the advertisement that 
lured me in touted day trading as a profession, and I was 
looking for a new profession at the time. I was in real estate 
before and my real estate brokers license had just expired at 
the end of June and this I started doing in August. So I was 
made to believe that this was a profession, something new, that 
I was in on the ground floor of something, so to speak.
    Senator Durbin. Ms. Harlacher, was that your experience, as 
well?
    Ms. Harlacher. That was my experience, as well, but what I 
would like to reiterate is that they kept on stressing the fact 
that anyone who had a modicum of intelligence simply could not 
fail at this because they would give you all the tools you 
needed to be successful, and if you had an ounce of 
intelligence, there is no way you would not make money. And I 
was also looking for a new profession at the time. They 
promised us this would be a new profession. It would enable you 
to become financially independent. They might have mentioned 
risk in passing, but all these other aspects were so stressed 
and so magnified that the risk factors seemed to be minimal or 
practically nonexistent.
    If I had been made aware of the true state of affairs, if I 
had understood that the course was so inadequate and that it 
was all slanted to their advantage--it set people up for 
failure, basically, because it did not teach you anything that 
you really needed to know in order to trade. If I had had any 
knowledge of any of these factors, I never would have gotten 
involved.
    Senator Durbin. Well, it seems to me that there are built 
into the system, or there should have been built into the 
system, some firewalls to protect people from your experience. 
One of them was a training course which virtually everyone has 
conceded was totally inadequate to----
    Ms. Harlacher. Absolutely, but there are training courses 
and training courses, as I have since discovered.
    Senator Durbin. Yes, you have. So you learned that hardware 
that you were going to work with----
    Ms. Harlacher. Absolutely.
    Senator Durbin [continuing]. But you did not learn about 
the volatility of the market and how you could profit from it?
    Ms. Harlacher. Nothing whatsoever about that.
    Senator Durbin. Is that your experience, Ms. Margala?
    Ms. Margala. I never took the training course. It was 
discussed--it was offered to me. However, I did not have--I 
came in with $20,000. Mr. Parish at that time knew I did not 
have the money for it. He did not require that I take the 
course.
    Senator Durbin. At any point, did this sound too good to be 
true?
    Ms. Margala. In hindsight, maybe, not then.
    Senator Durbin. Let me ask you about margin calls, because 
we have built this into the whole system with the idea that 
people just could not go crazy. At some point, you had to have 
real money. You just could not speculate beyond your means.
    Now, I believe in your testimony or one of the others on 
the panel suggested that margin call requirements could not 
keep up with the trading and volume on a day-to-day basis. Is 
that what you said earlier? I do not want to put words in your 
mouth.
    Ms. Margala. If you mean by that--what actually I found is 
that I did not know that I had generated half the margin calls 
I did, and these were like--some were on a daily basis. In 
other words, there are different types of margin calls. One, I 
believe, is a Regulation----
    Senator Durbin. T.
    Ms. Margala [continuing]. T, thank you. And one was sort of 
like daily margin call, a maintenance call, like a maintenance 
margin call. So I had generated a lot of maintenance margin 
calls, but I had to borrow money for numerous margin calls. I 
had to borrow from my father. I had--$20,000 is not all that I 
put into the account. There are numerous margin calls, more 
money that I had to put in afterwards to cover margin calls.
    Senator Durbin. So the margin call system was working in 
your situation as you understand it? I mean, you kind of knew 
how you were sinking. You could feel it on a day-to-day or 
week-to-week basis?
    Ms. Margala. No, it was not working. This was after the 
fact. It is like you have got a margin call. Well, how did that 
happen? You sort of did not know how it happened, or I did not, 
anyway.
    Senator Durbin. But what I am trying to get to is your 
experience took place over how many weeks or months?
    Ms. Margala. I was there--I started trading sometime in 
early September and left in 1988 and was gone by the beginning 
of January.
    Senator Durbin. Eighty-eight or 1998?
    Ms. Margala. The beginning of----
    Senator Durbin. September----
    Ms. Margala. December 1988 to January 1999.
    Senator Durbin. September 1998 to----
    Ms. Margala. Ninety-eight, I am sorry.
    Senator Durbin. So this was a matter of, let us say, 4 or 5 
months that you were involved in this, and what I am saying is 
you came in with this $20,000 that you initially were involved 
in, but did you know through your experience that you were 
getting further and further behind because of the margin calls?
    Ms. Margala. Yes, as I was getting the margin calls. But 
what Barry Parrish would do--who was the manager--would borrow 
money from other people, put it in my account, and then until I 
built it up again to pay back, which, of course, encouraged 
more trading and more commissions for All-Tech.
    Senator Durbin. Do you have any idea how much money you 
gave to this firm in commissions over that 4- or 5-month period 
of time?
    Ms. Margala. I am in the process of calculating that, but I 
can tell you it is in the thousands.
    Senator Durbin. Over $10,000?
    Ms. Margala. I am not sure. I cannot----
    Senator Durbin. Ms. Harlacher, what was your situation with 
the margin calls? Did they give you any warning that you were 
in trouble?
    Ms. Harlacher. I used to call all the time and speak to 
Barry Parish about the margin situation because I did not want 
to risk having a margin call myself. But I was asked on two 
occasions to lend a substantial amount of money to another 
trader to cover his margin calls and I was not paid any 
interest for these loans, none whatsoever. So the money was 
journaled out of my account overnight and then journaled back 
in the next day, and the way I was able to keep up with whether 
or not what needed to be done had been done was we were given a 
sheet of paper with our buying power every day and I used to 
ask for accountability that I had got the money back.
    Senator Durbin. So this Mr. Parish, with his svengalian 
qualities, would come in and say, we want to borrow money from 
you and not pay you interest on it and we will give it back to 
you tomorrow?
    Ms. Harlacher. He did not put it quite that way. He just 
said, somebody has had a margin call and you have money in your 
account, would you please assist, giving one the impression 
that you were duty-bound to say yes. Otherwise, if you refused 
and you ever got into trouble, then no one would help you.
    Senator Durbin. Amazing. It is said in here that if day 
traders stick with it for 6 months, they tend to be profitable, 
at least one of the studies that we have looked at, and also 
that it takes 3 to 5 months to come to some understanding of 
what is really happening here.
    Ms. Harlacher. I think it takes longer than that for a lot 
of people.
    Senator Durbin. That is true.
    Ms. Harlacher. A few people ``get it'' in that time but 
most people take much longer.
    Senator Durbin. I just wonder if, as we look at this and 
consider legislation, if some of the requirements about the 
size of your account and the margin calls might have something 
to do with how long you have been in the business and how 
frequently you trade and what your sources of money might be. 
To think that the firm that you are trading for, earning 
commissions for, is loaning you money and moving money between 
accounts just seems to me to be counter-productive. I cannot 
believe the securities industry is anxious to defend this 
practice at all.
    Ms. Harlacher. Well, from my point of view, what I believe 
is really necessary in order to succeed in this business is a 
thorough knowledge and understanding of the market through a 
lot of experience of having studied it. The things that I 
learned from the Series 7 which I found were terribly important 
were the knowledge of options and margin. I think people need 
to understand those in greater detail.
    But what I really consider to be indispensable is the 
knowledge of charting and technical analysis, and I believe 
people also need to know some fundamental analysis so that they 
can assess whether or not what they are buying is a good 
investment before they even get involved. And I think those are 
things that a lot of people do not understand or have any 
knowledge of and I think those are the things that need to be 
understood.
    Senator Durbin. Thank you very much. Thank you, Madam 
Chair.
    Senator Collins. Thank you, Senator Durbin.
    I want to thank our witnesses on the panel today. You have 
been extraordinarily helpful to the Subcommittee in letting us 
know firsthand experiences of consumers. So we very much 
appreciate your willingness to testify and we thank you.
    I will now call forward our final panel of witnesses this 
morning. All of the individuals are or were associated with 
Providential, All-Tech, or Momentum Securities firms in 
dealings with the customers whom we just heard from.
    Huan Van Cao was a day trader at Providential's Los Angeles 
branch office. He traded the account of Ms. Le and other 
Providential customers during the spring and summer of 1998. He 
is appearing today pursuant to a subpoena.
    Fred Zayas was the former Branch Manager of All-Tech's 
office in Watertown, Massachusetts. Last year, he entered into 
a settlement agreement with State securities regulators in 
Massachusetts and he, too, is testifying today pursuant to a 
subpoena.
    Barry Parish was the branch manager of All-Tech's office in 
San Diego, California. Mr. Parish ran the San Diego office when 
Ms. Margala and Ms. Harlacher first became day-trading 
customers of All-Tech.
    Justin Hoehn is currently the Branch Manager of Momentum's 
office in Atlanta, Georgia. Mr. Hoehn was a close friend of 
Scott Webb and was instrumental in getting Mr. Webb involved 
with day trading.
    Pursuant to Rule 6, all witnesses are required to be sworn 
in. I would ask that you all stand and raise your right hands. 
Do you swear that the testimony you are about to give to the 
Subcommittee will be the truth, the whole truth, and nothing 
but the truth, so help you, God?
    Mr. Hoehn. I do.
    Mr. Zayas. I do.
    Mr. Cao. I do.
    Mr. Parish. I do.
    Senator Collins. Thank you. I would like the attorneys who 
are here this morning to briefly introduce yourselves and 
advise the Subcommittee whom your client is. Mr. Berman.
    Mr. Berman. Yes. Thank you, Chairman Collins. My name is 
Norman Berman. My firm is Berman, Devolario, and Pease, and I 
am here representing Mr. Zayas.
    Senator Collins. Thank you. Mr. Ambrose.
    Mr. Ambrose. Thank you. I am John Ambrose representing 
Barry Parish.
    Senator Collins. Thank you very much.
    Each of our witnesses on this panel has the opportunity to 
make an oral statement this morning as well as to present any 
written testimony that you wish for the hearing record. I am 
going to ask if any of you has a statement you would like to 
present to the Subcommittee before we move to questions.

TESTIMONY OF JUSTIN HOEHN, BRANCH MANAGER, MOMENTUM SECURITIES, 
                        ATLANTA, GEORGIA

    Senator Collins. Mr. Hoehn, do you have a statement you 
would like to make?
    Mr. Hoehn. No, I do not.

   TESTIMONY OF FRED ZAYAS, FORMER BRANCH MANAGER, ALL-TECH 
                DIRECT, WATERTOWN, MASSACHUSETTS

    Senator Collins. Mr. Zayas, do you have a statement you 
would like to make?
    Mr. Zayas. No, I do not.

 TESTIMONY OF BARRY PARISH,\1\ FORMER BRANCH MANAGER, ALL-TECH 
                 DIRECT, SAN DIEGO, CALIFORNIA

    Senator Collins. Mr. Parish, do you have a statement you 
would like to make?
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Parish with attachments appears 
in the Appendix on page 135.
---------------------------------------------------------------------------
    Mr. Parish. Yes, I do.
    Senator Collins. Please proceed, Mr. Parish.
    Mr. Parish. Thank you, Chairman Collins and Senators Levin 
and Durbin. Before I read my comments, I would like to state 
that the statements that we have heard so far today are 
completely at odds with the record that I am happily here to 
cooperate with and present to you.
    I became interested in day trading when I learned from my 
previous job as a branch manager of a brokerage firm that major 
profits were being made by SOES traders. Back in those days, 
they were called SOES bandits. I determined that SOES trading 
must be a profitable enterprise, and so, therefore, I started 
exploring the SOES business. I answered an ad by All-Tech and 
paid substantial money to purchase equipment and be trained to 
head an All-Tech office.
    Very early in my management, I encountered a situation in 
which a trader had made a computer mistake and had generated a 
margin call. In the early days, there were no safeguards on the 
equipment. All-Tech headquarters gave me forms, an example of 
which is attached, to journal money from one account to another 
to satisfy the margin call. The donor in the journal complained 
about the risk, what would happen to his money in the event of 
the death of the recipient of the money, and All-Tech 
headquarters' solution was to prepare both the donor and the 
recipient journals simultaneously, fax them into headquarters, 
and have them approved, which was done.
    So this was the first of hundreds of journals to satisfy 
margin calls. My office did the administrative handling of 
these journals, together with the headquarters, and we also 
helped in finding other customers willing to journal funds. On 
two occasions, though, I should have known better. I journaled 
money from my own personal account to assist customers with 
their margin calls. I also overlooked the fact that although 
Adam Leeds acted in my office as a trader, he in time became an 
employee of the firm and, therefore, his involvement subsequent 
to his employee relationship was improper.
    In approximately the late spring of 1999, headquarters 
began to require notarized signatures on journals and the 
software was improved so that it was possible to prevent 
unwanted margin calls. I used this opportunity to put an end to 
journaling in my office. Journaling had been a product of the 
day-trading software and it was made unnecessary by software 
improvements. As mentioned in the 12 customer declarations 
attached to this exhibit, journaling was an unwelcome headache 
to me and to my staff.
    As is evidenced by the 12 customer declarations, risk 
disclosure and warning was a constant theme in my 
communications with customers. Attached hereto with the 
intention of being made a part of the record are 12 
declarations from customers with various degrees of exposure to 
the day trading milieu in the San Diego office.
    Senator Collins. They will be made part of the record.
    Mr. Parish. Thank you. Although simplistic and obviously 
designed to support me, these declarations were obtained from a 
hastily-called get-together in which 20 people were invited. No 
one refused to help if given proper notice. The supplemental 
declarations are certainly not meant to be rude to the 
Subcommittee or other investigative agencies, but to give a 
flavor of the temperament of many traders.
    I stand ready to cooperate with the Subcommittee and other 
agencies to learn the facts and make decisions designed to 
promulgate clear rules that fit new technology while minimizing 
adverse effects on customers. Thank you.

     TESTIMONY OF HUAN VAN CAO, DAY TRADER AT PROVIDENTIAL 
            SECURITIES, FOUNTAIN VALLEY, CALIFORNIA

    Senator Collins. Mr. Cao, do you have a statement you would 
like to make before the Subcommittee?
    Mr. Cao. Yes, I do, Chairman.
    Senator Collins. Mr. Cao, you may proceed.
    Mr. Cao. I come here to--I heard the testimony and the 
statement that the attorney for Amy Le make this morning. I am 
very sure that the statement he make were false. The 
information he gave to you were false. Again, he have the 
reputation for having an ambulance chaser run across the 
Vietnamese community. He is behind all these chaos and 
lawsuits.
    I saw Amy Le. Amy Le not sick as you make your statement. 
She participate on every nightclub activity, shopping. In fact, 
2 days ago, I had been presented the award against me for 
$130,000. In fact, it was in the two number by someone they 
said they know me too well. I would appreciate opportunity to 
contradict his statement and his information and provide you 
with direct knowledge of what I know about Providential, about 
day trading, and anything that you would like to ask me.
    Senator Collins. You are welcome to take more time for your 
statement if you want to put in the record any information that 
you believe the Subcommittee should have.
    Mr. Cao. Yes. In addition, Amy Le not a poor lady as he 
describe. She have in her saving account more than $200,000 
cash. Her brothers paid the house by cash and she worked at the 
weekend for her brother, and when I add up what she said, it do 
not work. It does not work. I would like the panel aware about 
that.
    Also, that her mother collect food stamp and welfare by 
false statement and I want the panel aware about that fact.
    Senator Collins. OK. Mr. Hoehn, I am going to start with 
you today on the questioning that we are going to proceed with. 
Mr. Hoehn, how old were you when you became the Branch Manager 
of Momentum's office in Atlanta?
    Mr. Hoehn. Twenty-two years old.
    Senator Collins. Could you describe for us your background 
and your qualifications to be the Branch Manager?
    Mr. Hoehn. My background, I had undergraduate studies, 
finance. I went on to leave college, take a position with A.G. 
Edwards which lasted close to 2 years. I went on to take a 
position as a stockbroker trainee at Dean Witter, where I 
received my Series 7, 63, 65, and Series 3 licenses. While 
working at Dean Witter, I had learned about the day trading 
industry through a magazine article. I became interested and 
shortly thereafter joined on with Insight Trading in St. Louis.
    Senator Collins. So you had day traded yourself prior to 
taking managerial control of the Atlanta office. Could you tell 
us what your experience had been day trading?
    Mr. Hoehn. My experience in day trading at Insight was 
brief, in my opinion, 2 to 3 months. Insight had eventually 
closed the office. My trading was an introductory. I went 
through training with some people at Insight and went on to 
Texas where they are affiliated with some day trading.
    Senator Collins. Did you lose money trading at Insight?
    Mr. Hoehn. I did sustain a loss while I was trading at 
Insight.
    Senator Collins. And were you trading with money that you 
had borrowed, or were you trading with money that you had 
saved?
    Mr. Hoehn. They were borrowed funds.
    Senator Collins. Can you give us an idea of how much money 
you lost at Insight trading with borrowed funds?
    Mr. Hoehn. Approximately $13,000.
    Senator Collins. Was Momentum aware that you had lost money 
previously day trading when you were hired to run the office?
    Mr. Hoehn. Well, when I met David Dial in St. Louis, I am 
sure that it was spoke about. I do not know if he knew 
particular what the amount of the losses were.
    Senator Collins. You were a friend of Scott Webb's. Did you 
know that he also had traded at Insight? Were you at Insight 
trading at the same time?
    Mr. Hoehn. Yes, we were.
    Senator Collins. And were you aware that he also had lost 
borrowed money trading at Insight of about $10,000?
    Mr. Hoehn. At the end of the office, once they closed down, 
I realized that Scott had sustained losses, as well.
    Senator Collins. Did you understand that Mr. Webb had had 
no job for roughly 6 months before Dean Witter released him for 
failing to meet quotas and prior to his opening the account at 
Momentum?
    Mr. Hoehn. I was aware that Scott had worked at Dean 
Witter. I was not specific as far as how he was let go by the 
Dean Witter office.
    Senator Collins. When Mr. Webb opened his Momentum account, 
did you realize that the money he was using was money that had 
been borrowed from his father?
    Mr. Hoehn. I did realize that Scott had borrowed funds from 
his father, yes.
    Senator Collins. Did you realize that he was opening his 
account entirely with borrowed money?
    Mr. Hoehn. Yes, I did.
    Senator Collins. Were you involved at all in helping to 
arrange for an additional loan of about $30,000 for Mr. Webb?
    Mr. Hoehn. Mr. Webb had approached both myself and David 
Dial in regards to being introduced to someone who was prepared 
to make a loan, such as a $30,000 loan.
    Senator Collins. What is Momentum's policy regarding 
opening day trading accounts entirely with borrowed money?
    Mr. Hoehn. Well, our requirements for opening the account, 
as of today, are a $50,000 minimum deposit and a $100,000 net 
worth.
    Senator Collins. And does it matter if that money is 
borrowed for the initial deposit?
    Mr. Hoehn. As far as being borrowed when you are talking 
about from a family member or--if they are providing the funds, 
it is a circumstantial situation.
    Senator Collins. Mr. Webb had a poor credit record. He had 
to borrow all of the money he was using to open his day trading 
account. He had no savings. He had very little cash. Why was 
his account approved by Momentum? Did it meet the standards 
that Momentum had in place at that time?
    Mr. Hoehn. In all due respect, Chairman, to paint a picture 
of Scott Webb's specific situation, I think it would help to 
understand that he was my roommate in Atlanta. We were friends 
before we had moved, or before I had moved. He later came down. 
He was a Series 7 licensed broker. He obtained all of these 
licenses that I mentioned earlier from the Dean Witter office. 
He traded at Insight Securities. He was aware of the day 
trading practices, what his objectives were as a trader.
    He also, as far as his credit, Scott had told me on many 
occasions of additional income through a trust fund, rental 
income, and he also had worked at Enterprise and at Dean 
Witter, so he had made a different picture as far as to his 
financial status when he had opened the account.
    Senator Collins. But you knew all the money that he was 
using to open the account was borrowed money, and if you look 
at this account application, it does not paint a picture of 
financial health in any way. Are you saying that he did meet 
the standards that Momentum had in place at that time?
    Mr. Hoehn. At the time of Scott Webb's initial account 
opening, we did not have guidelines as we have today. So this 
was on the circumstantial situation, and also from Scott, he 
had mentioned how his dad was financially prepared to lend him 
the money, did fully understand--his father, I am speaking of--
knew what he was using the money for.
    Senator Collins. In September 1998, this is about 3 months 
after Mr. Webb had opened his account and he is already losing 
money, it is my understanding that an internal auditor for 
Momentum audited the Atlanta office, and it is Valynda Ewton, I 
believe, is the name of the auditor?
    Mr. Hoehn. Yes, it is.
    Senator Collins. Are you familiar with that audit?
    Mr. Hoehn. Yes, I am.
    Senator Collins. As you will see from the exhibit that we 
have put up, and there is a copy, as well, in the notebook 
before you, the internal auditor characterized Mr. Webb's 
account as only marginally suitable. She went on to say that in 
such instances, some written memorandum may be needed to 
document why these persons were allowed to day trade. Perhaps 
limits on dollar amounts of losses, additional credit checks, 
or written attestations from the customer or special attention 
needs to be provided. I believe that NASD will start taking a 
hard look at the knowledge and the suitability of the 
customers.
    Given this audit, why did you allow Mr. Webb to continue to 
day trade and to continue to lose money for another 10 months?
    Mr. Hoehn. I wanted to point out, Chairman, that this was 
an internal exam that was done from a consultant that we work 
with, Valynda Ewton. We did review all of the points that she 
was making through this examination thoroughly. I did make a 
rebuttal towards the improvements that we were making, which 
did include completing the necessary paperwork that was in 
question. Spyderstorm and Scott Webb were part of that. Scott 
and I had a discussion after this examination to the extent of 
financial suitability, and more importantly, just the status of 
his trading. It was, once again, a situation where Scott wanted 
to continue to day trade and was improving on his trading.
    Senator Collins. Did Mr. Webb have two accounts, one of 
which was called Spyderstorm and one was under his name?
    Mr. Hoehn. Yes, he did.
    Senator Collins. And both of these accounts were flagged by 
the auditor as being problematic from the standpoint of 
suitability, is that correct?
    Mr. Hoehn. From Valynda Ewton's examination, yes.
    Senator Collins. Were any limits on dollar amounts of 
losses put on the accounts that Mr. Webb had as a result of 
this audit?
    Mr. Hoehn. As a result of this audit, no, but Scott and I 
would frequently, on a daily basis, discuss his trading. So we 
were monitoring the trading closely.
    Senator Collins. But Mr. Webb was losing money, was he not?
    Mr. Hoehn. There were times where he was losing money, but 
at the same time, he was making money, also.
    Senator Collins. But on balance, he was losing money?
    Mr. Hoehn. Yes.
    Senator Collins. Despite the fact that Mr. Webb was losing 
money, it is my understanding that early in 1999, Momentum and 
the management company that Momentum has retained to run the 
Atlanta office actually hired Mr. Webb to train new customers, 
is that correct?
    Mr. Hoehn. Yes, and Chairman Collins, as far as the 
examination, 6 months after that examination, the same company 
that Valynda Ewton is associated with came back to do a review 
and it states very clearly that there were major improvements 
made, complimenting the fact that the necessary paperwork and 
some of the administrative duties that were in question before 
looked much better.
    Senator Collins. There was a specific review of Scott 
Webb's accounts?
    Mr. Hoehn. There was a review----
    Senator Collins. Or a review generally?
    Mr. Hoehn [continuing]. Of the whole office.
    Senator Collins. Let me just, in my remaining time for this 
round, go through a chronology with you to make sure I have it 
correct. So in July 1998, Momentum opened 2 day trading 
accounts for Mr. Webb, is that correct?
    Mr. Hoehn. I do not know if it was July, but yes, the 
summer of 1998.
    Senator Collins. And it was with borrowed money, including 
$30,000 at an 18 percent interest rate that was arranged from 
another Momentum customer, is that correct?
    Mr. Hoehn. Yes, it is.
    Senator Collins. Then in September, 3 months later, 
Momentum's own auditor flagged Mr. Webb's account and 
characterized them as only marginally suitable, is that 
correct?
    Mr. Hoehn. Yes, it is.
    Senator Collins. And yet in January, just a few months 
later, Mr. Webb, despite the fact that he was losing money, was 
actually hired to begin training new day trader customers, is 
that correct?
    Mr. Hoehn. Scott had approached myself and David Dial on 
beginning a training class in the Atlanta office that he would 
take a lead. That is correct.
    Senator Collins. Was that because he was getting 
increasingly desperate for money, as we have heard his mother 
testify?
    Mr. Hoehn. I do not believe that Scott wanted to teach the 
course just for the money, no.
    Senator Collins. Do you know how much ultimately Mr. Webb 
lost? At the time of his very tragic death, how much money had 
he lost?
    Mr. Hoehn. I do not know the exact amount of that.
    Senator Collins. It is my understanding that he lost 
approximately $40,000. Do you have any indication that that is 
not correct?
    Mr. Hoehn. Forty thousand in respect to the Momentum 
account, or within the Insight and Momentum----
    Senator Collins. Not counting the Insight account. He lost 
about $10,000 through that.
    Mr. Hoehn. Excuse me?
    Senator Collins. He lost approximately $10,000 while 
trading at Insight.
    Mr. Hoehn. How much are they----
    Senator Collins. I am asking you how much he lost at 
Momentum. It is my understanding that it is $40,000 of the 
$60,000 that he borrowed.
    Mr. Hoehn. Well, first of all, I do not know the exact 
number, but the number seems high, in my opinion. I do know 
that he made a $12,000 deposit back in the account opening, 
plus the $30,000 that he had borrowed from a customer. I do 
realize that there was approximately $20,000 left in the 
account.
    Senator Collins. I was just going to say, the documents 
that the Subcommittee has from your office show very clearly 
that there was $19,000 left in his account.
    Mr. Hoehn. OK. So, therefore, I would think that $40,000 
would be----
    Senator Collins. Forty would be correct?
    Mr. Hoehn. Yes. Losses of--no. I would say that with the 
numbers that we are speaking of, it would be closer to $25,000.
    Senator Collins. That is not our understanding, but my time 
has expired on this round, so I will yield to Senator Levin.
    Senator Levin. Thank you, Madam Chairman.
    Mr. Cao, let me ask you some questions. You heard Mr. 
Buchwalter this morning. I believe you heard his testimony.
    Mr. Cao. Yes, I did.
    Senator Levin. He testified that you told Ms. Le that you 
were an attorney, is that correct?
    Mr. Cao. Absolutely not.
    Senator Levin. He said that you told her that you were a 
stockbroker, is that correct?
    Mr. Cao. Absolutely not.
    Senator Levin. You are not a stockbroker, are you?
    Mr. Cao. I am not.
    Senator Levin. Were you buying and selling stocks for her?
    Mr. Cao. For Amy Le?
    Senator Levin. Yes.
    Mr. Cao. Yes, I did.
    Senator Levin. Even though you are not a stockbroker?
    Mr. Cao. That is right.
    Senator Levin. Are you aware of that fact, that you are not 
allowed to do that?
    Mr. Cao. Well, I understood differently. I understood----
    Senator Levin. From whom?
    Mr. Cao. From the NASDAQ that I call.
    Senator Levin. Who did you talk to there that said you 
could buy or sell stocks for somebody without being a 
stockbroker?
    Mr. Cao. Well, as a day trader, I called to the NASDAQ 
office in Los Angeles and they said there are no law right now 
not to allow me to be a day trader and to buy and sell stock 
for the day trader account.
    Senator Levin. You were told by whom there?
    Mr. Cao. I do not recall the names, but I called the 
office, NASDAQ office in Los Angeles.
    Senator Levin. Were the folks at Providential Securities 
aware of the fact that you are not a stockbroker?
    Mr. Cao. This is the first time that I heard about 
Providential have something to do with me.
    Senator Levin. I see. You have nothing to do with them?
    Mr. Cao. I have nothing to do with them.
    Senator Levin. Did you have your own office?
    Mr. Cao. No, I do not.
    Senator Levin. What office did you trade out of?
    Mr. Cao. I trade out of the office in Los Angeles owned and 
operated by Mr. Tae Goo Moon.
    Senator Levin. You never were at Providential Securities? 
You never visited them? You never went in their offices? You 
were not nearby?
    Mr. Cao. That is totally correct.
    Senator Levin. So you do not know anything about 
Providential?
    Mr. Cao. I was not aware about that at that time.
    Senator Levin. When was the first time you ever heard of 
Providential?
    Mr. Cao. The first time I heard about Providential, when 
Mr. Tae Goo Moon took me down to Providential to see Henry 
Fahman with Tae Goo Moon, present me to Henry Fahman what kind 
of lawyer that he needs to hire in order to defend for his 
lawsuit, and throughout the conversation, I was not aware that 
they have some relationship, but 2 days after that or 3 days 
after that, I came down to Providential and talked to Henry 
Fahman again person-to-person and he told me that they have 
some business relationship with, at that time, Hahna Global 
Security.
    Senator Levin. Give us the name of the person again that 
you worked for.
    Mr. Cao. I worked for myself.
    Senator Levin. I see. And the office was under your own 
name?
    Mr. Cao. No, I do not have an office. I am the day trader 
who come in to trade every day.
    Senator Levin. And what office do you go in?
    Mr. Cao. I went in the trading room of Hahna Global 
Security.
    Senator Levin. Hahna?
    Mr. Cao. Global Security.
    Senator Levin. And what building was that in?
    Mr. Cao. It is in Los Angeles.
    Senator Levin. Yes, I know, but what building is it in?
    Mr. Cao. I could not recall.
    Senator Levin. How close is it to Providential?
    Mr. Cao. Oh, quite far away. It is about a 45-minute drive.
    Senator Levin. All right. Are you aware that Providential 
does business under the name of Hahna Global?
    Mr. Cao. No, I was not aware about that.
    Senator Levin. When did you become aware of that?
    Mr. Cao. I became aware about that fact when Mr. Moon, the 
manager or the operator or the owner of the Hahna Global, took 
me down to Providential office in Fountain Valley.
    Senator Levin. Is that before you met Ms. Le?
    Mr. Cao. No, long after, long, long after.
    Senator Levin. And after you were trading stocks for her?
    Mr. Cao. Yes, when she filed the claim.
    Senator Levin. Did Hahna Global know that you were not a 
broker?
    Mr. Cao. They knew.
    Senator Levin. They know you are not a broker?
    Mr. Cao. They know I am not a broker. They also know that I 
am only a day trader.
    Senator Levin. And you are listed on the stationery here as 
being Senior Vice President for Hahna Global Capital 
Management, Inc., is that correct?
    Mr. Cao. I am surprised about that document.
    Senator Levin. You are shocked that the stationery here 
lists you as a Senior Vice President of Hahna Global Capital?
    Mr. Cao. Yes.
    Senator Levin. When is the first time you saw that?
    Mr. Cao. When I--it is about 4 months after I come in to 
trade with----
    Senator Levin. What month and what year would that be?
    Mr. Cao. This would be about--it is about--I cannot be--it 
is hard to recall.
    Senator Levin. Well, approximately what time of year?
    Mr. Cao. Approximately, I think after the lawsuit of Amy Le 
had been filed.
    Senator Levin. Is the first time you knew that you were 
listed as a Senior Vice President of Hahna Global?
    Mr. Cao. Probably not the first time, just the second time 
or something.
    Senator Levin. All right. How many times did you go to 
Providential's office?
    Mr. Cao. Before or after----
    Senator Levin. Ever.
    Mr. Cao. Right now, I trade at the Providential office.
    Senator Levin. So now you do trade there?
    Mr. Cao. I do conduct my trading there.
    Senator Levin. When did you start doing that?
    Mr. Cao. I recall it is October 1999, or 19----
    Senator Levin. That you started going to their office 
regularly?
    Mr. Cao. Yes.
    Senator Levin. All right. How much money did you make from 
trading for Ms. Le?
    Mr. Cao. For 2 weeks, I make about--no, for those weeks, I 
make about $1,000 or $2,000 in profit.
    Senator Levin. Pardon?
    Mr. Cao. I make about $1,000 or $2,000 in profit.
    Senator Levin. Over the entire length of time, all the 
trades that made for her, you made only $1,000 or $2,000?
    Mr. Cao. Of those weeks.
    Senator Levin. How many weeks?
    Mr. Cao. For 1 week.
    Senator Levin. One week. And how many weeks did you do the 
trading?
    Mr. Cao. And it----
    Senator Levin. How many weeks?
    Mr. Cao. Probably about 3 weeks, 4 weeks.
    Senator Levin. So you may have made $8,000 in profit off 
her altogether?
    Mr. Cao. I did not.
    Senator Levin. What is the total amount of money you made 
by trading for her?
    Mr. Cao. Well, I stopped trading at her account at very 
early age, when she called in to stop trading.
    Senator Levin. What is the total amount of money you made 
off trading for her?
    Mr. Cao. I could not recall.
    Senator Levin. Could it be $5,000?
    Mr. Cao. No, I do not think so.
    Senator Levin. Now, Mr. Buchwalter said that you told Ms. 
Le that you would buy her account for $48,000. Is that true?
    Mr. Cao. There was a conversation between me and Ms. Le 
when she asked me to buy her account for that amount.
    Senator Levin. Is it true that you offered to buy her out 
for $48,000?
    Mr. Cao. She asked me for it.
    Senator Levin. She what?
    Mr. Cao. She asked me to buy her account for $48,000.
    Senator Levin. And you agreed?
    Mr. Cao. No, I negotiate with it. At one time, I asked her 
to go to the attorney, her attorney, to draw up a paper, but 
she never did that.
    Senator Levin. And you told her to draw up a paper that you 
would buy up her account at what amount?
    Mr. Cao. Yes. I had draw----
    Senator Levin. In what amount?
    Mr. Cao. About $48,000.
    Senator Levin. So you told her to draw up the paper?
    Mr. Cao. No. I said--I told her that if I do the work, then 
I need a written document to show what we did so you do not 
come back and make a claim against me.
    Senator Levin. But did you tell her to draw up a paper in 
which you would buy her account at $48,000?
    Mr. Cao. No, I did not say that.
    Senator Levin. All right. How many clients like Ms. Le did 
you have?
    Mr. Cao. Only one.
    Senator Levin. She was the only one?
    Mr. Cao. She only one.
    Senator Levin. Did this trading company have other clients 
like you who had other clients like her?
    Mr. Cao. No. I think that there is another trader, but I do 
not know any client like Amy Le.
    Senator Levin. And how did you happen to latch onto her?
    Mr. Cao. Pardon?
    Senator Levin. How did you happen to find her?
    Mr. Cao. I do not find her. I was--first time I came down 
to Fountain Valley to buy a music tape, to buy music for 
myself, she work in the store that is selling music tape. I 
come in asking for the tape and she does not have it and she 
introduce herself. I introduce myself and she asking me what do 
I do for a living. I said, I am selling stock, and first she 
ask me where I come from. I said I came from Texas.
    Senator Levin. Was that true?
    Mr. Cao. Is that very true.
    Senator Levin. And whose idea was it that you would buy and 
sell stocks for her? Was that your idea or her idea?
    Mr. Cao. That is her idea.
    Senator Levin. And was the CEO of Providential aware of the 
fact that you were buying and selling stocks for her?
    Mr. Cao. Yes. He--Mr. Moon aware about the trading.
    Senator Levin. Even though you had absolutely nothing to do 
with Providential, they were aware of the fact that you were 
trading for her?
    Mr. Cao. They must be aware.
    Senator Levin. Pardon?
    Mr. Cao. Mr. Moon must be aware about that.
    Senator Levin. Must be aware?
    Mr. Cao. Must be.
    Senator Levin. But you said that they did not even know of 
your existence. You had nothing to do with them. How could they 
be aware?
    Mr. Cao. Well, first, the account have to open with them, 
with Mr. Moon, and Mr. Moon will set up the computer for me to 
trade and Mr. Moon's back office must provide the buying power, 
provide the number for me to trade.
    Senator Levin. And for yourself or for Ms. Le?
    Mr. Cao. No, for me to trade on her behalf.
    Senator Levin. So you did set up an account there in order 
to trade on her behalf?
    Mr. Cao. No. She set up the account, not me.
    Senator Levin. You dealt with Mr. Moon, did you not?
    Mr. Cao. I do not deal with him. Ms. Amy Le come in to open 
account----
    Senator Levin. Were you with her?
    Mr. Cao. Pardon?
    Senator Levin. Were you with her?
    Mr. Cao. I was in the office and I was--I was in the 
office.
    Senator Levin. Were you with her?
    Mr. Cao. No. Sometime I was, sometime I was not.
    Senator Levin. When she opened up her account, were you 
with her?
    Mr. Cao. No, I was not.
    Senator Levin. She just walked in on her own. You were 
somewhere else in the office----
    Mr. Cao. I was somewhere else in the office.
    Senator Levin. Not with her?
    Mr. Cao. Not with her.
    Senator Levin. But you told her to come in there and open 
an account?
    Mr. Cao. No, she came in and by her own idea and her own--
--
    Senator Levin. Finally, though, Mr. Fahman, the CEO of 
Providential, was aware of the fact that you were going to be 
doing trading for Ms. Le?
    Mr. Cao. I do not know that.
    Senator Levin. You never told him that?
    Mr. Cao. I do not know about that at all.
    Senator Levin. Did you ever tell him you were going to be 
doing trading for Ms. Le?
    Mr. Cao. I have no opportunity to know Henry Fahman when 
the account opened.
    Senator Levin. So you never told him that you were trading 
for Ms. Le?
    Mr. Cao. Tell whom?
    Senator Levin. Mr. Fahman.
    Mr. Cao. I did not have the opportunity. I did not know 
him.
    Senator Levin. I am asking you whether you ever told him 
you were trading for Ms. Le.
    Mr. Cao. I did not.
    Senator Levin. Thank you.
    Mr. Cao. Thank you.
    Senator Collins. Thank you, Mr. Chairman. Mr. Chairman--I 
cannot believe I am promoting you like that. [Laughter.]
    We are in the final moments of a vote. Senator Durbin, do 
you want to begin, or would you prefer to begin when we come 
back from the vote? It is my understanding we have about 3 
minutes left.
    Senator Durbin. Vote.
    Senator Collins. I think we had better go vote. We will 
stand in recess for 15 minutes.
    [Recess.]
    Senator Collins. The Subcommittee will come to order. At 
this time, I am pleased to call upon Senator Durbin for his 
questions.
    Senator Durbin. Thank you, Madam Chairman.
    Mr. Cao, I would like to just ask you two or three 
questions. Are you represented by counsel today?
    Mr. Cao. No, sir.
    Senator Durbin. Do you understand that you are under oath?
    Mr. Cao. Yes.
    Senator Durbin. And that the answers that you give must be 
truthful?
    Mr. Cao. Yes.
    Senator Durbin. Thank you very much.
    Mr. Parish, I would like to ask you a couple questions. You 
did some television advertising as part of the promotion of 
All-Tech?
    Mr. Parish. Yes.
    Senator Durbin. And you were the person on the ad?
    Mr. Parish. Some of them.
    Senator Durbin. OK. Was there money to be made by bringing 
in more people to be day traders at All-Tech?
    Mr. Parish. More customers means more money, yes.
    Senator Durbin. And what did each one of your so-called 
customers, these day traders, pay in commission for each of the 
trades?
    Mr. Parish. Twenty-five dollars.
    Senator Durbin. Twenty-five dollars? And what was the 
average number of trades that your day traders would make each 
day?
    Mr. Parish. I would suggest to you that the--well, I would 
say somewhere between 5 and 10 round-trips.
    Senator Durbin. I am not understanding round-trip.
    Mr. Parish. Think of buy-sell as a round-trip.
    Senator Durbin. So how much would they pay in commission, 
then, using that 5, 10 round trips as a----
    Mr. Parish. Two-hundred-and-fifty dollars or $500.
    Senator Durbin. So between $250 and $500 a day, they are 
making profit for All-Tech, or at least they are bringing in 
commissions for All-Tech, is that correct?
    Mr. Parish. Yes.
    Senator Durbin. So before they show their first penny of 
personal profits, they have to pay off the commissions, 
obviously.
    Mr. Parish. No, they have to make a winning trade.
    Senator Durbin. Well, of course, but they had better make 
more than $500 if they are paying you $500 in commissions, 
right?
    Mr. Parish. No. One trade is $50. They have to make more 
than $50.
    Senator Durbin. Well, you can do it trade by trade or day 
by day, but at the end of the day, if I am in the $500 category 
of paying commissions and look at my results of day trading and 
I may have made money and lost on another, I had better net out 
$501 or I have had a losing day, right?
    Mr. Parish. Right.
    Senator Durbin. Thank you. So the more people you have day 
trading, the more money for All-Tech, is that correct?
    Mr. Parish. Yes.
    Senator Durbin. And if these people win or lose at the 
stock market, it really is not that important to you, is it?
    Mr. Parish. Oh, yes, it is.
    Senator Durbin. Why?
    Mr. Parish. If they keep losing, I will be out of business.
    Senator Durbin. Really?
    Mr. Parish. Eventually, yes.
    Senator Durbin. That is interesting, because you were 
quoted in the course of your deposition saying something that I 
think is worth repeating at this point. Let me see if I can 
find it here. Oh, here it is.
    Mr. Parish, in your deposition testimony, you indicated 
that, ``Eighty to 90 percent of the people that trade lose 
their money within 6 months, and given the chances of 
profitability,'' your words, ``it is amazing how many people 
still want to try it.''
    Mr. Parish. It is, that is true.
    Senator Durbin. Yes, it is amazing, is it not?
    Mr. Parish. Yes.
    Senator Durbin. It is a pretty big losing proposition, is 
it not?
    Mr. Parish. Yes, it is.
    Senator Durbin. Yes. So despite this losing proposition for 
the people involved in it, the company did pretty well.
    Mr. Parish. I believe All-Tech does well.
    Senator Durbin. Yes. In fact, I think the Washington Post 
this morning has a story which is based on some of the findings 
of this Subcommittee. If I am not mistaken, it turns out that 
these day-trading firms, 15 of the largest firms in the field 
pulled in revenue last year of $541.5 million, 276 percent more 
than in 1997. Profits spiraled to more than $66 million. Last 
year, those firms alone opened more than 12,000 new accounts. 
That is from the Washington Post story.
    So let me just kind of go into the basics of this. I have 
seen your TV ad. I am just swept away by how convincing you are 
and I call and say, I want to get in on this deal. This is just 
too good to be true. So how much money do I have to put up 
front to be a day trader at All-Tech?
    Mr. Parish. Twenty-five-thousand when I left.
    Senator Durbin. And no exceptions to the rule, $25,000 cash 
or else?
    Mr. Parish. There were special situations on occasion where 
somebody would beg and plead and visit the office 10 times in a 
row and be allowed to start with less.
    Senator Durbin. How little could they start with?
    Mr. Parish. I do not remember starting with anything much 
less than--well, let me back up a second. There came a time at 
All-Tech when we were trying to attract business somewhat as 
Charles Schwab does, where a customer could come in with a 
$10,000 deposit and then they could stop by the office at any 
time during the course of their regular day and adjust their 
own portfolio, sit down at a computer, buy the stock that they 
want, sell the one that they do not want. So there was a time 
it was as little as $10,000. It started at $50,000. It went to 
$25,000. It came down to $10,000. And then it went back to 
$25,000.
    Senator Durbin. And if I came in with $10,000 and I wanted 
to buy stock, how much could I buy with a $10,000 account at 
All-Tech?
    Mr. Parish. Twenty-thousand dollars' worth of marginable 
securities.
    Senator Durbin. Twenty-thousand dollars. And was that 
accounted for on a daily basis, as to whether I was meeting my 
margin requirement?
    Mr. Parish. Absolutely.
    Senator Durbin. Every single day?
    Mr. Parish. Every trader received a trade blotter showing 
his trades. Every morning when the trader came to the office, 
he received a trade blotter showing the previous day's trades 
and he received a margin report showing his positions, his 
equity, his margin debit, his margin calls, everything.
    Senator Durbin. Why do we have margin rates, margins at all 
in this business?
    Mr. Parish. To prevent people from over-borrowing.
    Senator Durbin. Going too far, is it not?
    Mr. Parish. Yes.
    Senator Durbin. And so, frankly, if I have had a very bad 
day, I am supposed to, at least under the practices and 
regulations, back off. But as I understand the testimony from 
you and some of the things that you have submitted, if I had a 
very bad day, All-Tech knew how to take care of me by 
transferring money from another account so I can keep right on 
rolling. Is that not true?
    Mr. Parish. It was not to help you out from having a bad 
day. It was to help you keep your account open once you made a 
mistake.
    Senator Durbin. A mistake?
    Mr. Parish. Yes.
    Senator Durbin. What kind of mistake?
    Mr. Parish. Very simply----
    Senator Durbin. Bad trade?
    Mr. Parish. Not necessarily. You see, most people in the 
beginning, when they came into my office, they somehow thought 
they were going to get in a Volkswagen and drive to Florida or 
something. But when they sat down in front of a trading 
machine, they realized real soon that they were somewhat more 
realistically piloting a jet fighter plane here.
    Senator Durbin. Oh, so we had computer errors on top of bad 
judgments on investments?
    Mr. Parish. Oh, many. It is very simple, Senator Durbin. 
You buy 1,000 shares of stock and you own it, and then execute 
what you believe to be the sell when, in reality, you just 
bought it again.
    Senator Durbin. So you had to have some pretty extensive 
training so people would not make these so-called mistakes, 
right?
    Mr. Parish. We did our best to teach them, but----
    Senator Durbin. What was your best? How long did you train 
these----
    Mr. Parish. Training lasts 1 week.
    Senator Durbin. One week? Five days?
    Mr. Parish. Five consecutive--7 days.
    Senator Durbin. Seven days?
    Mr. Parish. Seven days with an instructor right there with 
the class.
    Senator Durbin. I do not think anybody who testified 
earlier talked about 7 days. They talked about 2 days. Did that 
happen?
    Mr. Parish. No, it never did happen.
    Senator Durbin. Never did happen?
    Mr. Parish. No.
    Senator Durbin. Someone only had 2 days of training? So 
they get these 7 days of training, you sit them down in front 
of this jet aircraft panel computer type thing and turn them 
loose and they've got $10,000 in their account. They can buy 
$20,000 worth of stock and they make a big mistake.
    [Mr. Ambrose consults with Mr. Parish.]
    Mr. Parish. Well, it is not quite like that.
    Senator Durbin. Well, please explain. I thought I was 
following you pretty closely.
    Mr. Parish. I will explain how I do it. I would be happy 
to. When a customer answers my ad, he first has to come see my 
office and see what we do. When he sits down with me at a 
trading terminal and looks at that, 8 out of 10 of them leave 
and never come back.
    Senator Durbin. The smart ones?
    Mr. Parish. Yes, well, maybe they are smart, maybe they are 
not. It remains to their experience afterwards. But of the two 
that remain that go through the class, they get 7 days of 
training with an instructor right there with them the entire 
time and then they do not just sit down at a computer with 
their $10,000 and buy $20,000 worth of stock. They are 
encouraged to simulated trade or paper trade to get the 
software down.
    Senator Durbin. What kind of commission do you make on 
simulated trades?
    Mr. Parish. Zero commission.
    Senator Durbin. So at some point, for the good of your 
business, you have got to get them beyond simulation and help 
them get ready to take off in this new jet pilot----
    Mr. Parish. But I would never push anybody to start trading 
live if they are not ready.
    Senator Durbin. But interesting, too, because the testimony 
was that at your office, it was like a circus atmosphere and 
cheering, to load up to buy and now it is time to sell, and it 
sounds like it was a chorus section going, not so much people 
at the computer making these discrete decisions. What was the 
atmosphere?
    Mr. Parish. On occasion, it was.
    Senator Durbin. Occasionally, it turned out to be a circus-
like atmosphere?
    Mr. Parish. Well, occasionally, we would cheer when someone 
made an exceptionally good trade and announced it to the whole 
group. My office, I encouraged people to share information with 
each other throughout the day to see what they saw.
    Senator Durbin. Journaling, let us talk about journaling. 
That is moving money from my account to somebody else's account 
on a temporary basis, is that correct?
    Mr. Parish. Yes.
    Senator Durbin. OK. And what are the largest amounts that 
you can recall journaling between accounts?
    Mr. Parish. I think $100,000 is a large amount for my 
office.
    Mr. Parish. So if I am sitting there trading and I have got 
$100,000 in my account, what would you do? Would you ask me, I 
have got this fellow right next to you who had a bad day, made 
a few mistakes. Could you transfer $100,000 from your account 
to his account? Could we journal that? Is that how that would 
go?
    Mr. Parish. Generally, I would tell you to ask him, but if 
you would say, no, I do not want to ask him, could you ask him 
for me, I would ask him for you.
    Senator Durbin. And so would people say at that point, 
well, is he good for it? Have you done a credit check on him? 
What do you know about this person? If I am going to give him 
$100,000, how do I know he is even going to be here tomorrow?
    Mr. Parish. You do not.
    Senator Durbin. You really do not? Interesting business.
    Mr. Parish. That is why, as All-Tech explained, you fill 
out the return journal at the same time, so regardless of 
whether he comes back or what he does, the money comes back to 
you the next day.
    Senator Durbin. Oh, it does, automatically?
    Mr. Parish. Automatically.
    Senator Durbin. At All-Tech's expense?
    Mr. Parish. It comes out of the customer's account that 
received it unless that customer loads up on a whole bunch of 
stocks.
    Senator Durbin. Did that ever happen?
    Mr. Parish. Yes, oh yes.
    Senator Durbin. And so somebody was left holding the bag 
when they journaled some money?
    Mr. Parish. All of my customers always received their money 
back. Nobody ever failed to receive their money.
    Senator Durbin. From journaling.
    Mr. Parish. From journaling.
    Senator Durbin. That is not counting the mistakes?
    Mr. Parish. Just from the journals. All journaled funds 
were returned 100 percent, not always the next day, however.
    Senator Durbin. Well, I see my time has expired, and I 
think there is more that we will be asking you, but it just 
strikes me as incredible as we read the Washington Post story 
that people fall for this, and I guess this hearing will 
perhaps diminish your business but maybe educate the American 
people about what a con game is going on here. Thank you.
    Senator Collins. Thank you, Senator Durbin.
    Unfortunately, we are in the midst of two back-to-back 
votes, so we will stand in recess for 20 minutes.
    [Recess.]
    Senator Collins. The Subcommittee will resume, come to 
order.
    Mr. Cao, in response to a question from Senator Levin, you 
testified that you were not with Ms. Le when she opened her 
account. I would like to direct you to look at your deposition 
and to look specifically at page 152. And while you are finding 
that, I will read you what you told us under oath. You talk 
about going to see Ms. Le at a park where her children are 
playing ball. You say, ``And then I came out to play ball with 
her children at the same time. At the meantime, she filled out 
the application and completed the paperwork. In between one of 
these times, she visited the office.''
    This is the question to you now. ``In between one of the 
times she visited the office, you talked to her by phone and 
she asked you to come see her in a park next to the police 
station. You brought the paperwork for her to open the new 
account form?''
    Your response was, ``She said she had lost the last 
application.''
    Question: ``Would you bring it?''
    Answer: ``And she needed a new form.''
    Question: ``She asked you to bring that new material?''
    Answer: ``Uh-huh.''
    ``So you brought that material out and gave it to her in 
the car?''
    Your response, ``Right.''
    Question: ``And she sat in the car and filled out the 
paperwork while you played with her kids in the park?''
    ``Yes.''
    So in view of that transcript, which was under oath, how 
could you respond to Senator Levin's question that you were not 
with her when she opened the account?
    Mr. Cao. Yes. I do not consider this at the time that she 
opened, effectively opened the account. She filled out the 
information and my only thing, and my understanding, when she 
opened an account with a signature of that officer allow her to 
open the account, is what I mean.
    Senator Collins. Well, it seems to me if you brought her 
the application, were with her when she filled it out, and 
under oath she has testified that she handed you a check to 
open the account, that you clearly were with her when she 
opened the account.
    Mr. Cao. Again, I understand differently. I understand that 
when the account opened, when the manager, the branch manager, 
put his signature on the account forms.
    Senator Collins. I would like to now direct you to page 151 
of the transcript. It is the same page that you are on. Do you 
see the numbers? You testified earlier that Ms. Le's lawyer was 
not telling the truth when he said that she was not wealthy. 
You said that she had $200,000. Yet, under oath, you said, and 
I want to read this part of the transcript, the question to you 
was, ``How was it that you came to meet her in her car?''
    Answer, your answer: ``She called me. She said, `My car 
broke,' and she already introduced to me that she was very 
poor. She showed me the broken car.''
    Question: ``She would always tell you that she was very 
poor?''
    Answer: ``Yes. She would say she is very poor and I believe 
it, and she says, `I want to open the account so that I can get 
money to buy for myself a car, a new car.' I believe it. I 
believe all she said.''
    Mr. Cao. Yes, that was correct at that time.
    Senator Collins. So you do not dispute at the time that she 
opened the account that she was not wealthy and that she 
expected to have money made through day trading?
    Mr. Cao. Evidence later on proving that she was very 
wealthy then, but she told me that she was not and I believe 
what she said to me.
    Senator Collins. Let me refer you to another part of your 
transcript. Again, in response to a question asked to you this 
morning by Senator Levin, you testified that you only traded 
for one or two clients at Providential's Los Angeles branch 
office, which was operating under the name of Hahna Global. 
Now, I would like for you to look at your deposition transcript 
on page 136.
    You were asked the question, and I quote, ``How many total 
do you think you traded on their behalf?''
    Answer: ``In and out?''
    Question: ``Yes.''
    Answer: ``Maybe 21 or 22.''
    Now, how do you reconcile that with your response to 
Senator Levin today that you are only trading for one or two 
individuals?
    Mr. Cao. Chairman, I recall that the Senator asked me how 
many clients like Amy Le, and my response was, the only one.
    Senator Collins. So what were the rest of these 21 people?
    Mr. Cao. He did not ask me how many people total. He did 
not----
    Senator Collins. He asked you ``how many people you were 
trading for.''
    Mr. Cao. No, I did not recall that. If you can backtrack 
the record----
    Senator Collins. Well, would you like to correct the 
record, since you are under oath, about how many people did you 
trade the accounts for?
    Mr. Cao. Well, if that is the question, then my answer is, 
in total, I trade now for about 20-some for many years.
    Senator Collins. Mr. Cao, Amy Le's lawyer testified this 
morning that the NASD found you liable for thousands of dollars 
of losses that resulted from your day trading Ms. Le's account. 
Is that accurate?
    Mr. Cao. No, not at all. Not at all.
    Senator Collins. It is not accurate that NASD----
    Mr. Cao. Not accurate.
    Senator Collins [continuing]. Entered a judgment against 
you for thousands of dollars?
    Mr. Cao. Again, Your Honor, it is not accurate at all.
    Senator Collins. Well, we have the judgment of NASD here. 
Are you disputing that the NASD found you liable for any amount 
of money for----
    Mr. Cao. Yes, Your Honor. I respect the law, but I do very 
much disagree.
    Senator Collins. That is not my question. I asked you, did 
you agree with the testimony or disagree with the testimony of 
Amy Le's lawyer that the NASD found you liable for thousands of 
dollars of losses resulting from your trading of Ms. Le's 
account. You said that that was false, and yet I have in my 
hand the award provision from that decision which very clearly 
says, Respondent, Huan Van Cao, is liable to and shall pay the 
Claimant, that is Amy Le, an additional sum of $22,593.11 in 
compensatory damages plus 7 percent interest. So how can you 
say that it is not true that the NASD entered a judgment 
against you?
    Mr. Cao. OK. Basically, what I see it, the document speaks 
for itself. Whatever there is correct, right.
    Senator Collins. The document directly contradicts what you 
just said under oath.
    Mr. Cao. But I disagree with their finding.
    Senator Collins. That is a different question.
    Mr. Cao. Well----
    Senator Collins. I did not ask you, do you agree with the 
decision. I asked you, did the NASD find you liable for 
thousands of dollars to be paid to Amy Le to compensate her?
    Mr. Cao. The answer is yes.
    Senator Collins. That is the accurate answer.
    Mr. Cao. That is right.
    Senator Collins. Have you paid Ms. Le?
    Mr. Cao. No, Your Honor.
    Senator Collins. Why have you not paid that judgment?
    Mr. Cao. I do not have money.
    Senator Collins. It is my understanding that you filed for 
bankruptcy 2 months after the NASD judgment, is that correct?
    Mr. Cao. That seems correct.
    Senator Collins. In your bankruptcy filing, you claimed an 
exemption of $50,000 for your home, $44,000 for your personal 
property, which includes three cars, and a 401(k) account worth 
$25,000. So you clearly have assets. Why have you not paid Ms. 
Le the $22,000 for which you have been found liable?
    Mr. Cao. I do not have money for it.
    Senator Collins. So you are testifying under oath today 
that you do not have sufficient funds to pay Ms. Le's judgment?
    Mr. Cao. That is correct.
    Senator Collins. Mr. Parish, at the time that you were 
Branch Manager at All-Tech's San Diego office, did All-Tech 
have minimum deposit requirements to open a day trading 
account?
    Mr. Parish. That has always been the question. It is not a 
minimum deposit to open an account. It is a minimum deposit to 
get a log-on to trade an account. You can open the account with 
no deposit.
    Senator Collins. But to begin trading, was there a minimum 
deposit requirement?
    Mr. Parish. Yes.
    Senator Collins. And what was that requirement?
    Mr. Parish. When I first became affiliated with All-Tech, 
it was a $50,000 deposit, and then it----
    Senator Collins. And when was that?
    Mr. Parish. That was in January 1997. My first training 
class was February 1997.
    Senator Collins. And it is my understanding that that 
deposit requirement of $50,000 was in effect until January of 
1999, when it was lowered to $25,000, is that correct?
    Mr. Parish. No. It was lowered before that.
    Senator Collins. Do you know when it was lowered?
    Mr. Parish. I would suggest it was lowered about mid-way 
through my 3 years with them, which I believe would put it 
somewhere in 1998, mid-1998, I expect.
    Senator Collins. According to the responses we received 
from All-Tech in response to our interrogatories, the standard 
was $50,000 until January 1999. Is it possible that you are 
remembering incorrectly on that?
    Mr. Parish. I suppose it is possible.
    Senator Collins. My time has expired, so I am going to go 
to Senator Levin, but I do want to come back to that point.
    Senator Levin. Go ahead.
    Senator Collins. I would like to show you an advertisement. 
Can you see the screen from where you are?
    Mr. Parish. Yes.
    Senator Collins. I would like to show you an advertisement 
that the previous witness, Ms. Margala, said was the 
advertisement that enticed her to become a day trader, if we 
could roll the advertisement.
    [A videotape was played.]
    Senator Collins. This is obviously not the advertisement, 
though perhaps it should have been. Since we are obviously not 
able to get this up, Mr. Parish, I am sure you are familiar 
with the ad. It is the ad that you are in. I think you produced 
it. It is a very dynamic ad.
    Mr. Parish. Thank you.
    Senator Collins. In the ad, you make a reference to a 
$10,000 amount. Why does your ad say that you only need $10,000 
to open a day trading account when at the time this ad was 
made, All-Tech has informed us that $50,000 was required?
    Mr. Parish. All-Tech's memory is incomplete. All-Tech's 
minimums started at $50,000, subsequently went to $25,000, and 
for a time they were actively--we were all at All-Tech, with 
All-Tech's blessing, actively engaged in seeking customers, 
like I explained to Senator Durbin, to come in and open 
accounts for $10,000 that were not actively day traded in the 
true sense of multiple turnover of the assets. They were called 
retail accounts.
    Senator Collins. But in this ad, which unfortunately I 
cannot show you, this ad is for day trading accounts. So I want 
to go back. You said that All-Tech's information was incorrect 
that they provided us. Is that your testimony?
    Mr. Parish. Yes.
    Senator Collins. So the information we received from All-
Tech on what the minimum standard was at that time is 
incorrect?
    Mr. Ambrose. May I have a moment?
    [Mr. Ambrose consults with Mr. Parish.]
    Mr. Parish. This ad was specifically approved by All-Tech.
    Senator Collins. Mr. Parish, at the end of the ad, there is 
a white-haired gentleman who is grinning broadly. Are you 
familiar with who that gentleman is?
    Mr. Parish. Yes.
    Senator Collins. And is his name Fred Cook?
    Mr. Parish. Yes.
    Senator Collins. Is it accurate that at the time that that 
ad was made, that Mr. Cook had not yet begun day trading?
    Mr. Parish. Yes, that is correct.
    Senator Collins. And ultimately, did not Mr. Cook lose 
approximately $175,000 day trading?
    Mr. Parish. I do not know what the exact number was, but he 
lost substantial money, not by day trading.
    Senator Collins. But not by day trading?
    Mr. Parish. He made bad investments.
    Senator Collins. And is it accurate to say that he has sued 
both you and All-Tech?
    Mr. Parish. Yes.
    Senator Collins. OK. Mr. Zayas, did you ever change numbers 
on new account forms to make customers appear more suitable for 
day trading?
    Mr. Berman. May I have a moment?
    Senator Collins. Yes.
    Mr. Zayas. No, I did not.
    Senator Collins. Did anyone at All-Tech ever suggest to you 
that you should change numbers on new account forms to make the 
customers appear to be more suitable for day trading?
    Mr. Zayas. Yes.
    Senator Collins. And who at All-Tech--I am sorry, it is not 
All-Tech. Who at your firm suggested that you alter the 
figures?
    Mr. Zayas. It was All-Tech.
    Senator Collins. It is All-Tech. I am sorry.
    Mr. Zayas. Yes, it is All-Tech.
    Senator Collins. Who did suggest that you alter the figures 
to make the customers seem more suitable?
    Mr. Zayas. The people in the margin department.
    Senator Collins. But you are testifying today that you did 
not alter numbers on new account forms to make customers appear 
more suitable?
    Mr. Zayas. That is correct.
    Senator Collins. Senator Levin.
    Senator Levin. Thank you, Madam Chairman.
    Mr. Cao, earlier I held up a document here on Hahna Global 
Capital Management, Inc., stationery which lists you as the 
Senior Vice President of Hahna Global Capital, and we are 
getting you a copy now so you will have that in front of you. 
You told me that you were shocked when you discovered that, and 
I asked you when was the first time that you saw that and you 
told me that it was about 4 months after you went to trade at 
Hahna, and then you said it was after Amy Le's complaint had 
been filed. Her complaint was filed in early 1999. That is her 
complaint with NASD.
    Now, you testified under oath before the Subcommittee 
staff, and according to your testimony, you said that you sent 
this very piece of paper with the letterhead identifying you as 
a Senior Vice President on March 20, 1998, almost 1 year before 
Ms. Le's complaint had been filed. And if you will look at the 
date at the top of that, the fax date, you will see where that 
date appears. By the way, is this your signature on this sheet?
    Mr. Cao. Yes, it was my signature.
    Senator Levin. So, in fact, you knew nearly 1 year before 
Ms. Le's complaint was filed that you were listed on Hahna 
Global's letterhead as their Senior Vice President, is that not 
true?
    Mr. Cao. It seemed to me they list me as Senior Vice 
President of Hahna Global Capital Management, yes.
    Senator Levin. Did you send this fax that is in front of 
you----
    Mr. Cao. No, I did not.
    Senator Levin. Excuse me. Let me just finish my question. 
Did you send this fax to a Ms. Richardson in March 1998?
    Mr. Cao. No, I did not.
    Senator Levin. I want to read to you now from your 
deposition.
    Mr. Cao. OK.
    Senator Levin. ``Did you send this fax to Ms. Richardson in 
March 1998 to let her know that you were in L.A. and that you 
had gotten settled?'' Answer, ``Yes.'' That is your sworn 
deposition. Now, you are under oath here and you say that you 
did not send this to her in March 1998.
    Mr. Cao. May I provide the additional information?
    Senator Levin. Yes, but either you were telling the truth 
in your deposition or you are telling the truth today.
    Mr. Cao. Well, in that firm, I am not allowed to use any 
fax machine at all. Whatever fax sent out need to be sent out 
by the back office, not by me directly or physically.
    Senator Levin. The question asked in your deposition was, 
``Did you send this fax to Ms. Richardson in March 1998 to let 
her know that you were in L.A. and that you had gotten 
settled?'' Your answer was, ``Yes, uh-huh.'' Was that answer 
true?
    Mr. Cao. I do not--that answer seems not to be--not to be 
clearly correct.
    Senator Levin. Your answer was not accurate in the 
deposition?
    Mr. Cao. My answer is, I do not recall.
    Senator Levin. You do not recall making the answer?
    Mr. Cao. I do not recall about sending this fax out.
    Senator Levin. I see. When you testified at your deposition 
as follows, ``Did you send this fax to Ms. Richardson in March 
1998,'' your answer was, ``Yes, uh-huh.'' Was that statement 
true when you made it at the deposition or did you not remember 
when you said you did remember at the deposition?
    Mr. Cao. I did not remember.
    Senator Levin. So then your answer at the deposition, that 
yes, you sent this fax to her in 1998, was not true?
    Mr. Cao. I could not recall because here in that firm, I am 
not allowed to use any fax machine at all.
    Senator Levin. Whether you are allowed to use a fax is a 
different question from whether or not you remember the fax 
being sent out to her in March 1998. Do you remember that in 
March 1998, this letter was faxed to her under your signature?
    Mr. Cao. I will not be able to have any fax machine from 
that--from inside of that firm to send out any fax.
    Senator Levin. Is this your signature?
    Mr. Cao. Yes, it is.
    Senator Levin. And when did you send this to her?
    Mr. Cao. I do not recall.
    Senator Levin. Was it in 1998?
    Mr. Cao. It does not seem right.
    Senator Levin. You do not think you sent it to her in 1998?
    Mr. Cao. I do not think so.
    Senator Levin. When would you have sent it to her?
    Mr. Cao. I do not recall.
    Senator Levin. Are you currently day trading?
    Mr. Cao. Yes, I am.
    Senator Levin. Even though you are in bankruptcy?
    Mr. Cao. Yes, I am.
    Senator Levin. How are you suitable for day trading if you 
are in bankruptcy?
    Mr. Cao. Well, day trader look like any job. I come in to 
do the job and even that I file for bankruptcy, I still much am 
living.
    Senator Levin. You still what?
    Mr. Cao. I still have to do something to make my living.
    Senator Levin. So you are not using any of your own funds?
    Mr. Cao. Not, not at all.
    Senator Levin. And whose funds are you using?
    Mr. Cao. I have three accounts at this time.
    Senator Levin. And you have three customers?
    Mr. Cao. Yes.
    Senator Levin. And you only do day trading for them?
    Mr. Cao. Yes.
    Senator Levin. Would you file the names of those customers 
with the Subcommittee? Will you give us the names of those 
customers?
    Mr. Cao. Yes, I did.
    Senator Levin. You have already?
    Mr. Cao. Yes, I provided those names.
    Senator Levin. Mr. Zayas, am I pronouncing your name 
correctly?
    Mr. Zayas. Zayas.
    Senator Levin. Zayas. In your deposition before the 
Subcommittee staff, you said that you first met the head of 
All-Tech, Mr. Houtkin--am I pronouncing his name----
    Mr. Zayas. Houtkin, yes.
    Senator Levin [continuing]. Houtkin, that when you first 
met him, ``he kept stressing that it was--I was going to change 
my career. I was going to make millions and it was going to 
change my life.'' That is your quote.
    Mr. Zayas. That is correct.
    Senator Levin. And is that what he told you?
    Mr. Zayas. Yes, it is.
    Senator Levin. And how long had Mr. Houtkin known you when 
he told you that this was going to make millions for you, 
change your life? How long had he known you when he said that 
to you?
    Mr. Zayas. Probably about 15 minutes.
    Senator Levin. When he told you that, did he have any 
knowledge about your background, your educational background, 
whether you had any experience in securities trading?
    Mr. Zayas. No. He had----
    Senator Levin. Pardon?
    Mr. Zayas. No.
    Senator Levin. Now, did you make millions?
    Mr. Zayas. No, I did not.
    Senator Levin. Did you make anything?
    Mr. Zayas. No, I did not.
    Senator Levin. How much did you lose?
    Mr. Zayas. Trading, approximately $60,000.
    Senator Levin. During your initial trading, did All-Tech 
personnel say that if you generated a margin call, that they 
would help you locate someone to help you meet that call?
    Mr. Zayas. I did not trade at All-Tech.
    Senator Levin. Pardon?
    Mr. Zayas. I did not trade at All-Tech. After I took the 
class at All-Tech, I had spoken with Harvey and I had taken the 
class, there was no office in the Boston area. Harvey said that 
he would find a trader for me to trade my account, since I 
obviously could not commute between Boston and Montvale, New 
Jersey. So he found a trader for me and that trader lost 
$60,000.
    Senator Levin. OK. Now, my question is the following: 
During the training class, were you told that if you generate a 
margin call, that you will be able to find someone within the 
office to help you meet the margin call?
    Mr. Zayas. Yes.
    Senator Levin. So you were informed of that during your 
training class?
    Mr. Zayas. Yes, I was.
    Senator Levin. Who was it who said that?
    Mr. Zayas. It was probably somebody in the margin 
department that----
    Senator Levin. At your deposition, you said it was someone 
named Kim-Lisa Esposito.
    Mr. Zayas. Yes, that is in the margin department, Lisa 
Esposito, yes.
    Senator Levin. Lisa Esposito?
    Mr. Zayas. Yes.
    Senator Levin. Now, when they told you that during your 
training class, did they indicate that they would charge a fee 
for covering that margin account with such a loan?
    Mr. Zayas. No.
    Senator Levin. Now, I want to read your deposition to you. 
``At that time''--this is right after--let me just read the 
question. It is on page 27. ``At that time''--this is during 
your training class--``was there any discussion of a fee that 
would be charged to a customer who borrowed money for such 
purposes?'' Your answer was, ``They did state that sometimes, 
depending on the situation, that you might be charged a fee.'' 
Is that true?
    Mr. Zayas. I just--I do not recall. That was in 1995.
    Senator Levin. Do you recall saying that at the deposition?
    Mr. Zayas. Yes, I do.
    Senator Levin. So you recall that being said at the 
deposition, but you cannot recall----
    Mr. Zayas. I am not 100 percent certain that it was at the 
class, that it said that during the training class. I am not 
sure it was said during the training class.
    Senator Levin. But it was said at some other point?
    Mr. Zayas. It must have--it was obviously said various 
times.
    Senator Levin. To you?
    Mr. Zayas. Yes, but not at the training class.
    Senator Levin. All right. Now, there was a man or a woman 
named Jody Krajak?
    Mr. Zayas. Krajak.
    Senator Levin. Is that a man or a woman?
    Mr. Zayas. That is a man.
    Senator Levin. A man named Jody Krajak----
    Mr. Zayas. Yes.
    Senator Levin [continuing]. Who you authorized, I believe, 
to trade in your account, is that correct?
    Mr. Zayas. Yes.
    Senator Levin. And how did you happen to get into that 
situation? Was that at the suggestion of Mr. Houtkin?
    Mr. Zayas. Yes, it was.
    Senator Levin. Tell us how that happened.
    Mr. Zayas. Well, I had finished taking the class and Harvey 
had told me that there was no day-trading firms in Boston and 
that he could find a trader for me to trade my account, that he 
had done that in the past with numerous individuals. And he 
introduced me to a number of people and----
    Senator Levin. Did he introduce you to Mr. Krajak?
    Mr. Zayas. Yes, he did.
    Senator Levin. And to your knowledge, was Mr. Krajak a 
registered investment advisor or registered with the Securities 
and Exchange Commission and the NASD to sell or trade in 
securities?
    Mr. Zayas. To my knowledge, he was not.
    Senator Levin. Now, you became a manager of the All-Tech 
branch in Watertown, is that correct?
    Mr. Zayas. Yes.
    Senator Levin. And did Mr. Houtkin offer you that job?
    Mr. Zayas. Yes, he did.
    Senator Levin. I believe you told the Subcommittee staff 
that you believe that he offered it to you as a consolation for 
the significant losses that you suffered through the trading 
and Mr. Krajak, is that correct?
    Mr. Zayas. He reduced the fee, also.
    Senator Levin. The fee for what?
    Mr. Zayas. To open up a trading office, a branch office.
    Senator Levin. In other words, you are paying a fee to open 
up this office?
    Mr. Zayas. That is correct.
    Senator Levin. And he reduced it from what to what?
    Mr. Zayas. Well, the fee varied. It was from $75,000 to 
$100,000 and he reduced the initial fee down to $50,000.
    Senator Levin. When you say initial fee, did he say you 
would pay the $25,000 extra later?
    Mr. Zayas. No, but there was other charges.
    Senator Levin. Now, did you receive any training from All-
Tech on how to be a branch office manager?
    Mr. Zayas. No, I did not.
    Senator Levin. Did you at any point forge documents to make 
account transfers for the purpose of meeting margin calls?
    Mr. Zayas. I respectfully refuse to answer that question 
based on my Fifth Amendment right.
    Senator Levin. Did you at any time forge documents so that 
a customer account could remain open and you could earn 
additional commission income on trades that continued to be 
made through the accounts?
    Mr. Zayas. I respectfully refuse to answer that question 
based on my Fifth Amendment right.
    Senator Levin. I believe you had a total of about 50 
customers over the period of time that you managed the 
Watertown office between September 1997 and November 1998, is 
that correct?
    Mr. Zayas. It was a little bit more.
    Senator Levin. About how many?
    Mr. Zayas. Probably--day traders was approximately 50.
    Senator Levin. OK. Of those 50, how many were profitable?
    Mr. Zayas. One.
    Senator Levin. One out of 50?
    Mr. Zayas. That is correct.
    Senator Levin. Now, you told the staff that Mr. Houtkin was 
aware whether people were making or losing money, is that 
correct?
    Mr. Zayas. Yes.
    Senator Levin. And is it correct that he once told you that 
people were losing money, and most people do lose money?
    Mr. Zayas. That is correct.
    Senator Levin. Did All-Tech track which customers are 
making money and which are losing money?
    Mr. Zayas. Yes.
    Senator Levin. You told the Subcommittee staff, I believe, 
that there was a gathering in the All-Tech branch office in 
Kansas City in the spring of 1998, and as you characterize it 
here, ``Basically, it was determined that everybody--a lot of--
most people were losing money.'' Do you mean that in most 
branches, a majority of people were losing money?
    Mr. Zayas. In my discussions with the branch managers, yes.
    Senator Levin. And do you believe that Mr. Houtkin was 
aware that most traders at the All-Tech branches were losing 
money?
    Mr. Zayas. Yes.
    Senator Levin. Did you ever perform any suitability review 
of clients before they were accepted?
    Mr. Zayas. That was not my function.
    Senator Levin. Do you know if the function was performed?
    Mr. Zayas. Everything was handled out of the Montvale main 
office.
    Senator Levin. And so you do not know whether that function 
was performed?
    Mr. Zayas. I do not know.
    Senator Levin. I believe you testified to staff that you 
were told to change numbers on new accounts, the approval forms 
for new accounts, before sending them to the Montvale office to 
make the customer more suitable. Is that true?
    Mr. Zayas. The way the wording was, probably there was a 
customer form sent to the Montvale office and I was told, do 
not send us a form like this again.
    Senator Levin. The question that was asked at the 
deposition of you is the following. ``So Lisa Esposito told you 
that you should change numbers on new account approval forms 
before sending them to the Montvale office to make the customer 
appear more suitable to open a day trading account?'' Answer, 
``Yes.'' Was that answer true?
    Mr. Berman. May I have a moment, sir?
    Senator Collins. Sure.
    Mr. Zayas. That is what she told me.
    Senator Levin. The answer----
    Mr. Zayas. Yes.
    Senator Levin. Yes. To your knowledge, was Mr. Houtkin 
aware that numbers were changed or inserted on new account 
approval forms to make customers appear more suitable to open 
day trading accounts at All-Tech?
    Mr. Zayas. I do not know.
    Senator Levin. Were there situations where headquarters in 
New Jersey would tell you to open new accounts for people under 
another name after their old account had been closed or 
liquidated because they could not meet the margin calls in 
those accounts?
    Mr. Zayas. I did not open accounts. Basically, that was all 
handled through the New Jersey office.
    Senator Levin. I have additional questions, but I have 
taken my time. Do you want to go back and forth?
    Senator Collins. I am just going to ask a couple of 
questions. Mr. Zayas, just to follow up with Senator Levin's 
question, were there any customers whom you believed to not be 
suitable for day trading for whom accounts were opened?
    Mr. Zayas. I was not--I did not have the authority, nor was 
it my position to determine whether somebody was suitable or 
not for day trading.
    Senator Collins. I understand that, and you have said those 
decisions were made in New Jersey, correct?
    Mr. Zayas. That is correct.
    Senator Collins. But my question is, were you aware of any 
cases in which accounts were opened for customers whom you 
believed to be unsuitable?
    Mr. Zayas. Yes.
    Senator Collins. Yes?
    Mr. Zayas. Yes.
    Senator Collins. Mr. Parish, I just have one final question 
for you.
    Mr. Ambrose. My client would like to correct what may be a 
misleading aspect of the answer to your last question.
    Senator Collins. That will be fine, Mr. Parish.
    Mr. Parish. It was about the ad, when you were mentioning 
Ms. Margala responding to the ad.
    Senator Collins. Yes.
    Mr. Parish. Ms. Margala called my office in response to the 
ad and came to visit me at my office, but it was not the ad 
that caused her to day trade. It was what she found in the 
office and how the office was and what she discovered during 
her paper trading.
    Senator Collins. She has testified that but for the ad, she 
never would have come to your office to talk about day trading.
    Mr. Parish. OK.
    Senator Collins. Mr. Parish, what percentage of day traders 
in the San Diego office lost money within the first 6 months of 
trading?
    Mr. Parish. At least 80 percent.
    Senator Collins. Thank you. Senator Levin.
    Senator Levin. Thank you. Mr. Zayas, I want to read you 
part of your deposition and then ask you if it is true.
    Question: ``Did you assist people in opening new accounts 
when you knew that other accounts, one or more, that they had 
been closed or liquidated because they could not meet margin 
calls in those accounts?''
    Answer: ``Well, if an account would get closed up and the 
customer would say to me, what do I do, what do I do, I would 
talk to the Montvale office and say, can this account get 
reopened, and sometimes they would say yes and sometimes they 
would say no and I do not know what determined that. But if the 
answer was no, they would then tell me, `Just have them open up 
another account under a relative's name or--''
    Question: ``Who told you that?''
    Answer: ``Lisa.''
    Question: ``Esposito?''
    Answer: ``Yes.''
    Question: ``And did you do that for customers?''
    Answer: ``Sure. Yes.''
    Was that a true answer?
    Mr. Zayas. Yes, on their direction, yes.
    Senator Levin. So you were told by the office that just 
have them open up another account under a relative's name. You 
were told by Lisa Esposito that you could do that. Were you 
directed to do that or were you told you could do that in order 
that they could continue to do day trading?
    Mr. Zayah. I was told that I could do that. I was not 
directed to do that. That was----
    Senator Levin. In your deposition, you indicated that All-
Tech's philosophy regarding customer recruitment was, ``take 
whoever comes in.'' Is that correct?
    Mr. Zayah. That is correct.
    Senator Levin. And in your deposition, you were told by 
somebody in the All-Tech corporation's headquarters that you 
should inflate net worth numbers on new account forms to make 
customers appear more suitable, is that correct?
    Mr. Zayas. That is what they told me.
    Senator Levin. You say that is what they told you.
    Mr. Zayas. Yes.
    Senator Levin. The answer is that it is correct----
    Mr. Zayas. That is correct.
    Senator Levin [continuing]. That you were told by someone 
in the All-Tech corporation's headquarters that you should 
inflate net worth numbers on new account forms to make 
customers appear more suitable?
    Mr. Zayas. Yes, that is correct.
    Senator Levin. Mr. Parish, Ms. Margala and Ms. Harlacher 
testified that you placed pressure on them to trade their 
account. Is that correct? Did you?
    Mr. Parish. I placed pressure on them to stop holding 
losing positions. If you are not holding positions, then you 
can trade. Ms. Margala and Ms. Harlacher continue to enter 
trades, and when it went the wrong way, they would not exit the 
trade.
    Senator Levin. And so you were urging them to exit trades?
    Mr. Parish. Yes. Get out of them. You are going to lose all 
your money doing that.
    Senator Levin. And were you compensated on the basis of how 
many trades were conducted?
    Mr. Parish. Sure.
    Senator Levin. So the more they traded, the more you made?
    Mr. Parish. Yes.
    Senator Levin. So you had a direct interest in your advice 
to them to trade because you were making more money when they 
traded? You had a financial interest, did you not?
    Mr. Parish. Well, Senator, of course.
    Senator Levin. OK.
    Mr. Parish. But if I could add something, nobody was ever 
encouraged or forced to make any trade that they did not want 
to. The object is only to make a wining trade. That is why I 
became a day trader in the first place and left the brokerage 
industry, is so that that ambivalence that all brokers must 
have about whether they are recommending this trade for the 
Subcommittee or are they recommending this trade because it is 
a good trade? I left the retail brokerage industry because of 
that ambivalence.
    Senator Levin. Yes, but when you say urging people to make 
a winning trade, you said a moment ago you were urging people 
to get out of a position even if it was a losing trade. Is that 
correct?
    Mr. Parish. Yes, before it got worse.
    Senator Levin. Right.
    Mr. Parish. That is what----
    Senator Levin. Now, when you say a winning trade, you do 
not mean that you were limiting your advice to people to make 
winning trades. You meant that you were urging people to get 
out of a position, period, before the day was over, is that not 
accurate?
    Mr. Ambrose. May I have a moment?
    Mr. Parish. Could you repeat the question, please?
    Senator Levin. You were urging people to get out of a 
position by the end of the day, were you not, regardless of 
whether they made money or not?
    Mr. Parish. Oh, no, not necessarily. If a person--could I 
take a moment to explain how this works?
    Senator Levin. No, it is OK, because I think we understand. 
You were not urging people to get out of losing positions, only 
winning positions?
    Mr. Parish. No, I was urging people, do not hold losing 
positions. You want to carry a winner, go ahead.
    Senator Levin. But let me be real clear. Even though 
someone would lose by selling, you frequently urged them to 
sell, is that not correct, very simply?
    Mr. Parish. Losing positions that you take home tend to get 
worse, not better.
    Senator Levin. My question, though, is even though somebody 
would lose when they sold compared to what they paid for a 
stock, you would urge them to get out of that position 
frequently, is that not true?
    Mr. Parish. That is true.
    Senator Levin. Now, in your statement, you say that on two 
occasions you journaled funds from your own account to assist a 
customer. As I understand it, that means you loaned or made 
money available to a customer to meet a margin call, is that 
correct?
    Mr. Parish. Yes. I journaled money overnight from my 
account to a customer and back the next day.
    Senator Levin. All right. That was in order to help a 
customer meet a margin call, is that correct?
    Mr. Parish. That is correct.
    Senator Levin. Under the Exchange Act, is it not illegal to 
do that unless you had set up a special margin account and 
obtained separate collateral from the customer?
    Mr. Parish. I understood it to be--I did believe that it 
was improper and I ceased immediately, yes.
    Senator Levin. How many times did you do that?
    Mr. Parish. Twice, small amounts.
    Senator Levin. How long did the company continue to help 
people meet their margin accounts with these short-term loans 
from other accounts? How long did that last?
    Mr. Parish. Are you asking me how long we journaled around 
my office?
    Senator Levin. I am asking you just as I asked you.
    Mr. Parish. What was the question again, please?
    Senator Levin. How long did you help people cover their 
margin accounts when they were over the margin?
    Mr. Parish. How long did I?
    Senator Levin. How long did that procedure last? Does it 
last until today, last month?
    Mr. Parish. I do not know if All-Tech is still journaling 
or not.
    Senator Levin. They still may be doing that?
    Mr. Parish. They still could be, for all I know.
    Senator Levin. Even though you have stopped?
    Mr. Parish. I stopped.
    Senator Levin. Because you found out it was improper.
    Mr. Parish. Yes. I believe that it is--in the long run, it 
is detrimental to everybody and it is a nightmare.
    Senator Levin. Did you facilitate loans to people to cover 
these margin accounts from other customers?
    Mr. Parish. No loans. There are no loans. They were 
overnight journals.
    Senator Levin. Did you not have to put money into their 
account in order to prevent the account from grinding to a 
halt? Is that not what you were journaling? Did you not have to 
add money to their account?
    Mr. Parish. Journaled money from Customer A to Customer B 
back to Customer A, yes.
    Senator Levin. And was interest ever charged for that?
    Mr. Parish. I do not know if you would call it interest. 
Customer A had the money. If he wanted to charge a fee and 
Customer B agreed to it, that happened frequently, yes.
    Senator Levin. So fees were charged?
    Mr. Parish. Yes.
    Senator Levin. What was the fee based on?
    Mr. Parish. The whim of the guy with the money.
    Senator Levin. And you do not call that fee for a loan. You 
call that fee for what? It is not a loan. What is it?
    Mr. Parish. It is an overnight journal to meet a margin 
call.
    Senator Levin. An overnight journal?
    Mr. Parish. Yes.
    Senator Levin. In effect, is that not a loan temporarily 
for a short period of time in order to meet a margin call? Is 
it not the same thing?
    Mr. Parish. I guess the answer is no. He cannot use the 
money for anything else, can he?
    Senator Levin. You mean I cannot loan you money to buy a 
house, and you cannot use that money for anything but to buy a 
house. It is still a loan, is it not?
    Mr. Parish. If you loaned me money, I would call it a loan, 
yes, sir.
    Senator Levin. To buy a house. Even though you cannot use 
it for anything else other than what I lent it to you, it is 
still a loan, is it not?
    Mr. Parish. OK, yes, sir.
    Senator Levin. Now, is this not in effect a loan overnight? 
If it is not a loan, what is it? You are pretty familiar with 
this stuff. It is not a gift, is it?
    Mr. Parish. No.
    Senator Collins. They are not giving him money.
    Mr. Parish. No.
    Senator Levin. If they are not lending him money, what are 
they doing?
    Mr. Parish. They are trying to help the guy out of a jam by 
journaling some money out of his account and journaling back.
    Senator Levin. All right. Did you hear Ms. Harlacher's 
testimony this morning?
    Mr. Parish. Yes.
    Senator Levin. Did you hear her say that you asked her to 
use her account to cover somebody else's margin calls?
    Mr. Parish. Yes, I heard her say that.
    Senator Levin. How many of your customers get paid fees for 
doing that?
    Mr. Parish. Oh----
    Senator Levin. What percentage?
    Mr. Parish. Only a few, because certain customers would 
have the larger accounts and those are the ones that ended up 
doing the majority of the journals because they had large 
amounts of money that is available to get journaled around.
    Senator Levin. And did you tell Ms. Harlacher she could 
charge a fee or not in her discretion?
    Mr. Parish. Probably, yes.
    Senator Levin. Did All-Tech ever prepare a brochure to 
people saying that you could get a 10 percent return on your 
money if you provided us funds to lend people overnight to 
cover these margin calls? Did you ever have a program like 
that? I think you heard testimony about that this morning.
    Mr. Parish. I never saw anything like that.
    Senator Levin. So there is no such program that All-Tech 
ever had?
    Mr. Parish. Not to my knowledge.
    Senator Levin. And did All-Tech ever make money from these 
fees that were charged to people to meet their margin calls?
    Mr. Parish. Not in my office.
    Senator Levin. Do you know whether in any other office, 
All-Tech ever got a part of that fee or made any money for 
covering people's margin calls?
    Mr. Parish. I have no way of knowing that.
    Senator Levin. Do you know whether All-Tech had a policy to 
allow this kind of lending, or was it just done ad hoc without 
a policy?
    Mr. Parish. Well, when I came to All-Tech, it seemed to be 
their policy. They provided me with the documents to fill out 
and they provided me with the instruction on how to fill them 
out. They explained to me how to make sure the money got 
returned to Customer A. So being new to their industry, I felt 
it was the way they did business.
    Senator Levin. In her testimony, Ms. Margala stated that 
you allowed one All-Tech client to trade other All-Tech 
clients' accounts. She further testified that another client 
told her that you had personally provided him with clients' 
accounts to trade. Yet neither of the two people had a broker's 
license. Is that true?
    Mr. Parish. I did not provide anybody with any accounts to 
trade. I introduce people to each other and they do whatever 
they want.
    Senator Levin. All right. So you never gave anybody 
accounts and said, here, you can trade these accounts. That 
would be false if she said that?
    Mr. Parish. I did not do that.
    Senator Levin. It was always done person to person after 
your introduction?
    Mr. Parish. Right.
    Senator Levin. Are you aware of any instance in the All-
Tech San Diego office where an individual traded other people's 
accounts?
    Mr. Parish. Yes.
    Senator Levin. Were you aware of instances where people who 
were trading those accounts were not brokers?
    Mr. Parish. Yes.
    Senator Levin. And in those instances, do you know if the 
individual conducting the trades received any part of the 
commission as compensation for their effort?
    Mr. Parish. No commission, now.
    Senator Levin. Pardon?
    Mr. Parish. No, they did not receive a commission.
    Senator Levin. Or a compensation?
    Mr. Parish. Oh, they received competition, sometimes.
    Senator Levin. Sure, and what was that compensation based 
on?
    Mr. Parish. It was based on an agreement between the trader 
trading the account and the person whose money it was and they 
worked out arrangements between themselves.
    Senator Levin. And then they set the fee or the----
    Mr. Parish. The split of the profit?
    Senator Levin. Was there ever a fee charged for that?
    Mr. Parish. No.
    Senator Levin. In All-Tech, did you ever make any money off 
those trades?
    Mr. Parish. No.
    Senator Levin. You never charged anything?
    Mr. Parish. Just the $25 per trade.
    Senator Levin. Yes, that is what I mean. But you never 
split that with the person who was doing the trading?
    Mr. Parish. No.
    Senator Levin. And so if there was anything in addition 
above the $25 that the person whose account it was was paying 
to the person who was doing the trading, that would have been 
between the two of them?
    Mr. Parish. The trader generally was paid if he was 
profitable, and he was paid by the person whose money it was 
directly.
    Senator Levin. If you knew that unlicensed individuals were 
trading other people's accounts, since you were branch manager, 
why did you not stop it?
    Mr. Parish. When I came to All-Tech, they encouraged that 
sort of thing. Mr. Houtkin was actively seeking investors to 
invest in his own mutual fund, he called it, where he was going 
to have all these investors put in money and he was going to 
find all the traders to trade the money.
    Senator Levin. Even though those traders were not licensed?
    Mr. Parish. Yes.
    Senator Levin. Thank you.
    Senator Collins. Thank you, Senator Levin.
    I am going to excuse this panel. The hearings will continue 
tomorrow, and at that time, we will hear testimony from the 
CEOs of All-Tech, Providential, and Momentum. We are eager to 
hear the firms' reaction to the testimony of their former 
customers and employees. We will also hear from the regulators 
tomorrow about ways to beef up the protections, the consumer 
protections and enforcement efforts in this area.
    I would like to include in the record the report of the GAO 
entitled ``Securities Operations: Day Trading Requires 
Continued Oversight.'' \1\
---------------------------------------------------------------------------
    \1\ See Exhibit No. 146 which appears in the Appendix on page 1100.
---------------------------------------------------------------------------
    The Subcommittee will now stand in recess until tomorrow 
morning at 9:30 a.m., and I thank all the witnesses for their 
testimony.
    [Whereupon, at 1:48 p.m., the Subcommittee was recessed, to 
reconvene at 9:30 a.m. on Friday, February 25, 2000.]

              DAY TRADING: EVERYONE GAMBLES BUT THE HOUSE

                              ----------                              

                       FRIDAY, FEBRUARY 25, 2000

                                       U.S. Senate,
                Permanent Subcommittee on Investigations,  
                  of the Committee on Governmental Affairs,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 9:31 a.m., in 
room SD-342, Dirksen Senate Office Building, Hon. Susan 
Collins, Chairman of the Subcommittee, presiding.
    Present: Senators Collins and Levin.
    Staff Present: K. Lee Blalack, II, Chief Counsel and Staff 
Director; Mary D. Robertson, Chief Clerk; Brian C. Jones, 
Investigator; Wesley Phillips, Detailee/GAO; Eileen M. Fisher, 
Investigator; Elizabeth Hays, Executive Assistant; Stephen 
Wheeler, Intern; Linda J. Gustitus, Minority Chief Counseland 
Staff Director; Bob Roach, Counsel to the Minority; Michael 
Loesch (Senator Cochran); Anne Bradford (Senator Thompson); 
Marianne Upton (Senator Durbin); Nanci Langley and Glenn Sauer 
(Senator Akaka).

              OPENING STATEMENT OF SENATOR COLLINS

    Senator Collins. Good morning. The Subcommittee will please 
come to order.
    Good morning. Today, the Permanent Subcommittee on 
Investigation holds its third oversight hearing into day 
trading. After a general hearing on the issue last fall, the 
Subcommittee began an in-depth investigation into the business 
practices of 15 day-trading firms, eventually narrowing our 
focus primarily on three companies, All-Tech Direct, Momentum 
Securities, and Providential Securities.
    During the course of its 8-month investigation, the 
Subcommittee uncovered some potentially illegal conduct, such 
as forgery and unauthorized trading. The most disturbing and 
pervasive evidence we gathered, however, relates to business 
practices that are, for the most part, entirely legal under the 
current regulatory framework. Perhaps our most important 
finding is that many firms encourage unsuitable customers with 
limited financial means and even less knowledge of the markets 
to engage in day trading.
    Yesterday, we heard testimony from and about such 
individuals who were enticed to day trade with their meager 
life savings, or worse yet, with borrowed funds, money that 
they could ill afford to lose. Yet, lose they certainly did. 
Not understanding how risky day trading is and believing the 
false promises of deceptive ads or slick salesmen, these 
customers lost tens of thousands of dollars, not to mention 
their pride.
    We learned that some day-trading firms disregard their own 
requirements for minimum deposits, net worth, and income, and 
opened accounts for individuals who clearly should not have 
been accepted as clients. The desire for more and more 
customers and more and more commission revenue has produced a 
race to the bottom, as firms have lowered or ignored their own 
standards.
    While day trading is rarely profitable for the customer, it 
generates huge commissions for the firms. At the firms surveyed 
by the Subcommittee, the average day trader would have to 
generate a trading profit of more than $111,000 a year just to 
pay the commissions, and we will hear some testimony this 
morning that suggests that the amount of commission revenue may 
actually be much higher. It is not surprising that the best 
evidence we have indicates that more than 75 percent of all day 
traders lose money, and in some day trading branch offices, not 
a single trader is profitable over the long run. Yet day-
trading firms do everything possible to encourage a customer to 
keep on trading despite losses, including arranging for loans 
from other customers to cover margin calls.
    Today, we will hear from a panel of State and Federal 
regulators as well as the regulatory arm of the National 
Association of Securities Dealers. The presidents and chief 
executive officers of All-Tech, Providential, and Momentum will 
also testify. I look forward to hearing from all of our 
witnesses this morning.
    I am now pleased to call upon the distinguished Ranking 
Minority Member, Senator Levin, who has also been very active 
in this area.

               OPENING STATEMENT OF SENATOR LEVIN

    Senator Levin. Thank you, Madam Chairman, and again, our 
thanks to you and particularly the Majority staff, who have 
worked so closely with you to provide hearings here which are 
illuminating on this growing practice of day trading.
    We heard testimony yesterday which was disturbing, indeed. 
We heard from branch managers of All-Tech and one day trader at 
Providential that unlicensed brokers trade for compensation on 
behalf of other individuals somewhat routinely. Mr. Cao of 
Providential Securities told us he is day trading right now on 
behalf of three clients. He is not a licensed broker. Mr. 
Parish, former branch manager for All-Tech, told us he knows of 
a number of day traders at All-Tech who are not licensed 
brokers who trade on behalf of other clients for compensation. 
Mr. Zayas, also a former branch manager for All-Tech, testified 
he was directed by Mr. Houtkin, one of today's witnesses, the 
CEO of All-Tech, to a day trader who would trade on his behalf, 
and that trader was not licensed.
    We heard testimony yesterday about the routine nature of 
loans arranged by day-trading firms to help clients meet margin 
calls. Mr. Parish admitted making two such loans, or 
journalings, as he called them himself, out of his own account. 
A broker-dealer and any person associated with a broker-dealer, 
as I understand it, is not allowed to make loans to clients to 
meet margin requirements.
    So we heard testimony about a number of very disturbing 
aspects, including the lack of analysis by day-trading firms as 
to whether day trading is even an appropriate strategy for a 
new client. We learned that not only was such analysis a low 
priority, but we learned that it is often ignored, or worse, 
that documents are doctored to make a client appear to be 
appropriate for day trading who otherwise would not even meet 
the firm's own requirements.
    These practices have exploited an ambiguous area in 
securities law to the detriment of unwitting consumers. The 
securities laws in general require that an individual who buys 
or sells stock on behalf of another individual for compensation 
must be licensed as a broker-dealer, yet we have apparently 
some nuances and loopholes in the law of which day-trading 
firms too often take advantage. These practices are open and 
widespread, and today we will be asking our first panel why 
this is happening.
    Day trading is an expensive gamble. People who try it 
without adequate information and safeguards and forewarning are 
likely to lose tens of thousands of dollars. The stories can be 
sad, sometimes tragic. Victims get caught up in the hype of 
day-trading firms. They fail to ask questions about the risk. 
They fail to be informed about the risk.
    Madam Chairman, I hope we can get some understanding today 
of just what the people at the top of these day-trading firms 
know or do not know about the lapses and irregularities that we 
heard about yesterday, and from our first panel, what actions 
the regulatory bodies are going to take to bring day trading 
within both the spirit and the letter of the requirements of 
securities laws and regulations.
    Again, I commend you and thank you, Madam Chairman, for 
your leadership and determination to probe this area.
    Senator Collins. Thank you very much, Senator Levin.
    We are now very pleased to have with us as our first panel 
of witnesses this morning three members of the regulatory 
community. First, I would like to welcome Lori A. Richards, who 
is the Director of the Office of Compliance Inspections and 
Examinations for the Securities and Exchange Commission. Ms. 
Richards will make public for the first time today a report 
prepared by the SEC staff summarizing their findings from a 
comprehensive examination of 40 day-trading firms. Those of you 
who attended the Subcommittee hearing last fall may remember 
that the SEC Chairman, Arthur Levitt, told us that such an 
examination was underway and we are very pleased to hear the 
results of it today.
    Next, we will hear from another witness who has appeared 
before us in the past, Barry Goldsmith, who is Executive Vice 
President, Enforcement of the National Association of 
Securities Dealers Regulation. The NASD Regulation, Inc. is a 
self-regulatory body that is charged with the initial duty of 
overseeing the day trading industry, and again, we look forward 
to hearing Mr. Goldsmith's testimony regarding enforcement 
efforts on the part of the self-regulatory organization.
    And finally, we are also very pleased to have with us today 
Deborah Bortner, who is the Director of the Washington State 
Securities Division. In one of my previous jobs, I spent 5 
years in Maine State Government overseeing the Securities 
Division, so I have great admiration for securities 
administrators and I am delighted to welcome you here today. As 
the chief securities regulator for the State of Washington, Ms. 
Bortner directed a comprehensive examination of every day-
trading firm doing business in her State. We are particularly 
interested in the profitability data which her office collected 
during this examination because it is the most comprehensive 
assessment of profitability that I believe has been conducted.
    I should also mention that Ms. Bortner is the President-
Elect of the North American Securities Administrators 
Association, also known as NASAA, which represents State 
securities regulators from all 50 States and Canada.
    So I am delighted to welcome our witnesses. I would ask you 
to stand so that I can swear you in. Do you swear that the 
testimony you are about to give to the Subcommittee will be the 
truth, the whole truth, and nothing but the truth, so help you, 
God?
    Ms. Richards. I do.
    Mr. Goldsmith. I do.
    Ms. Bortner. I do.
    Senator Collins. I am going to ask that each of you limit 
your oral testimony to no more than 10 minutes. We will be 
using a timing system this morning. The green light will come 
on at the beginning. One minute before the 10-minute period has 
expired or is about to expire, the orange light will go on. And 
when you see the red light, if you will conclude your 
testimony, that will be helpful to us. We will, however, print 
your written testimony in its entirety in the hearing record, 
as well as any other documents you may wish to submit.
    Ms. Richards, we will ask you to begin. Thank you.

     TESTIMONY OF LORI A. RICHARDS,\1\ DIRECTOR, OFFICE OF 
   COMPLIANCE, INSPECTIONS AND EXAMINATIONS, SECURITIES AND 
              EXCHANGE COMMISSION, WASHINGTON, DC

    Ms. Richards. Chairman Collins, Ranking Member Levin, good 
morning. I am pleased to appear before the Subcommittee this 
morning on behalf of the Securities and Exchange Commission to 
outline our recent actions with respect to day trading. I am 
Lori Richards, Director of the Exam Program at the Commission.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Richards with an attachment 
appears in the Appendix on page 174.
---------------------------------------------------------------------------
    The Commission has sought to address concerns about day 
trading by using a four-part strategy. First, by conducting an 
examination sweep of day-trading firms to evaluate their 
compliance with the law and to gather information about this 
new industry. Second, by fostering investor education about the 
risks of day trading. Third, by considering regulatory changes. 
And finally, by bringing enforcement actions, where 
appropriate.
    I am pleased today to provide you with a report summarizing 
the findings of the first part of that initiative. The report 
summarizes our findings from our examination sweep of firms 
offering day trading to the public. From October 1998 through 
September 1999, in coordination with the NASD, we examined 67 
firms offering day trading to the public. I would like to take 
a moment, if I could, to briefly summarize what we found in 
those examinations.
    While the examinations did not reveal widespread fraud, 
they did reveal a number of serious violations warranting 
referral to our Division of Enforcement. These violations 
included net capital, short sale, and margin violations. The 
examinations also revealed deficiencies in advertising, in 
supervision, and in registration rules.
    As a result of these examinations, we have concluded that 
many day-trading firms need to enhance their compliance with 
securities regulations. The inability of some firms to monitor 
their compliance with capital, margin, and the short-sale rule, 
or to maintain adequate books and records, raises serious 
concerns. All of the firms at which deficiencies were found 
have been cited in deficiency letters, or in the most serious 
cases, referred to our Division of Enforcement.
    In September, Chairman Levitt told this Subcommittee that 
he was concerned about the potential for individuals to be 
seduced by promises of easy profits from day trading without 
fully understanding the risks. During our examinations, we 
reviewed the information that firms were providing to customers 
concerning the risks of day trading. We found that as of the 
time of the examinations, most firms provided little or no 
information to their customers concerning the risks of day 
trading. A recent review indicates, however, that many firms 
have vastly improved their risk disclosure. Clearly, the 
industry is responding to regulators' concerns, and certainly 
the work of this Subcommittee and the media have highlighted 
the risks associated with day trading.
    I would like to also address another area of concern, 
margin lending. During examinations, we focused on a number of 
lending practices by the firms, direct lending by the firm, 
lending through associated persons of the firm, and the 
arranging of loans by the firm between customers and between 
third parties and customers. By using leverage, day traders 
hope to increase their potential profit from small movements in 
the price of stocks. Unfortunately, that leverage can also 
substantially increase losses, often beyond what day traders 
can afford to lose. We are concerned that many day traders do 
not fully appreciate that by borrowing to buy securities, they 
can actually lose more than their initial investment.
    This is why our collective efforts to educate investors are 
so important. Today, we are continuing to do that by posting 
another notice on the Commission's investor education Web site. 
Along with our investor alert concerning the risks of day 
trading, we have today posted investor tips concerning the 
risks of buying stock on margin.
    We are also focusing on securities rules and how we can 
address concerns about day trading by tightening up 
regulations. The NASD, the New York Stock Exchange, and other 
SROs have taken a number of steps and have proposed rules that 
would restrict margin for day traders, require day-trading 
firms to disclose the risks of day trading to potential 
customers, and to determine whether day trading is appropriate 
for their customers.
    Finally, our Division of Enforcement is continuing to 
investigate several referrals that stemmed from our examination 
sweep, and recently, the Commission brought two cases against 
day-trading firms for lending violations.
    The SEC will continue to focus resources on day trading. We 
will be conducting additional targeted examinations, continuing 
to evaluate whether regulatory changes are appropriate in light 
of industry practices, continuing to work to educate investors 
about the risks of day trading, and we will bring additional 
enforcement actions, where appropriate.
    As Chairman Levitt told this Subcommittee last September, 
we are committed to doing everything we can to ensure that day-
trading firms are operating within the boundaries of the law 
and we hope that individuals considering this type of trading 
strategy do their homework on the risks of day trading before 
risking their money.
    Thank you. I am happy to respond to any questions you may 
have.
    Senator Collins. Thank you very much, Ms. Richards. Mr. 
Goldsmith.

 TESTIMONY OF BARRY R. GOLDSMITH,\1\ EXECUTIVE VICE PRESIDENT, 
       ENFORCEMENT, NASD REGULATION, INC., WASHINGTON, DC

    Mr. Goldsmith. Thank you. Good morning. Thank you for the 
opportunity to testify today on behalf of NASD Regulation, Inc. 
These hearings provide the industry, the regulators, and most 
importantly, the investing public with new and useful 
information about day trading. My testimony this morning will 
deal with NASD Regulation's enforcement actions and 
investigations relating to day trading, as well as the NASD's 
recent rule proposals in this area.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Goldsmith appears in the Appendix 
on page 179.
---------------------------------------------------------------------------
    NASDR recognizes that day trading is a legitimate trading 
strategy and, if it is conducted by individuals who both 
understand and knowingly assume its risks, we do not intend to 
encourage or discourage such activities. That being said, NASDR 
continues to view day trading as a highly risky form of trading 
that requires new regulatory initiatives and, where 
appropriate, the filing of formal enforcement actions. The 
eight day trading enforcement cases we filed this week are 
examples of our strong commitment to compliance by NASD member 
firms and their personnel in this area.
    In 1999, the staffs of NASDR and the SEC launched a 
coordinated, focused examination program of day-trading firms. 
As part of that effort, we examined 22 day-trading firms that 
varied significantly in size and makeup. Fifty-five NASDR 
examiners received special training in the intricacies of day 
trading. During these examinations, we found several potential 
problem areas, including misleading and exaggerated 
advertising, improper margin lending practices, improprieties 
in customer-to-customer loans arranged by day-trading firms, 
registration violations, supervisory failures, and violations 
of the NASD short-sale rules.
    As a direct result of our examination efforts begun last 
year, NASDR announced yesterday that it had filed eight new day 
trading enforcement actions. While other day trading 
investigations continue, the actions that we filed this week 
represent an important step in our efforts to address problems 
in this area and our goal overall of improving member firm 
compliance.
    These eight cases allege allegations and findings against 
firms and individuals that reflect many of the concerns we 
originally reported to the Subcommittee last September. They 
include misuse of customer funds and securities, improper 
lending and margin practices, exaggerated and misleading 
advertising, improperly registered persons, violations of the 
NASD short-sale rule, improper use of the small order execution 
system, and supervisory inadequacies.
    Two of the cases involve allegations of misuse of funds, 
including one in which we allege that the owner of a day-
trading firm solicited more than $150,000 from outside 
investors, falsely representing that these monies would be used 
for risk-free loans to day-trading customers of the firm. In 
that case, the investors were promised returns of at least 15 
percent per year, or 20 percent of the profits earned by the 
day traders to whom the money was lent. Instead, the funds were 
loaned to customers with no controls or restrictions and were 
improperly used for branch operating expenses and virtually all 
of the money was eventually lost.
    In two other cases, NASDR found violations of the NASD 
rules in connection with margin calls, including one in which a 
firm's principal allowed a customer to effect 120 transactions 
while the customer's account was coded ``no more business'' by 
the clearing firm for failing to meet a margin call.
    In another case, a firm employee established a separate 
entity which then loaned funds to firm customers to meet margin 
calls to enable them to continue to trade.
    Four of the day trading actions announced yesterday include 
allegations or findings of violations of our advertising rules, 
including instances in which firms placed exaggerated and 
potentially misleading advertising on the Internet, as well as 
in local print and media advertisements. These firms typically 
exaggerated the ability of customers to access markets 
immediately without disclosing the risks inherent in day-
trading strategies, including market volatility. One 
advertisement told prospective day traders that they could, 
``Control their own destiny through electronic day trading'' 
without any corresponding disclosure of the risks.
    NASDR alleged and made findings that firms failed to ensure 
that individuals actively engaged in their day trading 
operations were properly registered, including one case in 
which the individual running the firm's day trading business 
was not even registered as a principal. In other cases, 
employees of the firm were acting as equity traders without 
having completed the NASD's Series 55 registration 
requirements. In one case, the firm allowed individuals to 
input trades for customers for periods of several weeks without 
registering them in any capacity with the firm.
    Finally, certain of the actions taken this week involve 
serious supervisory deficiencies, including one case in which a 
firm engaged in day trading activities without having any 
written supervisory procedures in place to address that area of 
the firm's business.
    In addition to the enforcement actions we filed, we also 
have instituted new heightened procedures in our review of day-
trading firms' Web sites. Since we instituted this program, 
NASDR staff have looked at over 120 Web sites, reviewing each 
of those sites at least four times since the program's 
inception through the end of 1999. To date, more than 30 sites 
have needed revisions to achieve compliance with our rules. The 
subject firms have been notified of the deficiencies identified 
in their sites. In the more serious situations, NASDR staff 
contacted the firms immediately and recommended that materials 
or representations on the sites be removed. In each of these 
cases, the problematic portions of the sites were taken down.
    One such site involved a day-trading firm's claims about 
the profitability that customers could expect from day trading. 
Under a banner headline, ``Do the Math,'' the firm suggested 
that a typical day-trading customer could easily make almost a 
quarter-million dollars per year. What was the basis for this 
prediction? A simple syllogistic formula. ``One point on 1,000 
shares equals $1,000. One point average per day, 240 trading 
days, equals $240,000 annually.'' One can only imagine what the 
portrayed profits would have been on the site if the firm had 
taken into account extended trading hours.
    To address the risk presented by day-trading firms both to 
individuals and to firms, NASDR also has engaged in rulemaking 
initiatives in three areas: Risk disclosure, appropriateness 
determinations, and margin requirements. These newly proposed 
rules require that firms that promote day trading to 
individuals fully disclose the risks involved, as well as 
assess whether such a strategy is appropriate for the 
individual. These rules were filed with the SEC last August, 
and after receiving comments, amended rules were filed with the 
SEC last week.
    We believe that the proposed rules, as amended, serve to 
maintain the standards necessary for the protection of 
investors without imposing overly burdensome regulatory 
requirements on firms that promote day trading. We are also 
working closely with the New York Stock Exchange to amend 
margin requirements applicable to day traders.
    Earlier this year, NASDR filed with the SEC a rule proposal 
that would amend the margin requirements that apply to pattern 
day traders. The amendments would do a number of things. First, 
they would change the definition of day trader to cover only 
true day traders, not incidental or occasional day traders. The 
rule would require minimum equity of $25,000 in a day trader's 
account on any day in which the customer trades. The rule would 
permit day trading buying power of up to four times a day 
trader's maintenance margin excess. However, unlike the present 
rules that allow funds to meet a day trading margin call to be 
deposited after the day trading risk has already been incurred, 
the proposed rule amendment requires that the funds be in the 
account prior to any trading. The rule would also prohibit 
cross-guaranteeing of accounts.
    Finally, NASDR is continuing to look at whether to impose 
any restrictions on day-trading firms' activities when they 
facilitate or participate in arranging loans among customers. 
We believe that there may be an inherent conflict of interest 
when member firms facilitate or participate in lending 
activities with or between their customers. It is these lending 
activities that often allow customers to continue to trade when 
they would not otherwise be in a financial position to do so, 
thereby generating more commissions for the firm. While these 
same conflicts arise when principals, registered 
representatives, and significant shareholders of members lend 
funds to customers, those are already addressed in the rules 
and we are looking to see whether we need to do more.
    We will continue our regulatory initiatives with respect to 
day trading. To the extent that our ongoing investigations find 
violations of the securities laws or NASD rules, we will bring 
additional enforcement actions. We have received a broad array 
of very constructive comments on our new rule proposals and we 
will work hard with the SEC and all interested parties to 
finalize them and get them on the books as soon as possible. At 
this time, we remain of the view that no new legislation on 
this subject is necessary.
    On behalf of NASDR, I would like to thank the Chair, 
Senator Levin, and the rest of this Subcommittee for the 
opportunity to appear here today and provide testimony on these 
important issues. I would be happy to answer any questions you 
may have. Thank you.
    Senator Collins. Thank you, Mr. Goldsmith. Ms. Bortner.

   TESTIMONY OF DEBORAH R. BORTNER,\1\ DIRECTOR, SECURITIES 
      DIVISION, WASHINGTON STATE DEPARTMENT OF FINANCIAL 
               INSTITUTIONS, OLYMPIA, WASHINGTON

    Ms. Bortner. Good morning, Chairman Collins, and Senator 
Levin. My name is Deborah Bortner. I am the Director of 
Securities in the State of Washington. I am also President-
Elect of the North American Securities Administrators 
Association, NASAA, for short. I want to thank you for the 
invitation to testify today as you continue to look into issues 
surrounding day trading.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Bortner appears in the Appendix 
on page 206.
---------------------------------------------------------------------------
    Chairman Collins, as you know, day trading has been a 
concern of State securities regulators for several years now. 
We appreciate your leadership in bringing this issue to the 
attention of Congress and to the American public. This AP 
article that was published yesterday reached hundreds of 
thousands of people. Try as we might, it is very hard for us to 
reach that many people with our educational efforts to let 
people know that day trading is risky.
    In December 1998, NASAA formed a task force to research the 
day trading industry. That group spent 7 months gathering 
information, analyzing issues, and studying trading records 
from day-trading firms. It released its report last August. 
Last September, NASAA's then-President of NASAA testified 
before this Congress on that report and its findings and 
recommendations. The report did not suggest major restrictions 
on the day trading industry. Instead, it called on firms to do 
a better job of screening out unsuitable customers and 
disclosing the risks for those remaining customers who still 
wanted to day trade.
    I am not here today to go over NASAA's report or to comment 
on day trading in general. NASAA's findings and views are 
already part of the Subcommittee's record. I am here to discuss 
the results of a series of examinations my office conducted 
last fall. We audited all the known day-trading firms with 
branches in the State of Washington. I have submitted a copy of 
our report to be included in the record.\2\
---------------------------------------------------------------------------
    \2\ See Exhibit No. 23 which appears in the Appendix on page 365.
---------------------------------------------------------------------------
    A team of my examiners, each of whom have more than 15 
years' experience, inspected the branch offices of our seven 
day-trading firms. They are all located in or near Seattle. The 
team looked at advertising, loans, third-party trading, and 
account opening requirements, all issues identified by other 
State securities regulators as potential problems. The most 
striking finding had to do with profitability, or should I say, 
lack of profitability of day trading.
    My team analyzed 124 trading accounts. That sample 
represented 100 percent of the accounts in five of the firms 
and a representative sample in two of the larger firms. More 
than three-fourths, 77 percent, of the accounts examined had 
net losses, with an average loss of $36,000. Nine accounts had 
losses of more than $100,000, the biggest of which was a loss 
of $641,000. Twenty-three percent of the accounts were 
profitable, with an average profit of around $22,000. Only two 
had gains of more than $100,000. The biggest gain was $160,000.
    Now, some proponents of day trading, and I think I heard 
this yesterday in the testimony, suggested that day traders who 
can survive the learning curve, which purportedly takes about 6 
months, are much more likely to be successful. As you can see 
from our report at Tab E, we analyzed accounts that were open 
from 1 to 25 months. We found no correlation between the length 
of time an account was open and its profitability.
    In addition to profitability, our examiners reviewed other 
issues. At several firms, we found questionable loan 
arrangements between customers. These loan arrangements, we 
believe, serve to circumvent margin loan requirements, and in 
some cases, these loans may have resulted in even greater 
losses by customers.
    We also found instances at several firms where day traders 
were trading on behalf of others. This may prove to be a 
violation of the registration provisions of our investment 
advisor laws. We are continuing to investigate these accounts.
    After listening to yesterday's testimony about Amy Le, I 
would like to recommend that before anyone invest with someone 
in a situation like that, they should call either their State 
securities regulator or the NASD to make sure that person is 
registered. If he or she is registered, they can also ask about 
disciplinary history.
    As Deborah Field highlighted in her testimony yesterday, we 
are also concerned that many firms are encouraging and allowing 
unsuitable people to day trade. For example, each of the firms 
we examined claimed to require a minimum balance to open and 
maintain an account. For most firms, that was around $20,000. 
But in some cases, we found the branch manager or compliance 
officer approved new accounts with opening balances far below 
the minimum, even as low as $6,000. Some firms also allowed 
customers to continue to trade after they had fallen below 
their minimum.
    A word about day trading advertising, which has been a 
major concern of State securities regulators. Our examiners 
only reviewed advertising done by the branch office in 
Washington, not ads produced and placed by the corporate 
headquarters of the firms. As it turns out, the branches we 
examined did either no or little advertising, and we found no 
serious problems.
    Recently, however, one of the firms did post something 
problematic in our view on the Web site. On its home page, it 
made claims about the trading success of its principal with no 
disclaimer. The required disclaimer is actually a mouse click 
away from the home page. Our Enforcement Section is reviewing 
this matter to determine whether that violates the advertising 
rules.
    To conclude, our findings on the profitability of day 
trading are consistent with those of the NASDR report, which 
found that about 70 percent of day traders lose money. Exams 
and enforcement actions by State regulators have highlighted 
problems with day-trading firms. Federal regulators, the NASDR, 
and industry representatives are now involved in working to 
address the regulatory issues from a national perspective. 
NASAA supports the NASDR's rules to increase risk disclosure 
and require the firms to determine the appropriateness of the 
potential customer. We expect to be commenting in support of 
their new proposed rule to impose higher margin requirements 
for day-trading customers.
    As we said before, day trading is a very risky strategy. We 
will continue to monitor it and bring enforcement actions when 
appropriate. We are working closely with the SEC and the NASD 
to address issues in this area.
    Again, I appreciate this opportunity to testify and I look 
forward to answering any questions you might have.
    Senator Collins. Thank you very much, Ms. Bortner.
    As you were speaking, I was thinking that probably only the 
people in this room, when they hear the term NASAA, think of 
securities regulations rather than space exploration. We are 
probably unusual in that regard.
    Ms. Richards, your report points out that day traders incur 
significant costs day trading because of the commissions. As I 
thought more about this issue, I am reminded of a traditional 
problem that the securities regulators have dealt with of 
churning, of brokers needlessly selling stocks in order to 
generate commissions. With day trading, we have moved to a 
whole different level, where it is the individual customer that 
is doing the trades, but the result is the same. You have, 
arguably, excessive commissions being generated.
    Could you describe to us what your findings were with 
regard to commissions? In particular, it is my understanding 
that our estimates, based on our survey, are actually lower 
than what you found would be generated annually. So could you 
talk about what your findings were in that area?
    Ms. Richards. Yes. We found that day trading is extremely 
expensive. The average commission cost per trade at the firms 
that we reviewed ranged from $15 to $25 per trade. There are 
additional costs that many day traders incur for services like 
data feeds, news, research. Those services can range anywhere 
between $50 and $675 a month at the firms that we visited.
    So collectively, putting those costs together, we did an 
analysis to evaluate how profitable day traders would have to 
be simply in order to break even. On page 9 of our report, we 
analyzed three fee structures of typical day-trading firms. We 
concluded that in a typical day-trading firm with what we 
determined was a medium fee structure, where commissions were 
$16.70 per trade and the day trader paid $150 per month for 
additional services, that that day trader, if he or she made 50 
trades per day, would need to generate $16,850 each month in 
trading profits simply to be able to recoup the cost from the 
commissions and from the extra costs that he or she would pay 
to the firm.
    Clearly, we believe that day trading is expensive and we 
want to make sure that investors realize that they are going to 
incur significant costs before they even reach a point where 
they can break even.
    Last fall, we put on our Web site tips for investors which 
would remind them that they have high expenses, that they need 
to pay their firm sometimes large amounts in commissions for 
training, for computers, and for other services, and I know 
that as part of the NASD's rule proposal, one of the items that 
day-trading firms would be required to disclose is the fact 
that total daily commissions that day traders may pay may add 
to customers' losses or significantly reduce their earnings.
    Senator Collins. So what you found, if my quick math here 
is correct, is that for the median fee structure, the day 
trader would actually have to generate more than $200,000 a 
year just to pay the commissions, before incurring one cent of 
profit, is that correct?
    Ms. Richards. You did the math more quickly than I did, but 
it is $16,850 each month. The total cost would exceed $200,000 
a year that an investor would have to generate in order to make 
a profit.
    Senator Collins. Has any consideration been given, and I 
would ask all three of you who are working on comments on the 
rules that the SEC has, to using that as an example in the risk 
disclosures that are going to be required from these firms? It 
seems to me if you told most people who are interested in 
opening a day trading account that they would have to generate 
in excess of $200,000 just to pay commissions and other fees, 
that that would discourage a lot of people from opening an 
account because it would make them understand very clearly the 
fiscal realities and how difficult it was going to be for them 
to make a profit for themselves, much less make a living day 
trading, which is what these people are doing.
    Has any thought been given to actually putting that 
concrete example--I mean, it is one thing to warn people that 
it is expensive to trade, that commissions are high. That 
example really says it all.
    Ms. Richards. What we have reminded investors in the 
educational tips on our Web sites is that they should ask the 
firm how many clients the firm has who have lost money and how 
many clients the firm has who have made money, and as we have 
told investors, if the firm says that it does not know or will 
not tell you, that that investor should think twice about doing 
business with the firm.
    In our report, we also recommend that the day-trading firms 
provide this information to customers, that it is information 
that they need to provide to allow the customer to make an 
informed judgment about whether or not he or she should day 
trade.
    Senator Collins. But the rule that the SEC is looking at 
simply says, as part of the disclosure, day trading may result 
in your paying large commissions. The total daily commissions 
that you pay in your trades may add significantly to your 
losses or reduce your earnings. That is just not nearly as 
powerful as putting in an example. It is just something I think 
should be considered.
    Ms. Bortner, I am particularly interested in your study 
because it really is the most comprehensive analysis we have on 
profitability, and it is interesting, because when we had our 
hearing last September, the industry representative was 
extremely critical of the profitability study conducted by the 
Massachusetts State Securities Bureau, and indeed, the industry 
pointed out that it was just one branch office, that it was not 
comprehensive. But your review actually reached very similar 
conclusions, but it was a much more comprehensive study, is 
that correct? I mean, you looked at every day-trading firm that 
you were aware of in the State?
    Ms. Bortner. Yes. In order to make--I heard those 
criticisms, too. We wanted to know about all the firms in our 
State, but from a statistical point of view, I believe that the 
fact that we did all the firms and looked at all the accounts, 
except in the two larger firms, and in that situation, we went 
through and hit every 10th account. I believe that, 
statistically, that is probably significant. So we believe that 
this represents a true number.
    Senator Collins. And very important, because another 
repeated claim we hear from the industry is the novice trader 
loses money, but over time, if you can stick with it and you 
have got sufficient capital, day traders tend to be profitable. 
You did not find that to be true, that even those traders who 
had been trading for more than 6 months had significant losses, 
is that correct?
    Ms. Bortner. Yes. As I said in my testimony, we sorted all 
the accounts by profit and loss, well, actually, by the months, 
and you can see if you look in our report that there is no 
correlation. Winners and losers, winners and losers, winners 
and losers, mostly losers, occurred throughout the time period 
all the way from 1 to 25 months.
    Senator Collins. In our hearing yesterday, we heard very 
disturbing testimony about an unregistered investor who was day 
trading, Huan Van Cao, who was not registered as an investment 
advisor and yet was trading for 20 to 21 other customers and, 
indeed, is still trading today, albeit for a smaller number.
    In your analysis in Washington State, did you look at 
unregistered activity or did you concentrate just on the 
profitability issue, and did you find it to be a problem?
    Ms. Bortner. We did find several instances where day 
traders were trading on behalf of others. I mean, it is very 
difficult to find in the firms because most do not keep 
records. The day trader makes agreements, side agreements, with 
friends and family and larger groups of people out in the 
community and there is no record of that. But we did find some 
records in one of the firms and we are following up with our 
enforcement staff.
    Senator Collins. Mr. Goldsmith, in that case that I 
mentioned with Huan Van Cao, there was arbitration done by 
NASDR which led to a judgment against him. When you do a 
regulatory action like that, is it reported to the State 
regulators? What I am curious about is here there was a 
judgment entered against Mr. Cao, a judgment he has not paid, 
and yet he is still trading and he is still unlicensed. I am 
wondering why an enforcement action taken by the self-
regulatory organization did not trigger an investigation by the 
California State Securities Administrator. Maybe it did and it 
is ongoing.
    Mr. Goldsmith. I really cannot comment. I do not know 
whether there is an investigation in California or not. But 
what I understand you are saying is that there was an 
arbitration, which is not an enforcement action. It is a 
private dispute among parties. To the extent there is an 
arbitration involving somebody who is registered with the NASD, 
that would go on CRD and would be available to the States.
    Senator Collins. The CRD being the central repository that 
you can check license and disciplinary action, right?
    Mr. Goldsmith. That is correct.
    Senator Collins. I just have a little time remaining in 
this round, but I want to touch on the issue of deceptive 
claims or advertising and I want to show you a Web site that I 
used yesterday called the Lazy Day Trader. In this Web site, it 
says, ``The ideal profession, day trading. It is the only 
business I know where there is absolutely no limit as to how 
much I can earn. I am doubling my money every 3 months buying 
and selling stocks. I have developed a simple method. You can 
start with as little as $2,500. You do not have to understand 
charts, technical analysis, or fundamental analysis. You do not 
have to understand markets, etc. You do not have to worry about 
the stock collapsing because you will only be in the market for 
brief periods, etc.''
    I would like to ask each of you whether this, as a result 
of the reviews and the examinations you have done, is this the 
kind of deceptive advertising that you have found? Ms. 
Richards.
    Ms. Richards. This is a particularly egregious example. 
Clearly, there are misrepresentations and omissions in that ad. 
We also found examples of deceptive advertising in our reviews, 
and I can give you a couple of examples if you like of some of 
the advertising that we found to be exaggerated.
    Much of the advertising, I would say, looks like puffing. 
It was simply bloated and exaggerated. One firm's Web site that 
we found displayed a newspaper article that quoted a day-
trading firm employee as saying that the number of trades at 
the firm's branch office doubled on two particular days with 
the result that one trader netted more than $50,000 on both of 
those days, on days when the Dow Jones Industrial Average 
plummeted several hundred points. We found that that employee's 
statements were exaggerated and, in fact, not true.
    Another firm's advertising represented that the firm had a 
day trading program, including statements by one of the trading 
school graduates who was actually an employee of the broker-
dealer. The pamphlet also represented that the trading school 
was the top trading school in the Nation, which appeared to us 
to be without any factual basis.
    Several firms we found also falsely represented in their 
advertising that they provided formal training programs for new 
day traders. In fact, the firms had no training programs 
whatsoever and day traders simply arrived on site and were 
asked to begin trading.
    Another firm's advertisements we found targeted 
inexperienced day traders and emphasized the firm's ability to 
provide training to enable the customer to become an 
experienced proprietary day trader. In fact, we found that that 
firm only accepted experienced day traders and referred the 
new, inexperienced day traders to an affiliated firm, which 
looked to us like a kind of bait-and-switch tactic.
    In all the examples of exaggerated or misleading 
advertising that we found, we sent the firms deficiency letters 
and required that they correct and withdraw the misleading 
advertising.
    Senator Collins. Thank you. Mr. Goldsmith.
    Mr. Goldsmith. I would agree with Ms. Richards; that is a 
more egregious example than we usually see. We have noticed 
recently is that there are day-trading schools or day-trading 
recruitment firms that are not licensed with the NASD, that are 
not broker-dealers, and are out there promoting day trading in 
ways similar to this and then possibly referring customers or 
have arrangements with member firms.
    Senator Collins. So how do you get at those people, because 
you do not have any regulatory jurisdiction over that, do you?
    Mr. Goldsmith. Not over the unregistered entities or 
individuals, but certainly over the member firms and, in some 
cases, we are examining the relationships between the two.
    We have seen many ads that disparage long-term buy-and-hold 
strategies. In fact, one site that we had taken down said a day 
trader can realize significant profits while minimizing the 
downside exposure that comes with holding a stock for extended 
periods of time. Those are the kinds of risk statements that we 
have found to be problematic.
    We do have our project where we are continuously reviewing 
day-trading firms' Web sites based on their history of problems 
in the past. The more frequent the problems, the more 
frequently they are being reviewed. But a site like this, and 
this may not be a registered NASD member----
    Senator Collins. It is not.
    Mr. Goldsmith [continuing]. We are seeing more and more of 
that, day-trading schools. In fact, one ad in the Wall Street 
Journal I saw last Friday, and this happened to be from a 
member firm, said that our day traders use a system that makes 
them two to three times as profitable as the national average. 
I am not sure whether they were using Ms. Bortner's statistics 
as the national average, but statements like that, where there 
are really, I doubt, a sound basis, are quite troublesome.
    Senator Collins. Ms. Bortner.
    Ms. Bortner. We did, in our examinations, we go out and 
look at the advertising that is done by the branches, and many 
times, at least what we found was that the branches themselves 
were not advertising. When we discover national advertising, we 
actually usually pass that along to the NASD because they are 
in the main branches of the firms, and as State regulators, we 
sort of focus on the local branches.
    Senator Collins. Thank you. Senator Levin.
    Senator Levin. Thank you, Madam Chairman.
    First, Mr. Goldsmith, I want to get a clearer picture of 
the requirements for firms and individuals in the day trading 
business to be licensed to buy and sell securities. First, must 
day-trading firms be licensed as broker-dealers to buy and sell 
securities?
    Mr. Goldsmith. Yes.
    Senator Levin. By you?
    Mr. Goldsmith. Yes.
    Senator Levin. And would that be true not only for the main 
office of a day-trading company, but also for the branch 
offices?
    Mr. Goldsmith. Well, the firm has to be licensed. A firm 
can have branch offices, so they have to be licensed branch 
offices, yes.
    Senator Levin. But if the firm is licensed, then all of 
their branch offices automatically are covered by that license?
    Mr. Goldsmith. Firms need to make certain filings with us 
to advise us of where they have branch offices and their size 
and operations.
    Senator Levin. But subject to you being informed that those 
branch offices exist, that one license for the main firm covers 
all the branches?
    Mr. Goldsmith. There is a licensing procedure for branch 
offices where we need to know how many branches, and how many 
individuals. A firm cannot have a branch office that we do not 
know about.
    Senator Levin. All right. Now, what about the individuals 
who are employed by those offices to oversee the clients' day 
trading, to teach day trading, to accept people in the firm as 
day traders, to conduct day trading on behalf of customers of 
the firm? What are the registration requirements in each of 
those situations, and I can repeat them one by one.
    Mr. Goldsmith. Why don't you do that, please.
    Senator Levin. OK. First, are there any requirements, any 
registration requirements or licensing requirements for people 
who oversee clients day trading?
    Mr. Goldsmith. Employees of the firm?
    Senator Levin. Yes.
    Mr. Goldsmith. Yes. They would be associated persons and 
they would have to be registered, depending on the nature of 
what their job is at the firm. There are one or more various 
licenses that they would have to have.
    Senator Levin. Do they have to get their own license or do 
they simply have to be referred to in the firm's registration?
    Mr. Goldsmith. No, they need to be licensed.
    Senator Levin. They are licensed by you?
    Mr. Goldsmith. Yes.
    Senator Levin. What about people who teach day trading?
    Mr. Goldsmith. Again, if somebody is an associated person 
working for the firm, that person would have to be licensed. If 
we are talking about a day-trading school that is not part of a 
firm, that would be a different question.
    Senator Levin. All right. What about people who accept 
people into the firm as day traders, the same thing?
    Mr. Goldsmith. People who----
    Senator Levin. Those who make the judgment as to whether 
someone is----
    Mr. Goldsmith. Employees of the firm?
    Senator Levin. Yes.
    Mr. Goldsmith. Yes.
    Senator Levin. What about people who conduct day trading on 
behalf of customers in the firm, actually conduct the day 
trading on behalf of a firm's customers?
    Mr. Goldsmith. Are they employees of the firm or are these 
other day traders?
    Senator Levin. Yes. These are employees of the firm.
    Mr. Goldsmith. If there is somebody employed by the firm, 
being compensated by the firm, who is trading for others, they 
would have to be licensed.
    Senator Levin. So if you are compensated by a firm, if you 
are trading for that firm's customers, then you must be 
separately, individually licensed?
    Mr. Goldsmith. If you are an employee of the firm trading 
for public customers, yes.
    Senator Levin. Yesterday, I had this exchange with Mr. 
Parish, who worked for All-Tech. ``If you knew that unlicensed 
individuals were trading other people's accounts, since you 
were Branch Manager, why did you not stop it?'' Mr. Parish, 
``When I came to All-Tech, they encouraged that sort of thing. 
Mr. Houtkin was actively seeking investors to invest in his own 
mutual fund, he called it, where he was going to have all these 
investors put in money and he was going to find all the traders 
to trade the money.'' And I asked, ``Even though those traders 
were not licensed?'' And his answer was, ``Yes.'' Now, my 
question to you is, is that proper?
    Mr. Goldsmith. Well, I think you need to distinguish 
between customers of the firm who are not employees of the 
firm, that is, day-trading customers who may be trading for 
others' accounts, versus employees of the firm who are trading 
customer money. I think the question, if I understand it, and 
it is a little ambiguous from the piece of testimony that you 
read, is you have a day-trading customer of the firm who 
happens to be trading others' accounts, that is a different 
question and one that really goes to facts and circumstances, 
whether that person needs to be registered.
    Senator Levin. But my question was this. Parish said the 
following. ``When I came to All-Tech, they encouraged that sort 
of thing,'' unlicensed people trading other people's accounts, 
so it is being encouraged by the firm. Then he said the 
following. ``They encouraged that sort of thing. Mr. Houtkin 
was actively seeking investors to invest in his own mutual 
fund, he called it, where he was going to have all these 
investors put in money and he was going to find all the traders 
to trade the money.'' He was looking for the traders who would 
trade money that he was urging people to invest in his so-
called mutual fund, and he did not seek licensed traders to do 
that. And he said that is correct. ``Yes,'' his answer was. 
Now, my question to you is, is that covered?
    Mr. Goldsmith. I do not think it is a clear case. I am not 
sure whether the individuals who would be doing the trading 
were sharing commissions with the firm or compensating the firm 
or anything like that. I think it is a legitimate question that 
those individuals may have to be registered. But again, there 
are people who trade other customers' money: A child trading 
for a parent, somebody who is incompetent or disabled, or a 
friend trading his brother-in-law's money. The real key is 
whether these individuals are engaged in the business of 
trading for others, whether it is a business, and you need to 
look at a number of factors to determine that.
    Senator Levin. It is not enough that the owner of the firm 
is actually soliciting investors to put in money and then 
putting them together with people who will be doing the trading 
for them? That, under current regulation, may be unclear?
    Mr. Goldsmith. I think in terms of whether those people 
doing the trading would have to be registered is unclear. I 
certainly do not believe it is a best practice to be doing 
something like that and it certainly could involve other 
violations of our rules. I think you would have to know more 
about the situation.
    Senator Levin. If it is unclear, should it be unclear? In 
other words, should that not be covered, where a firm is 
soliciting investments into its funds, into its mutual funds, 
from which the firm makes commissions when the day trading 
occurs, and when the firm is putting that investor together 
with the day trader, should that day trader not be a licensed 
person?
    Mr. Goldsmith. Well----
    Senator Levin. Whether it is clear or not now, should it 
not be clarified that in that situation, that there should be a 
license required?
    Mr. Goldsmith. I think under the existing rule, which is 
obviously a facts and circumstances rule, I think it is 
certainly broad enough to reach that kind of conduct. You may 
also have a situation where a brokerage firm is aiding and 
abetting someone's violation of the registration requirements 
of the securities laws. So I am not sure whether a new rule 
specifically directed at this, but this is certainly 
something----
    Senator Levin. Is necessary?
    Mr. Goldsmith. Is necessary.
    Senator Levin. Because it may already be covered?
    Mr. Goldsmith. It may be covered.
    Senator Levin. Would you take a look at yesterday's 
testimony and determine whether, if that allegation is correct, 
whether or not it constitutes a violation? Would you make that 
assessment for us?
    Mr. Goldsmith. Yes.
    Senator Levin. If a company employs a person who day trades 
for others, does the company charge the client for the service 
of day trading generally beyond the commission that is charged 
for each trade?
    Mr. Goldsmith. I really do not know what the general 
practice would be. My understanding is that most customers are 
charged commissions and that would be it. I think, going back 
to your previous question, if there were a sharing of profits 
with the firm in these accounts, that would be one factor that 
one would look to in terms of whether that individual should be 
registered.
    Senator Levin. But in terms of whether or not that person 
is receiving any compensation from the investor who is giving 
them the money to do the day trading or whether or not the firm 
is relying solely on commissions, you do not know, as to what 
the general practice is?
    Mr. Goldsmith. As a general matter, my understanding is 
that most day-trading firms, in addition to training and making 
money that way, make the money from the commissions.
    Senator Levin. OK, just from the commissions.
    Now, on the study that you made, Ms. Richards, for the SEC, 
you indicated that the staff looked at year-end 1998 trading 
data. You reviewed a total of 123 trading accounts. The average 
of the profitable accounts, you said, was $177,000, and I 
assume that that is profit, is that correct, Ms. Richards?
    Ms. Richards. Yes.
    Senator Levin. While the average of the unprofitable 
accounts was $73,000. Of the 123 trading accounts that your 
staff looked at, how many of those accounts were profitable? 
Was that a majority or minority of the accounts? We know what 
the average profit and loss was. That is given to us by your 
testimony. But what you did not tell us was whether or not the 
majority of the accounts were profitable or not.
    Ms. Richards. We evaluated, for each of the firms we looked 
at, we selected the 10 most profitable accounts and the 10 most 
unprofitable accounts, so there would be an even divide in that 
123--62 profitable, 62 unprofitable.
    Senator Levin. Did you look at the total number of accounts 
of that firm to see how many were profitable and how many were 
not?
    Ms. Richards. We did not. We did not attempt to do a 
profitability analysis in our examination.
    Senator Levin. Would that not have been fairly easy to look 
at all the accounts and determine how many were profitable and 
how many were not profitable since you were taking 10 of each 
to see what the average was?
    Ms. Richards. It is not that easy, and our goal in these 
examinations was to determine whether or not firms were in 
compliance with the law. We had the benefit of profitability 
analyses that had been prepared by the States, so we did not 
attempt to do a separate profitability study.
    Senator Levin. The Electronic Traders Association did a 
study of profitability last year, according to their 
representative at our last hearing. They took a snapshot of 
each month to determine how many customers were profitable and 
non-profitable in each of the 5 months. You did it over the 
period of a full year, did you, or the length of the account?
    Ms. Richards. Yes.
    Senator Levin. The length of the account, more accurately, 
is that correct?
    Ms. Richards. Actually, ours was just a snapshot as of the 
time of the examination, whether the accounts were unprofitable 
at that time or profitable at that time. We did not look at 
profitability over the period, over a longer period.
    Senator Levin. Ms. Bortner, finally, just to wind this up, 
as my time is up, you looked at the length of the account, 
then, is that correct, the life of the account in your study?
    Ms. Bortner. We actually took a snapshot in time, too. I 
mean, we could not figure out any way to look at the--you could 
take a snapshot every single day of the--and that would be a 
much more difficult kind of study. We did a simple analysis, 
went in. If you went in a different day, the numbers would be 
different. I just believe that they would be similar.
    Senator Levin. So you took a snapshot as of a date looking 
at the beginning of the account to that point to determine 
whether or not it was profitable or not?
    Ms. Bortner. We looked at minimum balances and we looked at 
the profit incurred in the account up until the time we got--
you know, at the exam.
    Senator Levin. From the beginning of the time the account 
was opened----
    Ms. Bortner. Right.
    Senator Levin [continuing]. To the day of the snapshot?
    Ms. Bortner. Exactly.
    Senator Levin. You found 77 percent of all those accounts 
were unprofitable, is that correct?
    Ms. Bortner. Exactly.
    Senator Levin. And if you had done it month by month, do 
you know whether, in a different way, if you had done it the 
way the Electronic Traders Association claims they did it, do 
you know whether your result would have been any different?
    Ms. Bortner. I do not know the answer to that.
    Senator Levin. Thank you.
    Senator Collins. We are now going to do a 5-minute round of 
questions, which will be the last round for this panel.
    Ms. Richards, one of the debates is whether or not the 
current suitability requirements apply to day-trading firms, 
and the day-trading firms have argued that because they are not 
recommending specific stocks, that they do not have to abide by 
the suitability requirements already in current law. Is that 
generally a fair description of their position?
    Ms. Richards. Yes. The day-trading firms that we examined 
all stated that because they were not making recommendations 
about particular securities to customers, that they had no 
suitability obligations.
    Senator Collins. Now, yesterday, we heard sworn testimony 
from two clients of All-Tech who claimed that the branch 
manager routinely pressured them to buy and sell specific 
securities at specific times at specific prices. Assuming their 
testimony is accurate, would that not implicate the current 
suitability requirements?
    Ms. Richards. Yes, it would. If individuals associated with 
the firm are making specific recommendations about specific 
securities to customers, they have an obligation under existing 
law to determine whether or not those recommendations are 
suitable for that particular customer.
    Senator Collins. Ms. Richards, would you please describe 
the activities that the SEC documented that led the SEC to file 
a case this week against All-Tech and several of its employees? 
The reason I ask is we heard testimony yesterday that was very 
disturbing from one of the branch managers who claimed that the 
head of margins at All-Tech had directed him or instructed him 
or at least suggested to him that he alter figures on clients' 
applications to make them appear appropriate for day trading. 
We heard testimony from this branch manager that he personally 
had--he took the Fifth, I should say. He took the Fifth when 
asked whether he had forged documents.
    We heard a lot of very disturbing testimony yesterday about 
All-Tech. Could you describe for us what led the SEC to bring 
an enforcement action against the company?
    Ms. Richards. Yes. Earlier this week, the Commission 
actually brought two enforcement actions against registered 
broker-dealers. One was All-Tech and one was a firm called 
Investment Street Corporation. Both of those enforcement cases 
alleged illegal lending in violation of margin rules. In both 
cases, the Commission charged that the firm indirectly loaned 
funds to customers through the firm's associated persons.
    In the All-Tech case, the Commission is alleging that All-
Tech indirectly made over 100 loans totaling $3.6 million 
through the accounts of three employees. The Commission has 
also alleged that seven other employees of All-Tech either 
directly violated or aided in abetting margin violations. 
Similar allegations were made in the Investment Street matter.
    In both of those cases, the Commission is alleging that the 
firm itself indirectly loaned money to customers in order to 
allow them to meet their margin calls.
    Senator Collins. And to keep them trading, essentially? Is 
that the effect of that?
    Ms. Richards. That is the effect, and the Commission 
specifically alleged in its order instituting proceedings 
against All-Tech that All-Tech had an incentive to make 
improper loans, to receive further revenue from day-trading 
customers who would have otherwise been cut off from further 
day trading.
    Senator Collins. Thank you. Mr. Goldsmith, could you 
explain to us what responsibility a firm has for its branch 
managers with regard to appropriate supervision?
    Mr. Goldsmith. The firm's supervision of its branch 
managers?
    Senator Collins. Yes.
    Mr. Goldsmith. Full responsibility. The branch manager is 
very oftentimes, I do not want to use the cop on the beat, but 
the supervisor on the beat responsible for the operations of an 
office and when a firm has branch offices around the country, 
those are very significant responsibilities from a supervision 
standpoint.
    Senator Collins. Ms. Richards, I want to come back to you 
with one final question. It is my understanding, and please 
correct me if I am wrong on this, that the New York Stock 
Exchange and NASD have recently proposed to the SEC a rule that 
would actually increase the intra-day buying power or margin of 
day traders from 2-to-1 to 4-to-1. Now, if I am understanding 
this correctly, that means a day trader like Scott Webb could 
control $100,000 of stock with only $25,000 of actual equity 
without generating a margin call.
    Given your statement earlier that excessive leverage 
creates problems and produces losses, why would we want to go 
in this direction? Why would we want to increase the ratio of 
borrowed funds to equity?
    Ms. Richards. First, I should say that the margin rules are 
designed to protect the firm itself from incurring excessive 
risk. I think the New York Stock Exchange and the NASD felt 
that it was appropriate to raise the total buying power for day 
traders along with the requirement that day traders be required 
to have in their accounts $25,000 minimum equity at all times, 
which is a significant increase over the existing rule, which 
is only $2,000.
    So I think, in tandem, the Exchange and the NASD felt that 
that was appropriate, along with the other restrictions that 
are included in the proposed rules. I will say that the 
Commission is considering the proposed rules now and the 
comment period is still open and extends through March 10, so 
we are actively considering other comments on the proposals.
    Senator Collins. And you will be hearing from me on that. 
Thank you very much. Senator Levin.
    Senator Levin. Thank you, Madam Chairman.
    On the margin issue, it is already against regulations, as 
I understand it, for a broker to use his or her own money to 
help a customer make a margin call, is that correct?
    Ms. Richards. Yes. In the cases that we brought this week, 
for example, we alleged that both firms, in effect, indirectly 
themselves loaned funds to customers in excess of the margin 
requirements.
    Senator Levin. And whose money was it they were lending?
    Ms. Richards. I cannot answer that. I can get back to you 
and let you know. I cannot answer that, but I believe they were 
funds of the firm's employees.\1\
---------------------------------------------------------------------------
    \1\ See Exhibit No. 155 which appears in the Appendix on page 1193.
---------------------------------------------------------------------------
    Senator Levin. Say they were funds of a firm's other 
customers.
    Ms. Richards. It is legal under existing Federal Reserve 
Board regulations for broker-dealers to arrange loans between 
outside entities, for example, the customer-to-customer loans 
that are so prevalent in the day trading industry.
    Senator Levin. Yes, but the customer-to-customer loans that 
are prevalent are totally different in the day trading world 
than they are in the more normal world, is that not true?
    Ms. Richards. Yes, that is exactly right. We have seen the 
day trading industry use these customer-to-customer loans in 
ways that we have never seen before.
    Senator Levin. Does the customer making the loan usually 
get a fee or interest paid for that 24-hour loan?
    Ms. Richards. Yes. In the cases that we have seen, the 
customer making the loan gets a fee.
    Senator Levin. Does the broker share in that fee at times?
    Ms. Richards. We have not seen that.
    Senator Levin. But it is against current regulation for a 
broker to facilitate a loan from one customer to another, is 
that correct or not?
    Ms. Richards. It is allowed under current rules for broker-
dealers to arrange----
    Senator Levin. Forgive me. I misspoke. Are you making any 
change in that, where the broker is doing the arranging under 
day trading?
    Ms. Richards. There is one part of the rule proposals that 
have been submitted by the NASD and the New York Stock Exchange 
which may impact this, and that is the requirement that the 
funds remain in the account, in the day trader's account, for 
two full business days, thus be subject to the new risk that 
that day trader is incurring. We think that it is very possible 
that customers may be more reluctant to lend their funds to 
other day traders if they know that those funds are going to be 
subject to the new risk of day trading.
    Senator Levin. Is it against current regulations for a 
broker to transfer, the word that was used yesterday is to----
    Ms. Richards. Journaling.
    Senator Levin [continuing]. To journal?
    Ms. Richards. No, it is not, and it is very common now. The 
funds are not actually transferred from one customer to another 
customer. They are just on paper journaled over.
    Senator Levin. Who is the owner of those funds at the 
moment that they are journaled over?
    Ms. Richards. The day trader who has incurred the margin 
call gets the benefit----
    Senator Levin. The borrower is the owner?
    Ms. Richards. The borrower, correct.
    Senator Levin. Is the owner?
    Ms. Richards. Correct.
    Senator Levin. Even though it is just a journal entry?
    Ms. Richards. Correct.
    Senator Levin. Yesterday, there was some resistance to our 
witnesses using the word ``lend,'' but it is a loan, is it not?
    Ms. Richards. It is a loan and it allows the day trader to 
meet his or her margin call and to continue to trade. I think 
one of the things that causes us trouble about those loans is 
that they are so easy that they are routine, and day traders, I 
think, do not fully realize that they are borrowing additional 
funds.
    Senator Levin. And we heard yesterday from Ms. Harlicher 
that she did not even realize her funds were being used that 
way. Is it against current regulation for a broker to journal 
somebody's funds to somebody else to cover the second person's 
margin requirement? \1\
---------------------------------------------------------------------------
    \1\ See Exhibit Nos. 154 and 155 which appear in the Appendix on 
pages 1192 and 1193.
---------------------------------------------------------------------------
    Ms. Richards. Well, both parties to the loan must know that 
they are involved in a loan. So yes, if a broker-dealer was, 
for example, forging the lender's signature or otherwise not 
notifying the customer their funds were being used in that way, 
yes, that would be violative.
    Senator Levin. Against current law?
    Ms. Richards. Yes.
    Senator Levin. And so the current journaling requires a 
signature from the lender, is that correct?
    Ms. Richards. Yes.
    Senator Levin. Do you know whether or not, in fact, when 
they do this ``journaling,'' this lending, whether, in fact, in 
practice, the lender is signing these notes for 24 hours?
    Ms. Richards. In our examinations, we did not find any 
indications that the customers were not signing the letters of 
authorization.
    Senator Levin. Did you find to the contrary, that they 
were? Were you looking for that?
    Ms. Richards. We were looking for indications that they 
were not and we did not see that in our examination.
    Senator Levin. OK, that is fine. So Ms. Harlicher's 
experience may be unusual.
    Ms. Richards. Yes.
    Senator Levin. Will you check out that allegation of Ms. 
Harlicher that her funds were lent to cover someone else's 
margin without her knowledge? Would you check that out for us? 
It was testimony under oath yesterday.
    Ms. Richards. Yes, we will.\1\
---------------------------------------------------------------------------
    \1\ See Exhibit Nos. 154 and 155 which appear in the Appendix on 
pages 1192 and 1193.
---------------------------------------------------------------------------
    Senator Levin. Now, is there not a conflict of interest on 
the part of the day-trading firm or the day trader trading on 
behalf of another person, since the more trades that occur, the 
more commission and money that the firm and the trader make? 
Now, in a normal investment, so-called, there are rules against 
churning so that there is a brake, there is some kind of a 
counter-check. There is a check on a trader during the 
churning, because it is unethical to churn.
    Well, in the day trading world, it is completely reversed. 
The more trades you make, the more money the firm is going to 
make, but that is encouraged when you take a look at the 
criteria, make more trades. That is what is taught to these 
folks. So we have the opposite, in a sense. Churning is the 
rule. The more trades, the better. Take a look at their lesson 
plan. And we do not have a brake on that, right, in the day 
trading world? We do not have any brake on that ethically, so 
is there not a conflict of interest in that it does not have 
the natural brake on it.
    I would ask, maybe, Ms. Bortner, we will go back just kind 
of quickly on that. My time is up.
    Ms. Bortner. Well, certainly, I believe that that does 
create conflicts as there are in the normal relationship 
between broker and client, and this is just another conflict, 
but I do not think there is any law against having a conflict 
like that. People should be aware of it and when someone is 
trading on behalf of others, under our State statutes, that is 
a violation of the law. In fact, it is a felony if you commit 
that kind of trading on behalf of others without being licensed 
and defrauding them in that way.
    Senator Levin. Your answer to my question about trading on 
behalf of others without being licensed in your State would 
have been that is against the current law?
    Ms. Bortner. That is against current law.
    Senator Levin. Quickly, on the churning.
    Mr. Goldsmith. I think you are absolutely right. I think 
there is an inherent conflict.
    Senator Levin. There is no check.
    Mr. Goldsmith. Firms make money by doing trades.
    Senator Levin. But with no check in the day trading world.
    Mr. Goldsmith. Right.
    Senator Levin. Whereas you have a churning----
    Mr. Goldsmith. We have a specific rule. I will say on the 
arranging of loans among customers and the procedures, we have 
found situations where the interest rates that are being 
charged are a little, shall we say, on the high side, 
procedures, principal sign-offs, xeroxed copies of signatures, 
customers not knowing that they are actually lending, and no 
disclosures. So under present law, there are ways of reaching 
that, but the mere lending by customers or firms facilitating 
the lending is not necessarily a violation of our rules now.
    Senator Levin. Thank you.
    Senator Collins. Thank you very much. I appreciate your 
testimony.
    We will be putting into the hearing record the Washington 
State Securities Division's report \1\ and any other documents 
that you wish to submit. Thank you.
---------------------------------------------------------------------------
    \1\ See Exhibit No. 23 which appears in the Appendix on page 365.
---------------------------------------------------------------------------
    I would now like to call forward our next panel of 
witnesses, who are the representatives of the three day-trading 
firms on which the Subcommittee's inquiry has focused. They 
include Harvey Houtkin, who is the Chief Executive Officer of 
All-Tech. All-Tech is headquartered in Montvale, New Jersey, 
and is one of the largest day-trading firms in the country.
    Another of the witnesses will be Henry Fahman, who is the 
President and Chief Executive Officer of Providential. 
Providential is headquartered in Fountain Valley, California, 
and provides day-trading services to its clients at several 
California branch offices, as well as an office in Oregon.
    The third witness we will hear from is James H. Lee, who is 
President of Momentum Securities, which is based in Houston, 
Texas. Mr. Lee also serves as the President of the Electronic 
Traders Association, which is the trade group representing the 
day trader industry.
    I would ask the three individuals to please come forward. 
Gentlemen, if you would please stand so that I can swear you 
in. Do you swear that the testimony you are about to give to 
the Subcommittee is the truth, the whole truth, and nothing but 
the truth, so help you, God?
    Mr. Houtkin. I do.
    Mr. Fahman. I do.
    Mr. Lee. I do.
    Senator Collins. Thank you. I will ask that you each limit 
your oral testimony to no more than 10 minutes this morning. 
You are welcome, however, to submit a longer statement or any 
other material that you deem pertinent to the hearing record 
and it will be published in its entirety.
    Mr. Houtkin, we will start with you.

 TESTIMONY OF HARVEY I. HOUTKIN, CHIEF EXECUTIVE OFFICER, ALL-
               TECH DIRECT, MONTVALE, NEW JERSEY

    Mr. Houtkin. Thank you. Good morning, Ms. Collins, and Mr. 
Levin. First, I would like to start with a little biography of 
who I am because I think it is important, because you had a lot 
of your experts up here and I would like a little background.
    My name is Harvey Houtkin. I am 51 years old. I am Chairman 
and Chief Executive Officer of All-Tech Direct. I have an MBA 
from the Bernard M. Baruch College of the City University of 
New York. I have been in the industry approximately 32 years, a 
former member of the New York Stock Exchange, American Stock 
Exchange, and my master's thesis was on the impact of NASDAQ on 
the over-the-counter market. I have been a major proponent for 
market reform for the last 12 years and I have been 
instrumental in bringing many of the changes that have come for 
transparency, access, investor education, etc.
    Just yesterday, I was considering basically boycotting this 
hearing because I feel this is not a hearing, this is not an 
impartial tribunal trying to find something out and clarify, 
``day trading.'' What it is is a search and destroy mission, a 
crucifixion, an ambush. I am hearing about day trading when the 
term ``day trading'' has not even been defined here. What is a 
day trader? What are we talking about? What rights do people 
have in this country to access the market equally and fairly 
without broker intervention? That is the issue.
    The reality is, most day traders, and I can mostly speak 
for my firm because I do not really have access to other firms' 
information, many day traders do not, in fact, day trade at 
all. I mean, they day trade to some extent, but they take home 
positions, and our experience, for example, when you are 
talking about loss, is that it comes from the investment or 
overnight or longer-term holding of a security, not the day 
trading of a security.
    But day trading has a negative connotation. The press, the 
regulators, the industry has been very interested in giving it 
a negative connotation. I have been in contact with literally 
thousands of day traders. There was a major forum just this 
past weekend in New York, a major day trading expo where 
thousands of people, very sophisticated, enlightened people who 
desire the right to interact in the market on a fair and 
equitable basis attended that show and were very interested in 
the new and modern technology that has narrowed spreads, that 
has made the markets more competitive, that has given rise to 
the opportunity for the average guy who has the credentials to 
compete in the market to the best of their ability.
    This is wonderful, and the report that I received just a 
couple of days ago from the Senate here gave a whole three 
sentences of credit to the changes that have taken place in 
this industry, changes that were mandated by the Congress in 
1975. Under the Market Reform Act of 1975, you mandated 
transparency, access, a level playing field for the world. And 
what happened over the next 25 years? Virtually nothing. The 
Senate, the Congress, the SEC stood by idly while the industry 
just stood there.
    We still have the specialist system. We still have payment 
for order flow, not to mention we are all here today facing a 
day trading hearing, a hearing where I have not even heard of 
very many complaints. The regulators, the State regulators, did 
they list how many complaints there were, how prolific this, 
``problem'' is? No, because when I spoke to the State of 
Massachusetts and when I spoke to the news officials, when I 
spoke to Dan Rather from ``60 Minutes,'' they had a hell of a 
tough time trying to find anyone to come forward to complain 
about the ``horrors of day trading.'' But that is what we are 
here for.
    Now, of course, the price-fixing scandal that went on that 
resulted in a billion-dollar civil settlement to the major 
brokerage community, we did not have a PSI investigation of 
price fixing, even though the SEC charged 24 firms with 
violations. When the NASD failed to enforce all the 
regulations, backing away, trading through, I did not hear of a 
PSI investigation, and this only involved perhaps billions of 
dollars to the public. This was never talked about. Even the 
presence of organized crime in the brokerage community, that 
has not warranted a PSI investigation.
    But if people want to trade voluntarily with their eyes 
open, that is a real major problem to the Senate, and this is 
what disturbs me. There are issues here that are so much 
greater, yet we are here having these studies because several 
thousand people, some of the most sophisticated investors, some 
of the most enlightened traders in the country, want free and 
open access to the market through technology. This is the 
problem we are here to discuss today.
    Now, have we had a balance? I heard one person testify, and 
a former rogue branch officer, perhaps two branch officers and 
two people that are in litigation with us. Yes, those people, 
they had a complaint. Where are the people who are doing well? 
Where is the testimony--I got calls yesterday from people all 
over the country who wanted to know how they could come here 
today and testify to refute some of the nonsense that has been 
spewed from this hearing. So I was very seriously considering 
not even showing up, and I said so on CNBC yesterday. But I 
felt that would just allow the same nonsensical rhetoric to 
continue without a voice of opposition.
    Like I say, so little attention has been paid to what is 
direct access--and that is what we are really talking about 
here. Not day trading; direct access. The ability of the public 
customer to directly access the market, to receive transparency 
and information uncompromised, and to be able to do a 
transaction for a whopping $16 to $25.
    Now is it not--it also very amazing here today, I have not 
heard the name E-Trade, Waterhouse, AmeriTrade, DLJ Direct. 
These are the firms that are performing the bulk of what you 
would call day trading. These people have millions of clients, 
and these are the people where thousands of complaints were 
filed. How come they are not part of this hearing? How come the 
SEC has not seen fit to bring these people in?
    These are the people who are telling me, if I open up an 
account at E-Trade I can have money coming out the wazoo. Or I 
can have an island. Or maybe make a $4 billion acquisition 
while tending bar. Do any of these commercials sound familiar? 
They are not part of this hearing. Yet, they do far more 
transactions than a firm like All-Tech. But yet it seems very 
politically expedient to slow down the growth of direct access.
    Now I do not want to be on the attack here, but if I am 
going to be attacked, I will attack. You are very interested in 
disclosure. You are very interested in suitability. Well, I 
have not seen anywhere anything mentioned about campaign 
contributions, and where both senators here receive a decent 
amount of money from the securities and investments industry. 
Now of course, that would never slant anyone, and all this is 
being done in good faith.
    Look, I have a 12-year history. I have fought at every 
level of this. I have had to be at the Federal Appeals Court. I 
have had to be in front of the SEC, and I am under tremendous 
pressure because I am bringing direct access to the public, for 
better or for worse. I have never heard anywhere where we are 
now evaluating the profitability of accounts.
    When was the last time Merrill Lynch did a survey on how 
much money their customers made, or Dean Witter, or Paine 
Webber, or Morgan Stanley? No. But the day-trading community, 
which in my instance I have the highest suitability standards 
in the industry. I have the best disclosure in the industry. We 
are under the gun. We are under the watchful eye of an 
industry.
    Look, if you want to start looking at things, let us look 
at things fairly. How come there has been no balance here? How 
come, with the exception of myself now and my two colleagues to 
the left, no one has spoken favorably? If you are looking to 
slow down direct access, if you want to violate the public's 
right to trade, if you want to invade the public's privacy . . 

    I believe that what a person does with their own money in 
the investment markets, in a country that prides itself on free 
trade and free markets, and you are going to come here and tell 
me that we are going to have to evaluate, analyze, and allow 
people to trade, and have all these tough criteria? That is as 
private to them as what goes on in the marital bedroom. You are 
really starting to get involved in things I do not think you 
want to get involved in.
    Now the fact is that no one has spoken out, maybe that is 
why I have gained some national notoriety. Because most people 
are shaking when they walk into these chambers because you are 
all looking for the negative of what is going on. I am proud of 
what I have done. I stand on what I have said. And yes, are 
there some problems? Do we have some problems with what is 
going on in the industry? Is there an occasional rogue broker? 
Does someone fail to fill out a form properly? Absolutely.
    But then again, if you are looking to regulate and close 
down this type of activity, let me tell you, there will not be 
a business left in this country. So let us get real. Let us get 
serious. And if we do need some changes and if we do need some 
regulatory improvements, let us do it. But let us stop pointing 
these fingers at a few small day-trading firms that have been 
on the leading edge of change and improvement for the market.
    Thank you.
    Senator Collins. Mr. Fahman.

  STATEMENT OF HENRY D. FAHMAN, PRESIDENT AND CHIEF EXECUTIVE 
 OFFICER, PROVIDENTIAL SECURITIES, FOUNTAIN VALLEY, CALIFORNIA

    Mr. Fahman. Good morning, Chairman Collins. Good morning, 
Senator Levin.
    Senator Levin. Good morning.
    Mr. Fahman. Good morning, Members of the Subcommittee. My 
name is Henry Fahman. It is an honor and privilege for me to 
appear at this hearing today to address some of your concerns 
as far as the day trading industry is concerned. Like my 
colleague, I would like to go over a little bit of my 
background and also share with you some of my thoughts about 
the day trading business, and also where our firm stands on 
these issues.
    I was born and raised in Vietnam in a small town, and 
during the war as a teenager I was involved with the U.S. 
military as an interpreter, and also as an interpreter for the 
American Red Cross. And because of my involvement with the U.S. 
Government and my involvement with the South Vietnamese 
government as a former officer, I was imprisoned by the 
communist government for 3\1/2\ years. After my release from 
prison I tried to escape from the country, and many times I was 
captured and put into prison. And many times I was at gunpoint 
because I was trying to leave the country to come to the United 
States of America for freedom; the freedom of choice.
    I come here in 1982. I attended law school in Vietnam but 
was not able to complete and had to join the army during the 
most ferocious time in the history of the war in Vietnam. I 
came here and went to UC-Berkeley and earned my degree in 
business and economic and financial analysis at Berkeley. And 
also worked for a number of firms including A.G. Edwards & 
Sons, and the Investment Center, a firm based in New Jersey, as 
their branch manager in southern California before founding 
Providential Securities in 1992, first mainly to address the 
needs of investment in the Asian community in southern 
California.
    Before going into other parts that you may be interested I 
would like to give an overall picture of our view of what we 
see as far as the day trading industry is concerned. I think a 
number of issues have arisen during this testimony and also 
during the investigation across the country. I think No. 1, is 
suitability. No. 2, is risk disclosure. No. 3, lending 
practices. No. 4, maybe operational problems that have occurred 
at some firms.
    As far as our firm is concerned, some of the allegations 
and some of the operations and complaints that were brought up 
like Amy Le, Linda Richardson, for example, those were the 
legacy of the Go Trading Company. It was not ours. We happened 
to inherit those complaints in those cases because Tae Goo 
Moon, who happened to be our branch manager at the Los Angeles 
office moved those accounts over to us. And when they were not 
happy, they filed a complaint and went into arbitration, we 
were named in those cases. But Providential Securities, we did 
not start with those clients. We did not have those clients to 
begin with.
    As far as the recommendations by NASAA and other regulatory 
agencies are concerned, I believe it is important to allow and 
educate and let the public know the risks that are involved in 
day trading. Of course, there is a great relation between risk 
and reward, as every one of us is aware. That is why 
Providential Securities, we have come out with a warning, 
warning, warning. Please read carefully before you sign. And 
all the risks are disclosed in this document every time a 
client opens an account.
    Some people choose to do that. Some people choose to day 
trade because that is what they want to do. There is a utility 
function that can be derived from any activity in life, and I 
was disturbed by some of the filing or the allegations that day 
trading is an addiction, is like an addictive habit. People 
choose to do certain things in life because they are willing 
to, because they are able to, because they are ready to, 
because they know what they are doing.
    For that reason, of course, day trading is not for 
everyone. It fits, it suits a certain group of people, to a 
certain segment of the market who knows what they are doing. Of 
course, we want to cater, we want to service those people, and 
we want not to include those people who should not belong in 
the day trading business because it is not suitable for them.
    But as far as choices are concerned, like myself, I was in 
prison many times. Every time I tried to leave the country I 
was arrested. I was captured. I was put in prison. I was at 
gunpoint. But I was determined to leave Vietnam for America. 
Why? Because I knew beyond the other side of the Pacific Ocean 
there is a free country. There is a country where there is 
freedom of choice. That is why I make the decision.
    I was arrested. I could have been killed many times. And if 
you know the story of the boat people, many of them have been 
raped. Many of them die in the open sea. But they were willing 
to take that risk. Why? Because the risk/reward ratio. They 
knew, if they made it, they would have gained freedom that is 
unparalleled anywhere in this world.
    So I think we need to look at day trading and other matters 
in life with a broader context, not just a small segment. And 
sometimes I am disturbed at the empirical, the statistical 
evidence. Sometimes because of the lack of the sample data, 
because the universe is not broad enough, maybe the time frame 
is not broad enough. So the conclusion that has been drawn 
based on losses, profitability, suitability, a number of other 
reasons, sometime may be skewed to one side or another.
    Those are my comments. But I think this is a segment of the 
market that is here to stay because of the burgeoning of new 
technology that gives easy access to the market for everyone. 
And here is the land of America. Land of the brave. Land of the 
free. And we are free to choose. Of course, we want to educate 
people so they know what they are choosing. But that does not 
mean that we should limit to them to our own parameters, to our 
own interests, and to our own agenda.
    I would like to open up for any questions or any other 
points of concern that I would be willing to address.
    Senator Collins. Thank you, Mr. Fahman. Mr. Lee.

 STATEMENT OF JAMES H. LEE,\1\ PRESIDENT, MOMENTUM SECURITIES, 
                         HOUSTON, TEXAS

    Mr. Lee. Good morning, Madam Chairman, Senator Levin.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Lee appears in the Appendix on 
page 212.
---------------------------------------------------------------------------
    Senator Levin. Good morning.
    Mr. Lee. I appreciate the opportunity to appear here today 
and discuss day trading and to address your concerns. I commend 
this Subcommittee's effort to review the industry and help 
suggest improvements in the system.
    I am president of Momentum Securities. My company is a 
registered broker/dealer with the NASD and SEC. I am also 
president of the Electronic Traders Association. I co-founded 
Momentum in 1995. Since them, Momentum has grown to be one of 
the largest electronic brokerages in the United States serving 
some 1,300 full-time day traders and employing over 150 people 
in various States. This past January we executed approximately 
800 million shares across 3 million transactions. I believe 
this makes us one of the largest day trading organizations in 
the country and second only to Charles Schwab in the overall 
electronic brokerage space.
    Today, Momentum, as the primary broker/dealer of 
TRADESCAPE.com is part of an integrated enterprise focused on 
trading and technology development. TRADESCAPE earlier this 
month agreed to purchase MarketXT, a recently authorized ECN in 
a vertical acquisition valued at about $100 million. The 
MarketXT acquisition will expand our liquidity pool, accelerate 
the offering of execution services and technology to 
institutions, and will benefit our retail customers who 
participate via our web browser interface.
    Our organization is backed by investment partners who are 
leaders in technology and financial services, including 
SOFTBANK, Morgan Stanley, Salomon Smith Barney, Mattof 
Securities, Warburg Pincus, among others. Indeed, SOFTBANK is 
currently lead managing a $100 million additional round of 
financing for our company.
    Technology developments in recent years have had a 
fundamental and profound impact on our securities markets. 
Participants today are benefiting from the new technology and 
systems that provide quick access to multiple points of 
liquidity. This new technology allows investors the ability to 
manage, monitor, and trade their own portfolios without the 
need for intermediaries to place investments.
    Both changes in technology, principally in the 
communications area, and recent SEC rule changes now make it 
possible for day traders to have virtually the same access to 
market information, executions, and order exposure as traders 
on the floor of our national exchanges. Recognizing our 
technology, many mainstream brokerages are now seeking to 
broaden the services of their customers by merging their 
resources with firms like mine.
    Not only have major participants invested in TRADESCAPE, 
but earlier this month Charles Schwab, America's leading 
discount and online brokerage, acquired CyberCorp, a day 
trading boutique whose revenues are about one-third of ours. 
The transaction was valued at nearly $500 million.
    Day trading is but one of many ways to earn a return on 
capital. Placing capital in the securities markets always 
involves some degree of risk. On one end of the continuum there 
are forms of investments with low risk and low return, like CDs 
and savings bonds. On the other end, with higher risk, is day 
trading. The higher the risk, it generally follows, the greater 
potential for higher yield.
    Our day traders generally understand these risks and choose 
day trading for the benefits it has to offer. They are not 
seeking slow, steady investments with little risk. They 
recognize, and indeed acknowledge, that they are accountable 
for their own trading decisions. Those decisions are theirs and 
theirs alone. With adequate and appropriate disclosure, and 
truthful advertisements, both of which you will find at 
Momentum, day trading can be a viable approach to the market.
    With that background I would like to outline some of the 
policies Momentum has voluntarily and proactively implemented 
to enhance customer protections and to share some of my views 
on day trading.
    No. 1, to me risk disclosure is the most important area 
from the standpoint of customer protection. The securities 
markets always involve some degree of risk and day trading 
certainly involves more risk than many other approaches to the 
market. The critical issue is whether the investor has been 
apprised of the level of risks being assumed.
    SEC Chairman Levitt told this Subcommittee in September, 
``if day traders are adequately apprised of the risk of their 
day-trading strategies, the Commission believes that the 
individual day traders bear responsibility to make sure that 
they do not trade with funds they cannot afford to lose.'' I 
agree.
    Our present form of risk disclosure exceeds those proposed 
by the NASD and are far beyond those found at online or full-
service firms. We voluntarily designed this risk disclosure 
statement and require our customers to read and acknowledge it 
before day trading. The disclosures were developed with 
guidance from NASAA and were later used by the NASD in 
developing its own risk disclosure proposal. I noticed Mr. 
Fahman has a copy of it now and appears to be using it. Indeed, 
we require our customers to read and sign four separate 
documents that deal with these issues before they open an 
account.
    Furthermore, as an ETA member firm, we also fully subscribe 
to the ETA statement of ethical principles, a copy of which you 
will find with my testimony.
    No. 2, to me, day-trading firms must be accountable for the 
manner in which they advertise to the public. I believe we must 
be truthful in all of our communications with customers. And 
while we do very little advertisement, Momentum does not make 
misleading or exaggerated claims about our services or the 
overall benefits of day trading. We believe we have an 
excellent relationship with our customers and we receive very 
few complaints given our size and reach.
    No. 3, I believe internal compliance is also important to 
developing best industry practices. At Momentum, we are fully 
committed to the highest standards. That having been said, have 
we made mistakes? Can we do better? Absolutely. Momentum has 
only been in existence for 4 years, and in many ways we are 
still in our infancy. We strive to refine and improve our 
system. Our operation is far better today than it was when we 
first opened.
    We have implemented greater internal controls. Among these 
are a formalized compliance department; commitment of 
additional resources for compliance personnel; development of 
new policies on risk disclosure and account opening guidelines; 
and we have instituted regulator self-imposed compliance visits 
to our branch offices.
    No. 4, I recognize that there is a learning curve involved 
in successful day trading. While we are not required to do so 
today, we have developed voluntarily a threshold guideline of 
available risk capital. At Momentum we developed such a 
guideline because I believe it is the right thing to do. We now 
ask for a minimum initial deposit of $50,000 and--
collectively--and a minimum disclosed net worth of $100,000 to 
open a day trading account. If a customer does not meet these 
two factors, a customer may still appeal their initial 
rejection if they demonstrate such factors as prior trading 
experience.
    No. 5, I believe day trading has made a positive impact on 
the securities markets by increasing market liquidity, vastly 
improving pre and post-trade transparency, furthering the 
standards of best execution, and significantly helping to 
reduce agency cost. Day trading also helped break a collusive 
monopoly and now individual investors, rather than 
institutions, are increasingly gaining control of their 
transactions.
    Moreover, day trading has fostered new technology to 
transmit information and accelerate executions, which has 
resulted in larger benefits to the overall economy.
    No. 6, there have been conflicting press reports regarding 
profitability of day-trading firms. Based on my years in the 
business, and I believe I have some sense for what really 
occurs with respect to profitability, in my judgment not every 
trader will make money from the start. And many will lose in 
the first 3 to 5 months in which traders are learning the 
skills required to trade.
    After the learning curve in which dedicated traders are 
developing skills and proficiencies with the systems, I believe 
the number of profitable traders improves significantly. The 
simple fact is that many of our traders are successful. I 
remain proud of their success.
    No. 7, I am sensitive to the concerns regarding the traders 
who have, arguably, insufficient risk capital. While in the 
past there may have been exceptions with my firm, I believe 
customers currently in our system either have the means or the 
experience to be day traders. Today, the vast majority of our 
customers are mature, educated, professional, and financially 
secure women and men.
    No. 8, I am sensitive to the concerns regarding lending 
practices. I was recently appointed vice chairman of the NASD 
task force on day trading margin rules to help address these 
issues. To my knowledge, my firm has at all times complied with 
the rules that exist in this area.
    No. 9, one of the reasons behind the development of the ETA 
was to provide day-trading firms with a forum for discussions 
about the very issues we are reviewing today. While I am 
speaking today for myself and what I believe and strive for 
with my own company, and while I cannot make commitments for 
other firms, it is my hope that through responsible leadership 
we may use the ETA to encourage other day-trading firms to 
strive for best practices.
    No. 10, at Momentum we strive to improve our company and 
learn from our mistakes. We acknowledge that our operation is 
in many ways better today than it was when we first started. We 
suffer immeasurably as an industry when other companies' 
practices are sub par. As with any industry, I believe there 
are good, well-intended companies who represent industry best 
practices, and there are others that fall short. We strive to 
set ourselves apart from the latter group through our business 
ethic, practices, client services, and proactive policies aimed 
at full disclosure of risk, balanced and fair advertising, and 
heightened account opening guidelines.
    While there may be some disagreement about which regulatory 
changes are desirable, I welcome the opportunity to work with 
you to develop appropriate recommendations for change.
    In closing, I wish to emphasize that I am proud of 
Momentum. We strive to be a leader. We have made mistakes, but 
we correct them. Hopefully today's discussion will be used to 
forge an alliance between thoughtful, legitimate, proactive 
companies who are working to improve the system and members of 
the industry who would like to explore ways to promote 
efficient markets and design appropriate customer protections.
    Thank you, Senators.
    Senator Collins. Thank you, Mr. Lee. I do want to recognize 
that although we did discover several problems with Momentum's 
past practices that you also have made and implemented 
significant reforms. I want to recognize and commend your firm 
for recognizing the mistakes that have been made and for 
implementing some reforms that should make a difference.
    Mr. Lee. Thank you.
    Senator Collins. Mr. Houtkin, last night on CNN you 
disputed information provided to the Subcommittee by one of 
your branch managers, that only 10 percent of his customers 
were profitable. Yesterday, at our hearing under oath and also 
in his deposition, another one of your branch managers, Mr. 
Parish, testified that 80 percent to 90 percent of the day 
traders in San Diego were losing money, at least within the 
first 6 months.
    Another one of your branch managers in Boca Raton testified 
or provided information to the Subcommittee that zero--not one 
of the customers of that branch office were profitable. Yet 
another branch manager, Mr. Zayas, who testified yesterday, 
said that only one out of his approximately 50 customers were 
profitable. Are all your branch managers wrong?
    Mr. Houtkin. They are not all my branch managers. As a 
matter of fact, those branch managers you are talking about, I 
do not believe any of them are still with us, and have gone off 
either to competitive firms or whatever. I do not know what 
they base those statistics on. As a firm, we do not keep track 
of how well our customers do in general.
    I do not believe it is a practice in the industry. And if 
this is a practice the industry would like our people to start 
keeping, if you would recommend that firms in general keep 
track of the profitability of their clients' investments, then 
we would go along with those regulations.
    Senator Collins. The president of your firm, Mark Shefts, 
also told the Subcommittee that three out of 10 day traders, 
only three out of 10 would be profitable.
    Mr. Houtkin. Yes.
    Senator Collins. So if you are not tracking this, how does 
the president know?
    Mr. Houtkin. It is by observation. I was the one who first 
said that several years ago when I was pressed I think by 
Business Week magazine, about how many people make it and how 
many do not? Let us discuss that.
    Senator Collins. Are you not concerned that the vast 
majority of your customers are losing money?
    Mr. Houtkin. I am concerned that people have the best 
possible execution, the best possible information, and freedom 
to perform in the financial markets as they choose as free 
American citizens. If they do--and give them the best possible 
service for what they can do. It is up to them to decide.
    I believe that people should be responsible for what they 
do. We have the highest risk disclosure standards, and have so 
for the past 5 years. We invented risk disclosure back in 1995. 
We have maintained the highest suitability standards in the 
industry for as long as I can remember.
    Now if a person--and we have the best, probably one of the 
best training programs in the industry. So if a person is 
qualified to trade, if a person has the financial wherewithal 
to trade, and if the person has been advised of the risks and 
they are a mature, responsible person, then it is up to them to 
decide what they want to do.
    Senator Collins. We heard considerable testimony yesterday 
that your customers are not apprised of the risk and that the 
training was not adequate. But let me ask you a question. 
Senator Levin yesterday quoted from a deposition and asked Mr. 
Parish what All-Tech's philosophy was concerning customer 
recruitment, and Mr. Parish said that the philosophy was, take 
whoever comes in.
    Mr. Houtkin. That is not true.
    Senator Collins. That is not correct?
    Mr. Houtkin. That is not true, and Mr. Parish is also the 
one who is accused of forging documents and is in a hot seat 
right now----
    Senator Collins. So you have had a lot of----
    Mr. Houtkin [continuing]. And might be very inclined to say 
or will accommodate the panel here because of pressures he is 
under by the regulators.
    Senator Collins. Did you hire Mr. Parish?
    Mr. Houtkin. Years ago.
    Senator Collins. Did you hire Mr. Zayas, another branch 
manager of yours of whom you have been critical?
    Mr. Houtkin. He was hired by the firm. Mr. Zayas was a CPA, 
a practicing CPA.
    Senator Collins. Did you hire him?
    Mr. Houtkin. I do not know if I hired him or someone at the 
firm hired him.
    Senator Collins. It is my understanding that you did hire 
him. Were you chief compliance officer at the time that all 
these problems that you have been very critical of Mr. Zayas 
were occurring?
    Mr. Houtkin. All these problems?
    Senator Collins. Were you chief----
    Mr. Houtkin. How many problems do we have relative to the 
millions of transactions and thousands of customers we deal 
with?
    Senator Collins. Mr. Houtkin, last night on CNN Money Line 
you said that Mr. Zayas caused the problems in Massachusetts 
and ``that he should be in jail.''
    Mr. Houtkin. If he did what they accuse him of doing, which 
is taking funds, unauthorized funds, and forging documents, the 
man committed a serious violation and he should be punished for 
that.
    Senator Collins. Mr. Houtkin, is it not true that you and 
All-Tech were named in the complaint by the State of 
Massachusetts for failing to supervise Mr. Zayas and that you 
settled those charges, and that included an agreement that All-
Tech would not conduct business in the State of Massachusetts 
for 2 years?
    Mr. Houtkin. You are a regulator, Senator Collins. 
Regulators always see things as half----
    Senator Collins. Is that true or is it----
    Mr. Houtkin [continuing]. The glass is always half empty. 
Yes, we settled with Massachusetts because we have a relatively 
small firm and I cannot devote the rest of my life in 
administrative hearings, running around, spending hundreds of 
thousands of dollars in legal fees to adjudicate something that 
was able to be settled basically for a $50,000 contribution to 
the investor education fund. So yes, we settled it as a matter 
of practicality.
    Senator Collins. Mr. Fahman, I would like to show you an 
exhibit. It is Exhibit 75 \1\ and it is in the book that is 
before you. Are you familiar with the advertisement that is 
shown in this exhibit?
---------------------------------------------------------------------------
    \1\ See Exhibit No. 75 which appears in the Appendix on page 714.
---------------------------------------------------------------------------
    Mr. Fahman. Yes. I believe this advertisement was prepared 
by an outside printer. We used it just briefly and then we 
canceled because of the claims on the ad. So we did use it but 
just for a very brief period of time.
    Senator Collins. This is an advertisement that Providential 
used. It says, and I have highlighted the section, it says, day 
traders, it is a very simple game. Trading is not complex, but 
the tough part is knowing when the stock is falling out of debt 
or going to skyrocket. Do you think that day trading is a 
simple game and not complex?
    Mr. Fahman. Trading can be very complex; very complex.
    Senator Collins. Do you think this advertisement might 
mislead people, particularly those who do not have a lot of 
investment background?
    Mr. Fahman. Actually, this advertising was designed by an 
outside group of trainers and we used it just for a very brief 
period of time knowing that we should not use it any more. We 
did not use it that long, maybe about a week or so and we 
canceled it knowing that it was not wholesome in all context.
    Senator Collins. Mr. Fahman, Mr. Moon who was the branch 
manager for Providential's Los Angeles office told the 
Subcommittee staff that none of the day traders in his office 
had ever made money. None of them were profitable. And he 
estimated that the average loss of the day trader customer in 
Providential's Los Angeles office was about $50,000. Do you 
have any reason to dispute that estimate?
    Mr. Fahman. I have not had a chance to review the data and 
I do not know that the statement is correct or incorrect. That 
is only Mr. Moon's statement and I do not have any----
    Senator Collins. Mr. Fahman, in the letter to the 
Subcommittee staff you wrote that Mr. Cao, whom we heard from 
yesterday, day traded at Providential's Fountain Valley office 
of himself, for two family members, for four other individuals. 
Were you concerned that he was not licensed as an investment 
advisor even though he was trading for others?
    Mr. Fahman. Actually, according to certain State laws if 
you are authorized to act on behalf of a few number of people I 
think it is OK to do that. But beyond a certain limit the 
person has to be registered, and we have brought that issue 
with Mr. Cao and he is in the process of taking classes to be 
registered. But whether or not we would like to have him 
continue to trade at our office is something we have to 
consider.
    Senator Collins. At one point Mr. Cao testified he was 
trading for 20 to 21 clients. That is clearly over the amount 
for which licensing is required.
    Mr. Fahman. I do not think that was a correct statement. 
Maybe over his lifetime he might have traded for 21 or 22 
traders. But at any point in time, maybe two, three, or four 
clients at most, to the best of my knowledge.
    Senator Collins. But there is no exemption if you are day 
trading at your place of business.
    Mr. Fahman. I beg your pardon?
    Senator Collins. I am sorry, we are having mike problems 
which we are trying to get rectified. There is no exemption if 
you are day trading at your place of business as opposed to at 
your home.
    Mr. Fahman. I do not know if there is any distinction as 
far as if an individual authorizes or allows or another person 
to act as attorney on his or her behalf, that person can 
execute orders for the owner of the account.
    Senator Collins. Let me approach the issue of Mr. Cao from 
a different perspective. As a result of his trading for Amy Le 
your firm has already had to pay a judgment to Amy Le; is that 
correct?
    Mr. Fahman. Let me clarify the issue here a little bit, 
Madam Chairman. As I mentioned earlier, Amy Le's case and even 
Linda Richardson's case, those cases were brought to us from 
the Go Trading Company. Providential Securities did not start 
with those accounts. Those accounts happened way back. And 
because Mr. Moon being a registered person with our company, 
that is why we were named in those arbitrations.
    Senator Collins. Right. But why would you allow Mr. Cao to 
continue to day trade on behalf of other individuals at one of 
your offices when he has already had a judgment entered against 
him by the National Association of Securities Dealers?
    Mr. Fahman. The judgment happened a couple months ago. Some 
of the accounts Mr. Cao has brought over to our firm, and even 
his own account are still active at our firm at a very minimum 
level. And right now actually we just had a meeting in the last 
2 weeks to consider measures that needs to be taken in order to 
address issues that would be of concern to the regulators in 
that regard.
    Senator Collins. But he is trading even though he has filed 
bankruptcy?
    Mr. Fahman. I do not know if there is any law that 
prohibits a person from trading if he has filed bankruptcy.
    Senator Collins. I am going to yield at this point to 
Senator Levin in the hopes that we can get the mike working.
    Senator Levin. I am not sure mine is working any better, 
but we will give it a go. Thank you, Madam Chairman.
    First, Mr. Houtkin, let me ask you about the profitability 
issue. I think my mike is equally problematical. Mr. Zayas 
testified under oath yesterday that during his tenure as 
manager of the Watertown office of All-Tech between September 
1997 and November 1998 about 50 customers engaged in day 
trading and only one person made a profit, and Madam Chairman 
made reference to that statement. Were you aware of that 
statement on his part?
    Mr. Houtkin. No. I am not really aware of what he said. I 
am very dubious of what he said. After the actions, his actions 
that were uncovered by the State of Massachusetts, I have no 
reason to believe the man. He caused us tremendous problems 
with our reputation. And at the State, I do not know exactly 
what happened there. There were all kinds of accusations about 
people trading for one another; all unauthorized by our firm.
    There are things called rogue brokers. I believe Mr. Zayas 
would be characterized as a rogue broker, and I do not know why 
his testimony would be taken as the gospel unless there was 
really a failure on the behalf of the staff to find more 
substantive people to testify.
    Senator Levin. I take it your answer is no?
    Mr. Houtkin. Yes, it is no.
    Senator Levin. In his deposition Mr. Zayas told the 
Subcommittee staff that you were aware that most people lose 
money in day trading. Is that true? Did you ever make that 
statement, is my question.
    Mr. Houtkin. I have made that statement for years. I said 
that about one in three, approximately. And actually, that----
    Senator Levin. One in three what?
    Mr. Houtkin. One in three people will succeed as a day 
trader. I said that for years. I have been published in many 
periodicals. I have written that in books.
    Senator Levin. Do you tell your customers that one in three 
will be profitable?
    Mr. Houtkin. Absolutely. We probably tell them even worse 
than that. We definitely warn people. The reality is, how do 
you know what is successful? If someone goes----
    Senator Levin. That was your word, not mine.
    Mr. Houtkin. OK. How does one determine--in other words, if 
I go--if you decide you have had enough of the Senate and you 
want to retire and you decide to go to my school and learn how 
to day trade. And we teach you the basics of trading, some 
basic trading strategies, you begin to trade and you lose a few 
thousand dollars and you realize that trading really is not for 
you. Does that make you a loser?
    Senator Levin. I think you answered my question. I am not 
sure, but I will try it again.
    Mr. Houtkin. OK.
    Senator Levin. Mr. Zayas told the Subcommittee that you 
were aware that most people lose money at day trading; is that 
correct?
    Mr. Houtkin. I have been quoted--I do not know if I told 
Mr. Zayas that. I have a fairly large firm. I speak to many, 
many people.
    Senator Levin. Is that your----
    Mr. Houtkin I have said repeatedly that the majority--and I 
think the number I used was about 70 percent of the people will 
not make money as traders. So, yes, it is possible I said that.
    Senator Levin. All right. Does that mean that most people 
will lose money?
    Mr. Houtkin. That means that trading will not be suitable 
for most people and they will probably find that out after they 
lose a certain amount of money.
    Senator Levin. So does that mean that most people will lose 
money? To put it in English.
    Mr. Houtkin. That means that most people will lose some 
money.
    Senator Levin. Yes, that most people will lose some money.
    Mr. Houtkin. Yes.
    Senator Levin. And that is what you tell people whom you 
are talking to about becoming day traders, that most people 
lose money? You specifically tell that to people; is that 
correct?
    Mr. Houtkin. Absolutely.
    Senator Levin. To people who you are asking, or urging, or 
soliciting, or suggesting, or notifying, or whatever your word 
is, relative to day trading, those folks whom you talk to about 
day trading who might come and day trade with your firm, you 
are telling them specifically, most people who engage in day 
trading will lose money? That is my question.
    Mr. Houtkin. I do not know if I use those exact terms.
    Senator Levin. Do you tell them approximately that?
    Mr. Houtkin. Yes, I absolutely tell them approximately 
that. As a matter of fact, we sent you our----
    Senator Levin. Would you give us the statements that you 
have made, I presume in your advertising, where you inform 
folks that most people engaged in day trading lose money? Would 
you submit that to the Subcommittee for our record? Not right 
at this instance.
    Mr. Houtkin. Every word I have ever said on radio, 
television, in print, was presented to me by either the NASD, 
the SEC, or the Subcommittee. So every word I have said you 
probably have already.
    Senator Levin. Good. Now my question to you is, will you 
submit to us any place where you have notified your potential 
customers that most people engaged in day trading will lose 
money? That is a question. Will you submit that to us for the 
record?
    Mr. Houtkin. Just to put on the record that most people who 
begin--yes, I think that is an acceptable statement that I 
could submit to you.
    Senator Levin. And that you notified people of that.
    Mr. Houtkin. The other day I sent to all the Senators on 
this Subcommittee an extensive article that was printed--I do 
not know if you received it--in the Star Ledger this past 
weekend.
    Senator Levin. I read it. My question to you is----
    Mr. Houtkin. Did you walk away feeling that we did not warn 
people that they could probably lose money?
    Senator Levin. My question to you is, will you submit to 
this Subcommittee your printed notice, disclosure to your 
potential customers that most people who engage in day trading 
lose money, which is your belief? Will you just submit that to 
the Subcommittee? It is a simple question.
    Mr. Houtkin. I do not know what the--you see, excuse me, 
but over the years I have learned not to have entire trust for 
the bureaucratic, for the regulatory, and possibly even for my 
political aspect of what is going on. I will speak to my 
attorney, and if they think it is appropriate and there is no 
behind-the-scene agenda to me making that statement, I will be 
more than happy to submit it.
    Senator Levin. That is interesting. That is not my 
question. I asked you would you submit disclosures that you 
have given to potential customers saying that most people 
engaging in day trading lose money. You have turned that into a 
different question, which is whether or not you would say for 
the record, which you have now twice today, that most people 
lose money. That is not my question.
    My question is, will you submit for the record any 
disclosures which you have made to your customers that most 
people engaged in day trading lose money? That is my question. 
So if you want to take that up with your attorney----
    Mr. Houtkin. Is this the past tense or the present?
    Senator Levin. Yes, that is past tense.
    Mr. Houtkin. I would have to go through what I disclose and 
what we have. But I know----
    Senator Levin. Will you do that?
    Mr. Houtkin. If I could find it, I will do it. If it is 
there. You are saying, have I done that in the past?
    Senator Levin. Exactly.
    Mr. Houtkin. Does it exist?
    Senator Levin. Yes.
    Mr. Houtkin. I would have to check.
    Senator Levin. Would you do that for the Subcommittee?
    Mr. Houtkin. If we have that, I would be more than happy to 
submit it.
    Senator Levin. And would you submit to the Subcommittee, if 
you can find any such disclosure where you have told potential 
customers that most people engaged in day trading will lose 
money, will you submit those if you can find one?
    Mr. Houtkin. I believe if you read my books it says that 
the majority of the people, maybe one in three, will succeed. 
So by definition, I do not think, you know, it takes a vast 
intelligence here if----
    Senator Levin. I do not claim a vast intelligence, but I 
claim to know how to ask a very important and a very precise 
question.
    Mr. Houtkin. That is why I want----
    Senator Levin. Most of your customers and potential 
customers do not read your books. You may not believe that. You 
may think everybody reads your books.
    Mr. Houtkin. Most of my customers have read my book.
    Senator Levin. Fine. Most of your potential customers do 
not read your books. Most of the public has not read your 
books. My question to you is very simple. When you hand 
disclosures to people who are your potential customers have you 
informed them of what you have said in your books, said here 
today, that most people engaged in day trading lose money? Your 
answer to that question is, you do not know whether you can 
find such a statement.
    Mr. Houtkin. I believe it exists in our risk disclosure 
documents.
    Senator Levin. Fine.
    Mr. Houtkin. I did not memorize them. But if they exist, 
and if I have them, which I am pretty sure we do, I would be 
more than happy to hand it to you.
    Senator Levin. That is a very direct, final answer to a 
question that took me six times to get an answer to.
    Now, next question, on margin lending. Approximately how 
much money was transferred between accounts in All-Tech to meet 
margin calls? Do you know, last year?
    Mr. Houtkin. I do not have the exact number.
    Senator Levin. Do you have an approximate number?
    Mr. Houtkin. I am sure it was a significant amount of 
money.
    Senator Levin. Does All-Tech have a policy against firm 
members arranging or providing uncollateralized loans to help 
customers to meet margin calls?
    Mr. Houtkin. We have an internal policy that states that 
people, registered and affiliated people in my firm, people who 
are employees, should not lend money to customers.
    Senator Levin. Now nonetheless, has it happened at All-
Tech? Despite your policy of----
    Mr. Houtkin. Based on what I have heard from----
    Senator Levin. Let me finish my question.
    Mr. Houtkin. Go ahead.
    Senator Levin. Has it happened at All-Tech, that firm 
members have indeed arranged or provided loans to help 
customers meet margin calls? Has that happened?
    Mr. Houtkin. I believe that in a few instances, if you want 
to stretch the regulations and interpret them to suit your 
purpose as a regulator, you could say that there might have 
been a small instance, unbeknownst to me, of people making 
loans to certain customers.
    Senator Levin. Thank you. To cover margin?
    Mr. Houtkin. They made loans to other customers, 
presumably, I assume, to meet a margin or maintenance 
requirement.
    Senator Levin. Now yesterday Mr. Parish testified that the 
transfer of funds between accounts, which he called journals, 
in order to satisfy margin calls occurred hundreds of times. 
Mr. Zayas said the same thing.
    The vice president for margin, Ms. Esposito, testified 
before our staff that there were two accounts at her disposal 
from which she could make margin loans to customers. One was 
held by a former All-Tech employee, David Waldman, someone who 
had a senior position and set of responsibilities in the 
organization. She said that Mr. Waldman had signed a blank 
journal authorization and she repeatedly photocopied it and 
used it to make loans at her discretion. Mr. Waldman charged a 
$40 fee for each loan, and for every $10,000 in principal he 
received a fee of $10. This was all administered by Ms. 
Esposito.
    She also had discretionary access to an account belonging 
to the sister of the manager of All-Tech's Edison branch. 
Moreover, she noted that both Mr. Lefkowitz, the senior vice 
president for operations, and Mark Shefts, I believe he is the 
All-Tech president, knew that she had been using those two 
accounts to make margin loans. My question to you, were you 
aware of the fact, if it is a fact, that those kinds of 
violations of margin requirements and regulations had occurred?
    Mr. Houtkin. First of all, I do not believe that what 
transpired was a violation of margin requirements under the 
current law, as you probably found out during the last hearing, 
that those were not violations of the margin rules. And I did 
not know that this was going on, nor do I believe Mr. Shefts 
knew that it was going on. And as far as Mr. Lefkowitz, I did 
not--I do not believe that he believed there was a problem with 
it.
    Senator Levin. If it did go on it was a violation of your 
internal rules.
    Mr. Houtkin. It would have been a violation of my own 
internal rules, yes.
    Senator Levin. My time is up.
    Senator Collins. Mr. Lee, I want to share with you some of 
the testimony that we heard yesterday regarding your Atlanta 
branch manager, Justin Hoehn, and also particularly the account 
of Scott Webb. As you know, we heard from Scott Webb's mother, 
Alyce Wenzel, yesterday concerning the opening of her son's 
account.
    Both of them testified that Mr. Webb, prior to opening his 
day trading account, had lost two jobs, including one as a 
retail stockbroker; had lost $10,000 of borrowed money trading 
at another firm; had a very poor credit record; had very little 
cash; and had to borrow all of the money that he used to open 
up his day trading account. He borrowed $30,000 from his 
father, and your firm arranged for him to get a $30,000 loan 
from another customer.
    Was that appropriate? Should Mr. Webb have been accepted as 
a day-trading customer of your firm?
    Mr. Lee. Madam Chairman, I did not know Scott Webb, and 
after the horrific incident that happened last summer in 
Atlanta, obviously began to look at the situation in hindsight. 
I understand in discussions with the people involved in the 
situation that Mr. Webb was a registered broker, I believe with 
Dean Witter. I understand and what I have learned from our 
people, that he had day trading experience, not at one but at 
two firms. And given our opening account requirements at the 
time I believe he met the financial requirements at the time to 
become a trader.
    Senator Collins. Even though he had had no income for the 
last 6 months, had a very low net worth, he had virtually no 
money at all, you think he was a suitable customer?
    Mr. Lee. I think today that--again, I do not know the 
circumstances until they just came up here in these hearings. I 
think that we have to look at the situation at a policy level, 
and I think it is constructive to set a bright line test so 
that operations and branch managers are not called upon to make 
these kind of judgments on their own. I think that we should 
raise the standards, which we did in April, to a bright line 
financial test, and that once that test is met they are 
presumed to be suitable. I think it is an appropriate level.
    I think though that there are circumstances that if 
somebody does not meet those tests that he/she could rebut that 
presumption--the customer, if they chose to--and I understand 
that Mr. Webb sought this out. He asked to become a day trader. 
And you mentioned the loans arranged there, and I have looked 
into that as well, and I understand that he asked for those.
    Senator Collins. But do you think it is appropriate for 
Momentum to accept a customer of limited financial means, who 
has not had a job, who is using money that is entirely 
borrowed, to open an account? I mean, I have to say I am 
troubled if your answer to that is yes. I mean, today would 
Momentum accept a customer that has that profile?
    Mr. Lee. Madam Chairman, I would look at the profile 
slightly differently. The gentleman, I understand, was highly 
educated. He was a licensed securities broker by the NASD and 
the SEC. He is permitted to sell mutual funds to the elderly. I 
would think he was capable of making his own investment 
decisions. I just look at the facts and circumstances slightly 
different.
    I think the whole thing is very tragic and I think that 
there are constructive points to be made on both sides. I try 
to look at this at a policy level and how a firm may establish 
guidelines universally that people can abide by throughout the 
country.
    Senator Collins. Does Momentum today allow an individual 
who is relying entirely on borrowed funds to open an account?
    Mr. Lee. I do not think that his new account records 
reflected that he was relying entirely on borrowed funds.
    Senator Collins. I would really like a direct answer to my 
question. Do you allow--will you open an account today for 
someone who is relying entirely on borrowed funds for the 
minimum deposit?
    Mr. Lee. Today we do not have an internal policy to look 
beyond what the customer discloses, and the source of those 
funds. Whether they are their own or from borrowed sources 
outside of the organization. Today it is not our policy to look 
into that, nor do I believe that it is the policy of online and 
full-service firms. But I do think, since you have made this 
point, that we should look at this and perhaps there is a more 
constructive approach to it going forward. Today it is not our 
policy.
    Senator Collins. In September 1998, which was 3 months 
after Scott Webb opened his account, one of Momentum's own 
internal auditors flagged the account, they flagged both of his 
accounts and advised Momentum's home office in Houston that 
they were ``only marginally suitable.'' Why, after your own 
auditor had flagged Scott Webb's two accounts and raised 
questions about the suitability of allowing him to day trade, 
was he allowed to continue to trade?
    Mr. Lee. I think the time frame here, that office opened in 
the middle of 1998, and in the first 3 months--I kind of look 
at this from a different perspective. I think it is very 
constructive that we sought outside help. We went to a former 
NASD examiner and self-imposed these types of examinations on 
our own home office and branch offices. You are correct, 
records show that that examiner came back to us with 
deficiencies in the office, and I believe that the office has 
been improved significantly since that time.
    Senator Collins. I want to show you another excerpt from 
that same audit. I have talked about--it is Exhibit 104 \1\ and 
it should be in the exhibit book before you as well. This is 
the same audit, it is another section of the same audit that 
flagged Scott Webb's accounts as being questionable.
---------------------------------------------------------------------------
    \1\ See Exhibit No. 104 which appears in the Appendix on page 832.
---------------------------------------------------------------------------
    As you can see, the auditor concluded that neither Justin 
Hoehn nor Kevin Dial--Justin Hoehn being the branch manager--
``have a clue as to how to supervise. Despite supplying copies 
of the written supervisory procedures to each of them, neither 
one of them had read it. They have received little if any 
guidance from the Tyler office. Reports printed out entirely 
for a period of time were not forwarded to the Atlanta office 
until the SEC walked on.'' It goes on and on and is very 
critical.
    Given that critique from your own auditor that the branch 
manager did not have a clue how to supervise, why was Mr. Hoehn 
allowed to continue to run the office?
    Mr. Lee. I think that what the auditor did on our behalf--
and I look at the process as something constructive and 
positive--at least the deficiencies were pointed out. It was 
internal. I do understand in having discussions with Mr. Hoehn 
since that time and also the independent auditor who performed 
this function for us, that things have improved markedly.
    If I can point out something--may I? Just 2 or 3 months 
after that disclosures were sent to all of our customers in the 
organizations including those in that office. And if you would 
like, I can read over some of those and point this--I think 
there are issues here as to risk disclosure. I think that there 
are issues as to appropriateness and suitability. Those words 
have meaning in a regulatory context as well as in a casual 
context. I think the whole area should be examined and that we 
could always do better.
    Senator Collins. The auditor goes on to say in Exhibit 
104--and I will only read the last line of it. She warns that 
this could be a disastrous experience if a well-seasoned 
regulatory team from the SEC would come in, considering the 
shape of the Atlanta office. In short, this audit is a pretty 
serious indictment of the Atlanta office.
    Did it lead you to implement reforms? What specifically was 
done? You have mentioned that there were some changes in the 
disclosures. But what did you do as far as the criticisms of 
the employees that you had running the office?
    Mr. Lee. Senator, I understand, again, this was within the 
first 3 months of operation of that office. Nearly 2 years, or 
over 2 years have passed since then. I do not have and I am not 
aware of any other issues that have been raised out of that 
office, and I trust that the people charged with compliance in 
the area took corrective action with these people. I think 
there was some testimony as to that yesterday, although I have 
not read the exact record.
    Senator Collins. Senator Levin.
    Senator Levin. Thank you, Madam Chairman.
    Mr. Lee, at the last hearing or the hearing last year of 
this Subcommittee, Mr. Saul Cohen representing your 
organization, the Electronic Traders Association, testified as 
follows: That earlier this year ETA informally surveyed its 
members to obtain a rough estimate of customer profitability. 
These estimates were that after an initial period of 5 months 
of losses, 60 percent to 65 percent netted in the range of 
$28,000 per month with the balance of customers losing $6,500 
to $8,000 per month. Was that accurate?
    Mr. Lee. Sir, I think that those were based off of an 
informal survey that our organization conducted between, I 
believe it was September 1998 and January 1999. And I think it 
was a snapshot in time in or about January 1999, of a 5-month 
period. I believe those figures were based on the findings of 
that review.
    Senator Levin. What were the months of the study?
    Mr. Lee. I believe he was referencing what we have 
submitted to the Subcommittee and is known as Texas Facts, and 
I think it was September 1998 through January 1999; I believe 
so.
    Senator Levin. Did you personally participate in that?
    Mr. Lee. I had some participation in the design of it. I 
did not construct it, no, sir.
    Senator Levin. Do you believe that represents an accurate 
picture of the profitability of day trading?
    Mr. Lee. Senator, I am testifying here on my own behalf, my 
judgments and observations. I think it was a fair reflection of 
a snapshot in time of our organization and what we were 
surveying.
    Senator Levin. Do you believe it is a fair representation 
of profitability of day traders now?
    Mr. Lee. I think that there could be inferences made to the 
larger organizations. I think that there is a big difference--
--
    Senator Levin. I do not know what that means, inferences 
made?
    Mr. Lee. There could be inferences. There are, in my 
opinion, large capable organizations with the infrastructure 
that can marginally improve results. And I am just not familiar 
with the practices of the vast number of other firms that are 
out there, so I could not possibly comment on their results. I 
am aware----
    Senator Levin. Do you think two-thirds of your customers 
make money?
    Mr. Lee. I think that is what Texas Facts showed at that 
snapshot in time?
    Senator Levin. Do you think two-thirds of your customers 
today make money these days?
    Mr. Lee. Sir, I think it said that two-thirds of 
experienced people, with more than 5 or 6 months, are 
profitable.
    Senator Levin. Do you believe that?
    Mr. Lee. I believe it sounds relatively accurate, yes, sir.
    Senator Levin. You believe that two-thirds of your 
customers who have been there more than 5 months are 
profitable?
    Mr. Lee. I believe that represents the numbers at that 
time. I do not think that the conditions have changed 
significantly since then, so I would think that it would hold 
true, but I do not have numbers to support that.
    Senator Levin. Could you provide those numbers to us?
    Mr. Lee. They are not readily available.
    Senator Levin. Could you provide those to us?
    Mr. Lee. I would be happy to work with the staff and 
Subcommittee to open our books, as we have very cooperatively 
done, for any information that you choose or any other 
oversight body, sir.
    Senator Levin. Does that mean yes?
    Mr. Lee. Would I construct that for you?
    Senator Levin. Would you inform the Subcommittee as to what 
percentage of your clients are profitable?
    Mr. Lee. I think we could produce whatever you would like, 
sir.\1\
---------------------------------------------------------------------------
    \1\ See Exhibit No. 156 which appears in the Appendix on page 1195.
---------------------------------------------------------------------------
    Senator Levin. Thank you.
    Now did you have an executive committee meeting last August 
to talk about the figures?
    Mr. Lee. At my organization?
    Senator Levin. No, did ETA have an executive committee 
meeting last August to go over those Texas figures?
    Mr. Lee. I think, in preparation for the Senate testimony, 
that there was a board meeting by telephone among the ETA 
members. And I would, if I could, give a brief profile of ETA.
    NASAA and others, and certainly this committee, have 
pinpointed that there are many, many, many organizations in the 
day trading business. ETA has about six members. I believe, 
though, the memberships are among the larger firms, and I think 
they are 60 to 70 percent of all the volume in day trading in 
those firms.
    So if I could qualify, it was not a meeting among everybody 
in the industry. It was among, I think, four or five of the six 
or seven largest firms. Yes, sir, there was a telephone 
conference.
    Senator Levin. Was it the ETA executive committee that met 
by that telephone conference?
    Mr. Lee. Our board. I think there is not a difference.
    Senator Levin. And did you make a decision as to whether 
those numbers were still representative?
    Mr. Lee. I recall there being a discussion on that point, 
and I do not recall that there was opposition to those general 
findings on that telephone call, sir.
    Senator Levin. And then ETA, at that point, was going to 
retain an accounting firm to conduct a day trading 
profitability study; is that correct?
    Mr. Lee. There was consideration given to that, yes, sir.
    Senator Levin. Were you in the process of retaining KPMG?
    Mr. Lee. Yes, we did. We went through an engagement process 
with that firm, yes, sir.
    Senator Levin. And decided not to engage them?
    Mr. Lee. I think there were two parts of that. The 
engagement was not ultimately concluded for two reasons, and we 
did get to an engagement letter. No. 1, it was cost 
prohibitive.
    Senator Levin. How much was it?
    Mr. Lee. Over $250,000. And I believe that there were also 
some internal conflict issues that they pinpointed in their 
ability to produce the study.
    Sir, if I may add, that is twice the budget of ETA.
    Senator Levin. Were you aware of the Washington State study 
\2\ which found that 77 percent of day traders are found to 
have net losses?
---------------------------------------------------------------------------
    \2\ See Exhibit No. 23 which appears in the Appendix on page 365.
---------------------------------------------------------------------------
    Mr. Lee. I just learned of it in these hearings, sir.
    Senator Levin. And that was unrelated to how long somebody 
was day trading?
    Mr. Lee. I just heard that this morning.
    Senator Levin. Do you have any reason to disagree with that 
study, from what you heard this morning?
    Mr. Lee. I have not seen it. I could not possibly comment. 
I do not know what the qualifications are. I do not know the 
firms.
    Senator Levin. If you would take a look at that study and 
tell us, not now----
    Mr. Lee. Is it part of the record?
    Senator Levin. Yes, for the record.
    Mr. Lee. No, I mean is it part of the record? I have not 
seen it.
    Senator Levin. I am saying would you take a look at that 
study and then get back with us, for the record, your reaction 
to it, as to whether you state any disagreement with its 
procedures?
    Mr. Lee. I would be happy to.\1\ Is it available?
---------------------------------------------------------------------------
    \1\ See Exhibit No. 156 which appears in the Appendix on page 1195.
---------------------------------------------------------------------------
    Senator Collins. We will provide you with a copy.
    Senator Levin. Mr. Houtkin, just a couple of more questions 
for you. That has to do with the question of suitability. Ms. 
Esposito, who is your vice president for margins, testified to 
our staff that she had customers who opened accounts with less 
than your $50,000 minimum deposit. At the time, that was your 
regulation and rule. Were you aware of that fact?
    Mr. Houtkin. That was our company policy.
    Senator Levin. To take them at less than $50,000?
    Mr. Houtkin. No, the company policy was $50,000. For your 
information, the NASD has no suitability standards whatsoever.
    Senator Levin. I understand.
    Mr. Houtkin. For accounts that do unsolicited business. Our 
policy of $50,000 was relatively high. I believe it was the 
highest in the industry.
    Senator Levin. Let me ask my question again. Your vice 
president for margins, Ms. Esposito, testified to the 
Subcommittee staff that she had customers who opened accounts 
with less than the $50,000 minimum deposit which was your rule.
    My question to you is were you aware of that?
    Mr. Houtkin. I was aware that there would be exceptions 
made based on the client opening the account.
    Senator Levin. In 1999, you lowered your minimum deposit 
requirement from $50,000 to $25,000 and when you were asked 
about this by our staff you said, `` I still think, as a day 
trader, an active day trader should have $100,000 on deposit. 
But once again, I discussed with you before, there are 
competitive aspects of the business that we have to be 
cognizant of.'' Is that correct? It is a very brief, direct 
question. Is that what you told our staff?
    Mr. Houtkin. That sounds correct.
    Senator Levin. You published a book around the time that 
you lowered your minimum deposit to $25,000, which included the 
following: ``Before the market was booming to new record 
setting heights every other day and stock prices were uniformly 
lower, you could have had success trading with $50,000 on 
margin. Today, probably $150,000 is the most advantageous 
amount of capital for trading, $100,000 is adequate, and 
$50,000 is a minimum.'' That is what you wrote in your book?
    Mr. Houtkin. Yes.
    Senator Levin. Did you write that?
    Mr. Houtkin. Yes.
    Senator Levin. Is that your minimum?
    Mr. Houtkin. Our minimum now is $25,000, sir.
    Senator Levin. So even though you said that $50,000 is a 
minimum in your book for successful trading, you now accept 
people at $25,000; is that true? What I just said.
    Mr. Houtkin. To the extent, but it goes beyond that. Many 
things have happened over the last year, year-and-a-half, that 
changes my opinion that could make it different. Right now 
market makers are only required to post markets for 100 shares. 
They have lowered the minimum size requirements. A lot of lower 
priced stocks have become very active and very tradeable.
    So while I do believe that a larger amount of money is 
preferable, and I do not believe there is anyone in the 
industry who would disagree with that, that in order to be 
competitive with many firms who are offering $5,000 minimum or 
$10,000 minimum, and to offer our services more practicably to 
the public investor, we lowered it to $25,000.
    That is a minimum standard. That is not what we advise.
    Senator Levin. First of all, you lowered it to $25,000 not 
a year later based on different market factors. At about the 
same time your book came out, saying $50,000 is a minimum, you 
lowered it to $25,000; is that not correct?
    Mr. Houtkin. I do not know the exact dates. Relative to 
when I wrote the book, I started the book about 2 years before 
it finally became published. So when it finally came out and 
when we actually lowered it, I really cannot say.
    Senator Levin. But you really have lowered it in order to 
stay competitive, have you not?
    Mr. Houtkin. I believe most businesses take steps in order 
to maintain somewhat of a competitive--like I said, I believe 
our standards are still higher than most others, but we had to 
do something to be more practicably competitive.
    Senator Levin. But is it not fair to say that even though 
you believed that $50,000 was the minimum for successful day 
trading, you lowered yours to $25,000 in order to meet the 
competition? Is that a fair statement?
    Mr. Houtkin. My personal opinion in the book, it was 
written by myself, I believe $50,000 would be an appropriate 
minimum. There are other people in the firm and we have other 
contributing opinions into what we had to do to maintain a 
competitive business. It was not just my decision to drop it. 
It was a decision of----
    Senator Levin. Your firm.
    Mr. Houtkin. Of the firm.
    Senator Levin. Are you not CEO of this firm?
    Mr. Houtkin. Yes, but I am not a dictator.
    Senator Levin. You may or may not be that, but you are the 
CEO of a firm.
    Mr. Houtkin. Yes, I am.
    Senator Levin. And that firm has now got a minimum lower 
than what its CEO said was a minimum needed for successful day 
trading. That is, I believe, a fact. And you can say you have 
done that in order to meet what your competitors are doing.
    That is well and good, but you are also then taking people 
and their money and you are doing it, although you believe the 
$25,000 is less than what is a minimum necessary for them to be 
successful (and I doubt very much that you have told your 
potential customers that directly in disclosure statements, but 
we will find that out); and you are doing that at the same time 
you tell us two-thirds of the day traders are going to lose 
money.
    Now that is something you may not be happy to hear, but I 
think what I stated is a very careful statement of fact, both 
as to what you have told us here this morning, what you have 
said in your book, and what your minimum standard is.
    Mr. Houtkin. There are other factors. I believe you are 
making an assumption based on half facts. They also, as you 
noted, speaking to the people from the SEC and the NASD, they 
proposed about a year ago to increase day trade margin to 4-to-
1. So if you were using $50,000 at 2-to-1, you would be able to 
use $25,000 at 4-to-1, and have the same working capital 
available to you.
    Senator Levin. Is that 4-to-1 in place yet?
    Mr. Houtkin. Well, it was----
    Senator Levin. Is it in place yet?
    Mr. Houtkin. They have been planning for it to be in place 
now for over a year.
    Senator Levin. Is it in place?
    Mr. Houtkin. I do not believe it is in place, sir.
    Senator Levin. And you reduced yours to $25,000 before that 
was in place; is that not accurate?
    Mr. Houtkin. We reduced it to $25,000.
    Senator Levin. Before any change to 4-to-1; is that not 
factually accurate?
    Mr. Houtkin. Yes, that is factually accurate.
    Senator Levin. Thank you.
    Senator Collins. Mr. Houtkin, if your minimum standard was 
$50,000 originally, and you agree that that is the ideal 
amount, why did you run an ad for day trading that mentions 
$10,000 as the amount? The ad that enticed Carmen Margala to 
come open an account?
    Mr. Houtkin. I am glad you asked that question, because the 
$10,000 minimum was not for day trading.
    Senator Collins. That is what the whole ad was on. The 
whole ad is a day trading ad.
    Mr. Houtkin. The $10,000 minimum was for people who wanted 
to trade through All-Tech because All-Tech does not accept 
payment for order flow and gives very fast response. It was for 
a basic, more conventional, on-line type service, not for day 
trading. We never offered a $10,000 account for day trading.
    Senator Collins. Well, why does the ad say if you have 
$10,000 or more in working capital, along with the will and 
desire to take advantage of the incredible opportunities 
offered by day trading, you need to call All-Tech Investment 
Group today?
    Mr. Houtkin. But you would not be using our Attain trading 
system, the automated system. You would be able to trade 
similar to the way someone could trade at E-Trade or Waterhouse 
or DLJ Direct, where the minimum requirement is $1,000.
    Senator Collins. It says day trading, Mr. Houtkin. Is this 
bait and switch then? Get them in and then switch them over?
    Mr. Houtkin. No, people day trade all day long on E-Trade, 
on Waterhouse, on DLJ, on NDB, just to name a few. Probably 
more day trading is being done through these firms than through 
the direct access firms. This was not an offer for direct 
access services.
    Senator Collins. It says day trading in the ad.
    Mr. Houtkin. It does not say direct access Attain system, 
does it?
    Senator Collins. Let me ask you another question. Ms. 
Margala, as a result of this ad, went into the All-Tech San 
Diego office and tried to open a day trading account, was able 
to open a day trading account with only $20,000. It was not 
even risk capital. It was her savings. It was not money she 
could afford to lose. She was able to open a day trading 
account with $20,000 at a time when All-Tech's minimum standard 
was $50,000. How did that happen?
    Mr. Houtkin. If that happen, it would have been--it should 
have been picked up by compliance. I do not believe that 
happened. And I believe we are currently in litigation with 
this woman, and I really do not want to go into more on the 
record here.
    Senator Collins. Did you do audits of your branch offices 
when you were the chief compliance officer?
    Mr. Houtkin. Yes, we did.
    Senator Collins. Is there a reason why your firm did not 
provide then copies of those audits in response to the 
Subcommittee's request?
    Mr. Houtkin. I am not sure exactly, our general counsel 
provided whatever documentation was available. But we did 
supervise and audit our offices, what we believe was in 
compliance. Once again, this is a new, growing business. Were 
we doing everything to perfection? I cannot say.
    Senator Collins. Did you personally conduct any audits, as 
the chief compliance officer?
    Mr. Houtkin. I went out to several of the offices, but I 
usually assigned those duties to other people in the firm.
    Senator Collins. Well, perhaps you should review your files 
again because, in response to our request, we did not receive a 
single audit from your firm from the time that you were the 
chief compliance officer.
    Mr. Houtkin. This is the first I heard of it, and if these 
documents exist, and if I have them, we would be more than 
happy to supply them.
    Senator Levin. Just one question for you, Mr. Fahman, or 
one series of questions. You were both president and CEO at 
Providential and, until recently, the chief compliance officer; 
is that correct?
    Mr. Fahman. Yes, sir.
    Senator Levin. I believe that, in your compliance manual, 
you say that suitability is the key to client recommendation; 
is that correct?
    Mr. Fahman. Yes, generally, because our firm is not only 
doing day trading. We first started the firm as a retail 
brokerage. And that is the majority of our business. Day 
trading is only just a small portion of our overall business. 
We also do fixed income. We also have package products like 
annuities, insurance, some investment banking, the bulk of 
business is still traditional retail. And we also have on-line 
investment and trading, like E-Trade, and so forth. So it is 
just a small portion of our overall business, as far as day 
trading is concerned.
    Senator Levin. Does the suitability requirement apply to 
day trading?
    Mr. Fahman. Actually, that is an area that we----
    Senator Levin. In your manual, do you intend that 
statement, suitability is the key to client recommendation, to 
apply to day traders? It is a very simple question.
    Mr. Fahman. That is a general statement being used for all 
accounts, including day trading. But day trading is a little 
bit different because we do not directly recommend a purchase 
or a sell for security for day traders.
    Senator Levin. But it does apply to all accounts, including 
day traders?
    Mr. Fahman. Right.
    Senator Levin. If you would put up that other form, if you 
look at Exhibit 83,\1\ this is a typical account opening form. 
Just the form itself, this is a typical form; is that correct?
---------------------------------------------------------------------------
    \1\ See Exhibit No. 83b. which appears in the Appendix on page .
---------------------------------------------------------------------------
    Mr. Fahman. Yes, that is correct.
    Senator Levin. On this form, all the approval signatures 
are in place; is that correct? Down at the bottom there, where 
you say approved? Do you see those signatures?
    Mr. Fahman. I believe those signatures were Mr. Moon's 
signatures.
    Senator Levin. So this was approved. And yet there is no 
indication, if you will look at the blanks there, you see 
there, about annual income and net worth? Do you see that? In 
the middle there, those two lines? Those are blank, right?
    Mr. Fahman. Yes, those are blank.
    Senator Levin. In one office, the Hahna Global office, 
where Mr. Cao and Mr. Moon worked, apparently 74 percent of the 
forms lacked required information. Are you aware of that?
    Mr. Fahman. These accounts came from Go Trading and when 
they were transferred over, I think what happened Mr. Moon, in 
order to expedite the process, he might have submitted the 
information without all the full documentation. But I am very 
sure those accounts came over from the Go Trading era, not 
started with our firm to begin with.
    Senator Levin. Now you lowered your minimum capital deposit 
as well; is that correct? From $50,000 to $10,000; is that 
correct?
    Mr. Fahman. Yes, the $50,000 was a suggested or recommended 
level in the beginning.
    Senator Levin. And you lowered that to $10,000?
    Mr. Fahman. We lowered it to $10,000 and then to $15,000.
    Senator Levin. And even though you testified that a $50,000 
trader would have enough buying power to get into more shares 
of stock, in order that he could trade more effectively, you 
lowered it to $10,000 in order to meet the competition; is that 
correct?
    Mr. Fahman. No, I do not think we were trying to beat the 
competition.
    Senator Levin. No, meet.
    Mr. Fahman. Oh sorry, to meet, yes. I think there was 
tremendous competitive pressure in the market at that time. And 
in hindsight, we might not have done that.
    Senator Levin. Because in order to keep up with your 
competitors, you lowered it from $50,000 to $10,000; is that 
correct? Even though you recommended $50,000 as the minimum 
needed to be successful; is that correct?
    Mr. Fahman. Yes, we did lower the suggested level to 
$10,000 and then back to $15,000, and then to $25,000 again.
    Senator Levin. Correct. But you did it to meet the 
competition, even though you believe that $50,000 was needed in 
order to have a successful experience at day trading; is that 
correct?
    Mr. Fahman. Actually, at that time, the day trading 
business was still very new and there was a tremendous lack of 
guidance from regulators.
    Senator Levin. I am not talking about guides. I am talking 
about what you believed. Did you not testify to our staff that 
a $50,000 level was what was needed in order to have a better 
day trading outcome?
    Mr. Fahman. Internally, we believe, we thought that would 
be a good level to start with. That is why we----
    Senator Levin. In order that there be a successful day 
trading experience; is that fair?
    Mr. Fahman. I would say so.
    Senator Levin. And so you lowered it despite that, in order 
to keep up with your competitors; is that correct?
    Mr. Fahman. Yes.
    Senator Levin. Thank you.
    Mr. Fahman. You are welcome.
    Senator Collins. Thank you, Senator Levin.
    I am going to excuse this panel now. I would like to thank 
all of the witnesses who have testified before us during the 
past 2 days.
    In the Subcommittee's first hearing on day trading last 
September, I expressed my concern about the risks that day 
trading poses, particularly to the small, unsophisticated 
investor. After hearing the testimony from a variety of 
witnesses over the past 2 days, I must say that my concerns 
have only increased.
    We have learned that the best evidence suggests that 77 
percent of all day traders will lose money; that they pay 
enormous commissions, in some cases over $200,000 annually, 
before they are earning a cent of profit that they can keep; 
and that people of limited means are opening day trading 
accounts with money that they can ill afford to lose.
    I am certain, based on the testimony that we have heard, 
that the industry and the regulators must do much more to clean 
up the abuses that we have uncovered. As I have indicated, I do 
not believe that day trading should be banned. I think that if 
people are fully apprised of the risks, and if they have 
adequate capital, they should be allowed to day trade. And who 
knows, maybe they will be one of the very few who are lucky 
enough to make it profitable.
    However, we cannot continue to allow a system to go forward 
that does not adequately disclose the tremendous risks of day 
trading, and that continues to accept people for whom day 
trading is clearly unsuitable. We will continue to work with 
the regulators to assist them in strengthening their 
enforcement efforts, and also their regulatory guidance.
    I would also call upon the industry to do its part. We have 
seen some firms increase their risk disclosure over the past 
few months, particularly as regulatory and Congressional 
scrutiny of the industry has increased. But it is clear that 
the industry still has a very long way to go.
    I want to take this time to also thank the Subcommittee 
staff for its very hard work on this investigation. They 
deposed over 100 people, handled thousands of pages of 
documents, and did a very thorough and professional 
investigation. Many of the staff members were involved and did 
a terrific job, but I particularly want to salute the efforts 
of Lee Blalack, our Subcommittee staff director, and of Deborah 
Field, who is our detailee from the SEC. We may never allow her 
to go back to the SEC.
    I also want to thank Senator Levin for his outstanding 
participation. He always brings a great deal to the 
Subcommittee's effort.
    Senator Levin. Thank you.
    Madame Chairman, very briefly, let me first thank you and 
your staff for the extraordinary effort that you have made 
here, and for the great value which you are producing for our 
constituents.
    I think the American people want the kind of freedom that 
we all believe in, but they also want to be treated fairly, 
they want disclosure of risks, and they also want regulators to 
regulate, to make sure that there are not abuses.
    We have heard evidence that there is misconduct obviously, 
as there is in any large kind of operation. We heard today that 
there are too many examples of misuse of customer funds, 
exaggerated and misleading advertising, improperly registered 
persons, violations of NASD short sale rules, improper lending 
and margin practices, and so forth in the day trading business.
    That does not mean that day trading, per se, should be 
banned. It should not be, but it has got to be regulated. It is 
something new and it has got to be regulated, taking into 
account the fact that it is so different from traditional stock 
trading.
    One of the things about which I am most concerned is the 
disclosure of the odds. Our Chairman talked about the 
disclosure of the risk, and I could not agree with her more. 
But we have a Washington State study now which confirms another 
study, which is that over two-thirds of people in day trading, 
regardless of how long they have been in day trading, and 
unrelated to that question, lose money. Mr. Houtkin today 
basically confirmed that two-thirds of people in day trading 
lose money.
    I believe that if people who are being solicited or being 
informed about day trading knew what those odds were against 
them, that you would have a lot fewer tragedies and financial 
losses of the kind that we have heard about.
    So disclosure is absolutely critical, both of the risk and 
included in the risk I would say, a very significant part of 
that, will be the odds. So we will look forward, Mr. Houtkin, 
to you and to you, Mr. Lee, sharing with this Subcommittee two 
things, if they exist in the first case. One, is any time you 
have disclosed in a disclosure document to your potential 
customers that two-thirds of them are going to lose money, or 
that most of them will lose money. I look forward to receiving 
such a written disclosure to customers, not a book, not a 
newspaper article, but a disclosure form to your customers.
    And for you, Mr. Lee, I look forward to data, which the 
Subcommittee I believe would welcome, about your profit and 
loss figures of your customers.\1\ Your organization 
represented to this Subcommittee that 65 percent of the people 
made significant profits. That runs exactly counter to what the 
Washington State study is, and dollar-wise is inconsistent with 
the SEC study, in terms of the amount of profit and loss.
---------------------------------------------------------------------------
    \1\ See Exhibit No. 156 which appears in the Appendix on page 1195.
---------------------------------------------------------------------------
    And so we will look forward to you sharing with us data 
that supports your statement here today that you believe that 
Mr. Cohen's representation to this Subcommittee is still 
accurate, relative to your firm. We look forward to that data, 
as well.
    Again, Madame Chairman, thank you for your leadership in 
this area.
    Senator Collins. Thank you very much, Senator Levin.
    The hearing record will remain open for 14 days. In 
addition, the Subcommittee will, within the next several weeks, 
be issuing a comprehensive report summarizing the results of 
its investigation and including its findings and 
recommendations.
    The Subcommittee is now adjourned.
    [Whereupon, at 12:28 p.m., the Subcommittee was adjourned.]
                            A P P E N D I X

                              ----------                              

                  PREPARED STATEMENT OF SENATOR AKAKA
    Thank you Madam Chairman. I want to commend you and the Ranking 
Member for holding these series of hearings on day trading and focusing 
on the questionable practices, which surround this emerging industry.
    In conversations with officials from the Hawaii Securities 
Commission, I learned that there are no active day-trading firms in my 
State. Interestingly, one firm opened a few years ago, but closed up 
and left town as soon as inquiries and complaints were made to the 
State Commission. Although there are people in my State who are day 
trading on an individual basis, problems associated with day-trading 
activities have not been of a serious nature. However, I am mindful 
that the lack of complaints to my State's Securities Commission only 
means that Hawaii has some breathing room. I would rather see Hawaii 
remain free of deceptive and abusive day-trading activities, and one 
way to do that is through these hearings.
    It is for that reason that I am so pleased that this Subcommittee, 
through the Chairman and Ranking Member's leadership, is examining the 
ever-emerging problems with day trading. I am concerned that people are 
involving themselves in a speculative and risky business where they 
generally have no background and may stand little to gain. The 
financial risk is sizeable, and it appears from the testimony heard 
yesterday that there are companies luring customers under the guise of 
amassing substantial sums of money without adequate capital.
    I am equally concerned with an issue raised by the Ranking Member 
who reported that seven firms accounted for 80 percent of all day 
traders and 80 percent of all day-trading volume. He rightly noted that 
the impact of day trading on the volatility of the market is unknown. 
SEC Chairman Levitt noted in his testimony from our first series of 
hearings that day traders do not look at the value of a company's 
stock, and indeed, are gambling more than investing. A day trader may 
make upwards of 100 trades per day, far exceeding the average number of 
trades that a normal investor would make over a year.
    Madam Chairman, I hope that these hearings will continue to shed 
light on an industry where there are few consumer protection standards. 
Just this week, the SEC charged two companies, one a focus of this 
hearing, with ``margin lending,'' or providing customers with more 
money for trading than permitted by Federal regulations. We heard from 
witnesses yesterday that the over-extension of funds can have 
disastrous consequences. I believe that an industry, where an estimated 
nine out of ten participants lose money, must be held accountable for 
its actions.
    Thank you, and I look forward to hearing from today's witnesses.

    [GRAPHIC] [TIFF OMITTED] T4133.001
    
    [GRAPHIC] [TIFF OMITTED] T4133.002
    
    [GRAPHIC] [TIFF OMITTED] T4133.003
    
    [GRAPHIC] [TIFF OMITTED] T4133.004
    
    [GRAPHIC] [TIFF OMITTED] T4133.005
    
    [GRAPHIC] [TIFF OMITTED] T4133.006
    
    [GRAPHIC] [TIFF OMITTED] T4133.007
    
    [GRAPHIC] [TIFF OMITTED] T4133.008
    
    [GRAPHIC] [TIFF OMITTED] T4133.009
    
    [GRAPHIC] [TIFF OMITTED] T4133.010
    
    [GRAPHIC] [TIFF OMITTED] T4133.011
    
    [GRAPHIC] [TIFF OMITTED] T4133.012
    
    [GRAPHIC] [TIFF OMITTED] T4133.013
    
    [GRAPHIC] [TIFF OMITTED] T4133.014
    
    [GRAPHIC] [TIFF OMITTED] T4133.015
    
    [GRAPHIC] [TIFF OMITTED] T4133.016
    
    [GRAPHIC] [TIFF OMITTED] T4133.017
    
    [GRAPHIC] [TIFF OMITTED] T4133.018
    
    [GRAPHIC] [TIFF OMITTED] T4133.019
    
    [GRAPHIC] [TIFF OMITTED] T4133.020
    
    [GRAPHIC] [TIFF OMITTED] T4133.021
    
    [GRAPHIC] [TIFF OMITTED] T4133.022
    
    [GRAPHIC] [TIFF OMITTED] T4133.023
    
    [GRAPHIC] [TIFF OMITTED] T4133.024
    
    [GRAPHIC] [TIFF OMITTED] T4133.025
    
    [GRAPHIC] [TIFF OMITTED] T4133.026
    
    [GRAPHIC] [TIFF OMITTED] T4133.027
    
    [GRAPHIC] [TIFF OMITTED] T4133.028
    
    [GRAPHIC] [TIFF OMITTED] T4133.029
    
    [GRAPHIC] [TIFF OMITTED] T4133.030
    
    [GRAPHIC] [TIFF OMITTED] T4133.031
    
    [GRAPHIC] [TIFF OMITTED] T4133.032
    
    [GRAPHIC] [TIFF OMITTED] T4133.033
    
    [GRAPHIC] [TIFF OMITTED] T4133.034
    
    [GRAPHIC] [TIFF OMITTED] T4133.035
    
    [GRAPHIC] [TIFF OMITTED] T4133.036
    
    [GRAPHIC] [TIFF OMITTED] T4133.037
    
    [GRAPHIC] [TIFF OMITTED] T4133.038
    
    [GRAPHIC] [TIFF OMITTED] T4133.039
    
    [GRAPHIC] [TIFF OMITTED] T4133.040
    
    [GRAPHIC] [TIFF OMITTED] T4133.041
    
    [GRAPHIC] [TIFF OMITTED] T4133.042
    
    [GRAPHIC] [TIFF OMITTED] T4133.043
    
    [GRAPHIC] [TIFF OMITTED] T4133.044
    
    [GRAPHIC] [TIFF OMITTED] T4133.045
    
    [GRAPHIC] [TIFF OMITTED] T4133.046
    
    [GRAPHIC] [TIFF OMITTED] T4133.047
    
    [GRAPHIC] [TIFF OMITTED] T4133.048
    
    [GRAPHIC] [TIFF OMITTED] T4133.049
    
    [GRAPHIC] [TIFF OMITTED] T4133.050
    
    [GRAPHIC] [TIFF OMITTED] T4133.051
    
    [GRAPHIC] [TIFF OMITTED] T4133.052
    
    [GRAPHIC] [TIFF OMITTED] T4133.053
    
    [GRAPHIC] [TIFF OMITTED] T4133.054
    
    [GRAPHIC] [TIFF OMITTED] T4133.055
    
    [GRAPHIC] [TIFF OMITTED] T4133.056
    
    [GRAPHIC] [TIFF OMITTED] T4133.057
    
    [GRAPHIC] [TIFF OMITTED] T4133.058
    
    [GRAPHIC] [TIFF OMITTED] T4133.059
    
    [GRAPHIC] [TIFF OMITTED] T4133.060
    
    [GRAPHIC] [TIFF OMITTED] T4133.061
    
    [GRAPHIC] [TIFF OMITTED] T4133.062
    
    [GRAPHIC] [TIFF OMITTED] T4133.063
    
    [GRAPHIC] [TIFF OMITTED] T4133.064
    
    [GRAPHIC] [TIFF OMITTED] T4133.065
    
    [GRAPHIC] [TIFF OMITTED] T4133.066
    
    [GRAPHIC] [TIFF OMITTED] T4133.067
    
    [GRAPHIC] [TIFF OMITTED] T4133.068
    
    [GRAPHIC] [TIFF OMITTED] T4133.069
    
    [GRAPHIC] [TIFF OMITTED] T4133.070
    
    [GRAPHIC] [TIFF OMITTED] T4133.071
    
    [GRAPHIC] [TIFF OMITTED] T4133.072
    
    [GRAPHIC] [TIFF OMITTED] T4133.073
    
    [GRAPHIC] [TIFF OMITTED] T4133.074
    
    [GRAPHIC] [TIFF OMITTED] T4133.075
    
    [GRAPHIC] [TIFF OMITTED] T4133.076
    
    [GRAPHIC] [TIFF OMITTED] T4133.077
    
    [GRAPHIC] [TIFF OMITTED] T4133.078
    
    [GRAPHIC] [TIFF OMITTED] T4133.079
    
    [GRAPHIC] [TIFF OMITTED] T4133.080
    
    [GRAPHIC] [TIFF OMITTED] T4133.081
    
    [GRAPHIC] [TIFF OMITTED] T4133.082
    
    [GRAPHIC] [TIFF OMITTED] T4133.083
    
    [GRAPHIC] [TIFF OMITTED] T4133.084
    
    [GRAPHIC] [TIFF OMITTED] T4133.085
    
    [GRAPHIC] [TIFF OMITTED] T4133.086
    
    [GRAPHIC] [TIFF OMITTED] T4133.087
    
    [GRAPHIC] [TIFF OMITTED] T4133.088
    
    [GRAPHIC] [TIFF OMITTED] T4133.089
    
    [GRAPHIC] [TIFF OMITTED] T4133.090
    
    [GRAPHIC] [TIFF OMITTED] T4133.091
    
    [GRAPHIC] [TIFF OMITTED] T4133.092
    
    [GRAPHIC] [TIFF OMITTED] T4133.093
    
    [GRAPHIC] [TIFF OMITTED] T4133.094
    
    [GRAPHIC] [TIFF OMITTED] T4133.095
    
    [GRAPHIC] [TIFF OMITTED] T4133.096
    
    [GRAPHIC] [TIFF OMITTED] T4133.097
    
    [GRAPHIC] [TIFF OMITTED] T4133.098
    
    [GRAPHIC] [TIFF OMITTED] T4133.099
    
    [GRAPHIC] [TIFF OMITTED] T4133.100
    
    [GRAPHIC] [TIFF OMITTED] T4133.101
    
    [GRAPHIC] [TIFF OMITTED] T4133.102
    
    [GRAPHIC] [TIFF OMITTED] T4133.103
    
    [GRAPHIC] [TIFF OMITTED] T4133.104
    
    [GRAPHIC] [TIFF OMITTED] T4133.105
    
    [GRAPHIC] [TIFF OMITTED] T4133.106
    
    [GRAPHIC] [TIFF OMITTED] T4133.107
    
    [GRAPHIC] [TIFF OMITTED] T4133.108
    
    [GRAPHIC] [TIFF OMITTED] T4133.109
    
    [GRAPHIC] [TIFF OMITTED] T4133.110
    
    [GRAPHIC] [TIFF OMITTED] T4133.111
    
    [GRAPHIC] [TIFF OMITTED] T4133.112
    
    [GRAPHIC] [TIFF OMITTED] T4133.113
    
    [GRAPHIC] [TIFF OMITTED] T4133.114
    
    [GRAPHIC] [TIFF OMITTED] T4133.115
    
    [GRAPHIC] [TIFF OMITTED] T4133.116
    
    [GRAPHIC] [TIFF OMITTED] T4133.117
    
    [GRAPHIC] [TIFF OMITTED] T4133.118
    
    [GRAPHIC] [TIFF OMITTED] T4133.119
    
    [GRAPHIC] [TIFF OMITTED] T4133.120
    
    [GRAPHIC] [TIFF OMITTED] T4133.121
    
    [GRAPHIC] [TIFF OMITTED] T4133.122
    
    [GRAPHIC] [TIFF OMITTED] T4133.123
    
    [GRAPHIC] [TIFF OMITTED] T4133.124
    
    [GRAPHIC] [TIFF OMITTED] T4133.125
    
    [GRAPHIC] [TIFF OMITTED] T4133.126
    
    [GRAPHIC] [TIFF OMITTED] T4133.127
    
    [GRAPHIC] [TIFF OMITTED] T4133.128
    
    [GRAPHIC] [TIFF OMITTED] T4133.129
    
    [GRAPHIC] [TIFF OMITTED] T4133.130
    
    [GRAPHIC] [TIFF OMITTED] T4133.131
    
    [GRAPHIC] [TIFF OMITTED] T4133.132
    
    [GRAPHIC] [TIFF OMITTED] T4133.133
    
    [GRAPHIC] [TIFF OMITTED] T4133.134
    
    [GRAPHIC] [TIFF OMITTED] T4133.135
    
    [GRAPHIC] [TIFF OMITTED] T4133.136
    
    [GRAPHIC] [TIFF OMITTED] T4133.137
    
    [GRAPHIC] [TIFF OMITTED] T4133.138
    
    [GRAPHIC] [TIFF OMITTED] T4133.139
    
    [GRAPHIC] [TIFF OMITTED] T4133.140
    
    [GRAPHIC] [TIFF OMITTED] T4133.141
    
    [GRAPHIC] [TIFF OMITTED] T4133.142
    
    [GRAPHIC] [TIFF OMITTED] T4133.143
    
    [GRAPHIC] [TIFF OMITTED] T4133.144
    
    [GRAPHIC] [TIFF OMITTED] T4133.145
    
    [GRAPHIC] [TIFF OMITTED] T4133.146
    
    [GRAPHIC] [TIFF OMITTED] T4133.147
    
    [GRAPHIC] [TIFF OMITTED] T4133.148
    
    [GRAPHIC] [TIFF OMITTED] T4133.149
    
    [GRAPHIC] [TIFF OMITTED] T4133.150
    
    [GRAPHIC] [TIFF OMITTED] T4133.151
    
    [GRAPHIC] [TIFF OMITTED] T4133.152
    
    [GRAPHIC] [TIFF OMITTED] T4133.153
    
    [GRAPHIC] [TIFF OMITTED] T4133.154
    
    [GRAPHIC] [TIFF OMITTED] T4133.155
    
    [GRAPHIC] [TIFF OMITTED] T4133.156
    
    [GRAPHIC] [TIFF OMITTED] T4133.157
    
    [GRAPHIC] [TIFF OMITTED] T4133.158
    
    [GRAPHIC] [TIFF OMITTED] T4133.159
    
    [GRAPHIC] [TIFF OMITTED] T4133.160
    
    [GRAPHIC] [TIFF OMITTED] T4133.161
    
    [GRAPHIC] [TIFF OMITTED] T4133.162
    
    [GRAPHIC] [TIFF OMITTED] T4133.163
    
    [GRAPHIC] [TIFF OMITTED] T4133.164
    
    [GRAPHIC] [TIFF OMITTED] T4133.165
    
    [GRAPHIC] [TIFF OMITTED] T4133.166
    
    [GRAPHIC] [TIFF OMITTED] T4133.167
    
    [GRAPHIC] [TIFF OMITTED] T4133.168
    
    [GRAPHIC] [TIFF OMITTED] T4133.169
    
    [GRAPHIC] [TIFF OMITTED] T4133.170
    
    [GRAPHIC] [TIFF OMITTED] T4133.171
    
    [GRAPHIC] [TIFF OMITTED] T4133.172
    
    [GRAPHIC] [TIFF OMITTED] T4133.173
    
    [GRAPHIC] [TIFF OMITTED] T4133.174
    
    [GRAPHIC] [TIFF OMITTED] T4133.175
    
    [GRAPHIC] [TIFF OMITTED] T4133.176
    
    [GRAPHIC] [TIFF OMITTED] T4133.177
    
    [GRAPHIC] [TIFF OMITTED] T4133.178
    
    [GRAPHIC] [TIFF OMITTED] T4133.179
    
    [GRAPHIC] [TIFF OMITTED] T4133.180
    
    [GRAPHIC] [TIFF OMITTED] T4133.181
    
    [GRAPHIC] [TIFF OMITTED] T4133.182
    
    [GRAPHIC] [TIFF OMITTED] T4133.183
    
    [GRAPHIC] [TIFF OMITTED] T4133.184
    
    [GRAPHIC] [TIFF OMITTED] T4133.185
    
    [GRAPHIC] [TIFF OMITTED] T4133.186
    
    [GRAPHIC] [TIFF OMITTED] T4133.187
    
    [GRAPHIC] [TIFF OMITTED] T4133.188
    
    [GRAPHIC] [TIFF OMITTED] T4133.189
    
    [GRAPHIC] [TIFF OMITTED] T4133.190
    
    [GRAPHIC] [TIFF OMITTED] T4133.191
    
    [GRAPHIC] [TIFF OMITTED] T4133.192
    
    [GRAPHIC] [TIFF OMITTED] T4133.193
    
    [GRAPHIC] [TIFF OMITTED] T4133.194
    
    [GRAPHIC] [TIFF OMITTED] T4133.195
    
    [GRAPHIC] [TIFF OMITTED] T4133.196
    
    [GRAPHIC] [TIFF OMITTED] T4133.197
    
    [GRAPHIC] [TIFF OMITTED] T4133.198
    
    [GRAPHIC] [TIFF OMITTED] T4133.199
    
    [GRAPHIC] [TIFF OMITTED] T4133.200
    
    [GRAPHIC] [TIFF OMITTED] T4133.201
    
    [GRAPHIC] [TIFF OMITTED] T4133.202
    
    [GRAPHIC] [TIFF OMITTED] T4133.203
    
    [GRAPHIC] [TIFF OMITTED] T4133.204
    
    [GRAPHIC] [TIFF OMITTED] T4133.205
    
    [GRAPHIC] [TIFF OMITTED] T4133.206
    
    [GRAPHIC] [TIFF OMITTED] T4133.207
    
    [GRAPHIC] [TIFF OMITTED] T4133.208
    
    [GRAPHIC] [TIFF OMITTED] T4133.209
    
    [GRAPHIC] [TIFF OMITTED] T4133.210
    
    [GRAPHIC] [TIFF OMITTED] T4133.211
    
    [GRAPHIC] [TIFF OMITTED] T4133.212
    
    [GRAPHIC] [TIFF OMITTED] T4133.213
    
    [GRAPHIC] [TIFF OMITTED] T4133.214
    
    [GRAPHIC] [TIFF OMITTED] T4133.215
    
    [GRAPHIC] [TIFF OMITTED] T4133.216
    
    [GRAPHIC] [TIFF OMITTED] T4133.217
    
    [GRAPHIC] [TIFF OMITTED] T4133.218
    
    [GRAPHIC] [TIFF OMITTED] T4133.219
    
    [GRAPHIC] [TIFF OMITTED] T4133.220
    
    [GRAPHIC] [TIFF OMITTED] T4133.221
    
    [GRAPHIC] [TIFF OMITTED] T4133.222
    
    [GRAPHIC] [TIFF OMITTED] T4133.223
    
    [GRAPHIC] [TIFF OMITTED] T4133.224
    
    [GRAPHIC] [TIFF OMITTED] T4133.225
    
    [GRAPHIC] [TIFF OMITTED] T4133.226
    
    [GRAPHIC] [TIFF OMITTED] T4133.227
    
    [GRAPHIC] [TIFF OMITTED] T4133.228
    
    [GRAPHIC] [TIFF OMITTED] T4133.229
    
    [GRAPHIC] [TIFF OMITTED] T4133.230
    
    [GRAPHIC] [TIFF OMITTED] T4133.231
    
    [GRAPHIC] [TIFF OMITTED] T4133.232
    
    [GRAPHIC] [TIFF OMITTED] T4133.233
    
    [GRAPHIC] [TIFF OMITTED] T4133.234
    
    [GRAPHIC] [TIFF OMITTED] T4133.235
    
    [GRAPHIC] [TIFF OMITTED] T4133.236
    
    [GRAPHIC] [TIFF OMITTED] T4133.237
    
    [GRAPHIC] [TIFF OMITTED] T4133.238
    
    [GRAPHIC] [TIFF OMITTED] T4133.239
    
    [GRAPHIC] [TIFF OMITTED] T4133.240
    
    [GRAPHIC] [TIFF OMITTED] T4133.241
    
    [GRAPHIC] [TIFF OMITTED] T4133.242
    
    [GRAPHIC] [TIFF OMITTED] T4133.243
    
    [GRAPHIC] [TIFF OMITTED] T4133.244
    
    [GRAPHIC] [TIFF OMITTED] T4133.245
    
    [GRAPHIC] [TIFF OMITTED] T4133.246
    
    [GRAPHIC] [TIFF OMITTED] T4133.247
    
    [GRAPHIC] [TIFF OMITTED] T4133.248
    
    [GRAPHIC] [TIFF OMITTED] T4133.249
    
    [GRAPHIC] [TIFF OMITTED] T4133.250
    
    [GRAPHIC] [TIFF OMITTED] T4133.251
    
    [GRAPHIC] [TIFF OMITTED] T4133.252
    
    [GRAPHIC] [TIFF OMITTED] T4133.253
    
    [GRAPHIC] [TIFF OMITTED] T4133.254
    
    [GRAPHIC] [TIFF OMITTED] T4133.255
    
    [GRAPHIC] [TIFF OMITTED] T4133.256
    
    [GRAPHIC] [TIFF OMITTED] T4133.257
    
    [GRAPHIC] [TIFF OMITTED] T4133.258
    
    [GRAPHIC] [TIFF OMITTED] T4133.259
    
    [GRAPHIC] [TIFF OMITTED] T4133.260
    
    [GRAPHIC] [TIFF OMITTED] T4133.261
    
    [GRAPHIC] [TIFF OMITTED] T4133.262
    
    [GRAPHIC] [TIFF OMITTED] T4133.263
    
    [GRAPHIC] [TIFF OMITTED] T4133.264
    
    [GRAPHIC] [TIFF OMITTED] T4133.265
    
    [GRAPHIC] [TIFF OMITTED] T4133.266
    
    [GRAPHIC] [TIFF OMITTED] T4133.267
    
    [GRAPHIC] [TIFF OMITTED] T4133.268
    
    [GRAPHIC] [TIFF OMITTED] T4133.269
    
    [GRAPHIC] [TIFF OMITTED] T4133.270
    
    [GRAPHIC] [TIFF OMITTED] T4133.271
    
    [GRAPHIC] [TIFF OMITTED] T4133.272
    
    [GRAPHIC] [TIFF OMITTED] T4133.273
    
    [GRAPHIC] [TIFF OMITTED] T4133.274
    
    [GRAPHIC] [TIFF OMITTED] T4133.275
    
    [GRAPHIC] [TIFF OMITTED] T4133.276
    
    [GRAPHIC] [TIFF OMITTED] T4133.277
    
    [GRAPHIC] [TIFF OMITTED] T4133.278
    
    [GRAPHIC] [TIFF OMITTED] T4133.279
    
    [GRAPHIC] [TIFF OMITTED] T4133.280
    
    [GRAPHIC] [TIFF OMITTED] T4133.281
    
    [GRAPHIC] [TIFF OMITTED] T4133.282
    
    [GRAPHIC] [TIFF OMITTED] T4133.283
    
    [GRAPHIC] [TIFF OMITTED] T4133.284
    
    [GRAPHIC] [TIFF OMITTED] T4133.285
    
    [GRAPHIC] [TIFF OMITTED] T4133.286
    
    [GRAPHIC] [TIFF OMITTED] T4133.287
    
    [GRAPHIC] [TIFF OMITTED] T4133.288
    
    [GRAPHIC] [TIFF OMITTED] T4133.289
    
    [GRAPHIC] [TIFF OMITTED] T4133.290
    
    [GRAPHIC] [TIFF OMITTED] T4133.291
    
    [GRAPHIC] [TIFF OMITTED] T4133.292
    
    [GRAPHIC] [TIFF OMITTED] T4133.293
    
    [GRAPHIC] [TIFF OMITTED] T4133.294
    
    [GRAPHIC] [TIFF OMITTED] T4133.295
    
    [GRAPHIC] [TIFF OMITTED] T4133.296
    
    [GRAPHIC] [TIFF OMITTED] T4133.297
    
    [GRAPHIC] [TIFF OMITTED] T4133.298
    
    [GRAPHIC] [TIFF OMITTED] T4133.299
    
    [GRAPHIC] [TIFF OMITTED] T4133.300
    
    [GRAPHIC] [TIFF OMITTED] T4133.301
    
    [GRAPHIC] [TIFF OMITTED] T4133.302
    
    [GRAPHIC] [TIFF OMITTED] T4133.303
    
    [GRAPHIC] [TIFF OMITTED] T4133.304
    
    [GRAPHIC] [TIFF OMITTED] T4133.305
    
    [GRAPHIC] [TIFF OMITTED] T4133.306
    
    [GRAPHIC] [TIFF OMITTED] T4133.307
    
    [GRAPHIC] [TIFF OMITTED] T4133.308
    
    [GRAPHIC] [TIFF OMITTED] T4133.309
    
    [GRAPHIC] [TIFF OMITTED] T4133.310
    
    [GRAPHIC] [TIFF OMITTED] T4133.311
    
    [GRAPHIC] [TIFF OMITTED] T4133.312
    
    [GRAPHIC] [TIFF OMITTED] T4133.313
    
    [GRAPHIC] [TIFF OMITTED] T4133.314
    
    [GRAPHIC] [TIFF OMITTED] T4133.315
    
    [GRAPHIC] [TIFF OMITTED] T4133.316
    
    [GRAPHIC] [TIFF OMITTED] T4133.317
    
    [GRAPHIC] [TIFF OMITTED] T4133.318
    
    [GRAPHIC] [TIFF OMITTED] T4133.319
    
    [GRAPHIC] [TIFF OMITTED] T4133.320
    
    [GRAPHIC] [TIFF OMITTED] T4133.321
    
    [GRAPHIC] [TIFF OMITTED] T4133.322
    
    [GRAPHIC] [TIFF OMITTED] T4133.323
    
    [GRAPHIC] [TIFF OMITTED] T4133.324
    
    [GRAPHIC] [TIFF OMITTED] T4133.325
    
    [GRAPHIC] [TIFF OMITTED] T4133.326
    
    [GRAPHIC] [TIFF OMITTED] T4133.327
    
    [GRAPHIC] [TIFF OMITTED] T4133.328
    
    [GRAPHIC] [TIFF OMITTED] T4133.329
    
    [GRAPHIC] [TIFF OMITTED] T4133.330
    
    [GRAPHIC] [TIFF OMITTED] T4133.331
    
    [GRAPHIC] [TIFF OMITTED] T4133.332
    
    [GRAPHIC] [TIFF OMITTED] T4133.333
    
    [GRAPHIC] [TIFF OMITTED] T4133.334
    
    [GRAPHIC] [TIFF OMITTED] T4133.335
    
    [GRAPHIC] [TIFF OMITTED] T4133.336
    
    [GRAPHIC] [TIFF OMITTED] T4133.337
    
    [GRAPHIC] [TIFF OMITTED] T4133.338
    
    [GRAPHIC] [TIFF OMITTED] T4133.339
    
    [GRAPHIC] [TIFF OMITTED] T4133.340
    
    [GRAPHIC] [TIFF OMITTED] T4133.341
    
    [GRAPHIC] [TIFF OMITTED] T4133.342
    
    [GRAPHIC] [TIFF OMITTED] T4133.343
    
    [GRAPHIC] [TIFF OMITTED] T4133.344
    
    [GRAPHIC] [TIFF OMITTED] T4133.345
    
    [GRAPHIC] [TIFF OMITTED] T4133.346
    
    [GRAPHIC] [TIFF OMITTED] T4133.347
    
    [GRAPHIC] [TIFF OMITTED] T4133.348
    
    [GRAPHIC] [TIFF OMITTED] T4133.349
    
    [GRAPHIC] [TIFF OMITTED] T4133.350
    
    [GRAPHIC] [TIFF OMITTED] T4133.351
    
    [GRAPHIC] [TIFF OMITTED] T4133.352
    
    [GRAPHIC] [TIFF OMITTED] T4133.353
    
    [GRAPHIC] [TIFF OMITTED] T4133.354
    
    [GRAPHIC] [TIFF OMITTED] T4133.355
    
    [GRAPHIC] [TIFF OMITTED] T4133.356
    
    [GRAPHIC] [TIFF OMITTED] T4133.357
    
    [GRAPHIC] [TIFF OMITTED] T4133.358
    
    [GRAPHIC] [TIFF OMITTED] T4133.359
    
    [GRAPHIC] [TIFF OMITTED] T4133.360
    
    [GRAPHIC] [TIFF OMITTED] T4133.361
    
    [GRAPHIC] [TIFF OMITTED] T4133.362
    
    [GRAPHIC] [TIFF OMITTED] T4133.363
    
    [GRAPHIC] [TIFF OMITTED] T4133.364
    
    [GRAPHIC] [TIFF OMITTED] T4133.365
    
    [GRAPHIC] [TIFF OMITTED] T4133.366
    
    [GRAPHIC] [TIFF OMITTED] T4133.367
    
    [GRAPHIC] [TIFF OMITTED] T4133.368
    
    [GRAPHIC] [TIFF OMITTED] T4133.369
    
    [GRAPHIC] [TIFF OMITTED] T4133.370
    
    [GRAPHIC] [TIFF OMITTED] T4133.371
    
    [GRAPHIC] [TIFF OMITTED] T4133.372
    
    [GRAPHIC] [TIFF OMITTED] T4133.373
    
    [GRAPHIC] [TIFF OMITTED] T4133.374
    
    [GRAPHIC] [TIFF OMITTED] T4133.375
    
    [GRAPHIC] [TIFF OMITTED] T4133.376
    
    [GRAPHIC] [TIFF OMITTED] T4133.377
    
    [GRAPHIC] [TIFF OMITTED] T4133.378
    
    [GRAPHIC] [TIFF OMITTED] T4133.379
    
    [GRAPHIC] [TIFF OMITTED] T4133.380
    
    [GRAPHIC] [TIFF OMITTED] T4133.381
    
    [GRAPHIC] [TIFF OMITTED] T4133.382
    
    [GRAPHIC] [TIFF OMITTED] T4133.383
    
    [GRAPHIC] [TIFF OMITTED] T4133.384
    
    [GRAPHIC] [TIFF OMITTED] T4133.385
    
    [GRAPHIC] [TIFF OMITTED] T4133.386
    
    [GRAPHIC] [TIFF OMITTED] T4133.387
    
    [GRAPHIC] [TIFF OMITTED] T4133.388
    
    [GRAPHIC] [TIFF OMITTED] T4133.389
    
    [GRAPHIC] [TIFF OMITTED] T4133.390
    
    [GRAPHIC] [TIFF OMITTED] T4133.391
    
    [GRAPHIC] [TIFF OMITTED] T4133.392
    
    [GRAPHIC] [TIFF OMITTED] T4133.393
    
    [GRAPHIC] [TIFF OMITTED] T4133.394
    
    [GRAPHIC] [TIFF OMITTED] T4133.395
    
    [GRAPHIC] [TIFF OMITTED] T4133.396
    
    [GRAPHIC] [TIFF OMITTED] T4133.397
    
    [GRAPHIC] [TIFF OMITTED] T4133.398
    
    [GRAPHIC] [TIFF OMITTED] T4133.399
    
    [GRAPHIC] [TIFF OMITTED] T4133.400
    
    [GRAPHIC] [TIFF OMITTED] T4133.401
    
    [GRAPHIC] [TIFF OMITTED] T4133.402
    
    [GRAPHIC] [TIFF OMITTED] T4133.403
    
    [GRAPHIC] [TIFF OMITTED] T4133.404
    
    [GRAPHIC] [TIFF OMITTED] T4133.405
    
    [GRAPHIC] [TIFF OMITTED] T4133.406
    
    [GRAPHIC] [TIFF OMITTED] T4133.407
    
    [GRAPHIC] [TIFF OMITTED] T4133.408
    
    [GRAPHIC] [TIFF OMITTED] T4133.409
    
    [GRAPHIC] [TIFF OMITTED] T4133.410
    
    [GRAPHIC] [TIFF OMITTED] T4133.411
    
    [GRAPHIC] [TIFF OMITTED] T4133.412
    
    [GRAPHIC] [TIFF OMITTED] T4133.413
    
    [GRAPHIC] [TIFF OMITTED] T4133.414
    
    [GRAPHIC] [TIFF OMITTED] T4133.415
    
    [GRAPHIC] [TIFF OMITTED] T4133.416
    
    [GRAPHIC] [TIFF OMITTED] T4133.417
    
    [GRAPHIC] [TIFF OMITTED] T4133.418
    
    [GRAPHIC] [TIFF OMITTED] T4133.419
    
    [GRAPHIC] [TIFF OMITTED] T4133.420
    
    [GRAPHIC] [TIFF OMITTED] T4133.421
    
    [GRAPHIC] [TIFF OMITTED] T4133.422
    
    [GRAPHIC] [TIFF OMITTED] T4133.423
    
    [GRAPHIC] [TIFF OMITTED] T4133.424
    
    [GRAPHIC] [TIFF OMITTED] T4133.425
    
    [GRAPHIC] [TIFF OMITTED] T4133.426
    
    [GRAPHIC] [TIFF OMITTED] T4133.427
    
    [GRAPHIC] [TIFF OMITTED] T4133.428
    
    [GRAPHIC] [TIFF OMITTED] T4133.429
    
    [GRAPHIC] [TIFF OMITTED] T4133.430
    
    [GRAPHIC] [TIFF OMITTED] T4133.431
    
    [GRAPHIC] [TIFF OMITTED] T4133.432
    
    [GRAPHIC] [TIFF OMITTED] T4133.433
    
    [GRAPHIC] [TIFF OMITTED] T4133.434
    
    [GRAPHIC] [TIFF OMITTED] T4133.435
    
    [GRAPHIC] [TIFF OMITTED] T4133.436
    
    [GRAPHIC] [TIFF OMITTED] T4133.437
    
    [GRAPHIC] [TIFF OMITTED] T4133.438
    
    [GRAPHIC] [TIFF OMITTED] T4133.439
    
    [GRAPHIC] [TIFF OMITTED] T4133.440
    
    [GRAPHIC] [TIFF OMITTED] T4133.441
    
    [GRAPHIC] [TIFF OMITTED] T4133.442
    
    [GRAPHIC] [TIFF OMITTED] T4133.443
    
    [GRAPHIC] [TIFF OMITTED] T4133.444
    
    [GRAPHIC] [TIFF OMITTED] T4133.445
    
    [GRAPHIC] [TIFF OMITTED] T4133.446
    
    [GRAPHIC] [TIFF OMITTED] T4133.447
    
    [GRAPHIC] [TIFF OMITTED] T4133.448
    
    [GRAPHIC] [TIFF OMITTED] T4133.449
    
    [GRAPHIC] [TIFF OMITTED] T4133.450
    
    [GRAPHIC] [TIFF OMITTED] T4133.451
    
    [GRAPHIC] [TIFF OMITTED] T4133.452
    
    [GRAPHIC] [TIFF OMITTED] T4133.453
    
    [GRAPHIC] [TIFF OMITTED] T4133.454
    
    [GRAPHIC] [TIFF OMITTED] T4133.455
    
    [GRAPHIC] [TIFF OMITTED] T4133.456
    
    [GRAPHIC] [TIFF OMITTED] T4133.457
    
    [GRAPHIC] [TIFF OMITTED] T4133.458
    
    [GRAPHIC] [TIFF OMITTED] T4133.459
    
    [GRAPHIC] [TIFF OMITTED] T4133.460
    
    [GRAPHIC] [TIFF OMITTED] T4133.461
    
    [GRAPHIC] [TIFF OMITTED] T4133.462
    
    [GRAPHIC] [TIFF OMITTED] T4133.463
    
    [GRAPHIC] [TIFF OMITTED] T4133.464
    
    [GRAPHIC] [TIFF OMITTED] T4133.465
    
    [GRAPHIC] [TIFF OMITTED] T4133.466
    
    [GRAPHIC] [TIFF OMITTED] T4133.467
    
    [GRAPHIC] [TIFF OMITTED] T4133.468
    
    [GRAPHIC] [TIFF OMITTED] T4133.469
    
    [GRAPHIC] [TIFF OMITTED] T4133.470
    
    [GRAPHIC] [TIFF OMITTED] T4133.471
    
    [GRAPHIC] [TIFF OMITTED] T4133.472
    
    [GRAPHIC] [TIFF OMITTED] T4133.473
    
    [GRAPHIC] [TIFF OMITTED] T4133.474
    
    [GRAPHIC] [TIFF OMITTED] T4133.475
    
    [GRAPHIC] [TIFF OMITTED] T4133.476
    
    [GRAPHIC] [TIFF OMITTED] T4133.477
    
    [GRAPHIC] [TIFF OMITTED] T4133.478
    
    [GRAPHIC] [TIFF OMITTED] T4133.479
    
    [GRAPHIC] [TIFF OMITTED] T4133.480
    
    [GRAPHIC] [TIFF OMITTED] T4133.481
    
    [GRAPHIC] [TIFF OMITTED] T4133.482
    
    [GRAPHIC] [TIFF OMITTED] T4133.483
    
    [GRAPHIC] [TIFF OMITTED] T4133.484
    
    [GRAPHIC] [TIFF OMITTED] T4133.485
    
    [GRAPHIC] [TIFF OMITTED] T4133.486
    
    [GRAPHIC] [TIFF OMITTED] T4133.487
    
    [GRAPHIC] [TIFF OMITTED] T4133.488
    
    [GRAPHIC] [TIFF OMITTED] T4133.489
    
    [GRAPHIC] [TIFF OMITTED] T4133.490
    
    [GRAPHIC] [TIFF OMITTED] T4133.491
    
    [GRAPHIC] [TIFF OMITTED] T4133.492
    
    [GRAPHIC] [TIFF OMITTED] T4133.493
    
    [GRAPHIC] [TIFF OMITTED] T4133.494
    
    [GRAPHIC] [TIFF OMITTED] T4133.495
    
    [GRAPHIC] [TIFF OMITTED] T4133.496
    
    [GRAPHIC] [TIFF OMITTED] T4133.497
    
    [GRAPHIC] [TIFF OMITTED] T4133.498
    
    [GRAPHIC] [TIFF OMITTED] T4133.499
    
    [GRAPHIC] [TIFF OMITTED] T4133.500
    
    [GRAPHIC] [TIFF OMITTED] T4133.501
    
    [GRAPHIC] [TIFF OMITTED] T4133.502
    
    [GRAPHIC] [TIFF OMITTED] T4133.503
    
    [GRAPHIC] [TIFF OMITTED] T4133.504
    
    [GRAPHIC] [TIFF OMITTED] T4133.505
    
    [GRAPHIC] [TIFF OMITTED] T4133.506
    
    [GRAPHIC] [TIFF OMITTED] T4133.507
    
    [GRAPHIC] [TIFF OMITTED] T4133.508
    
    [GRAPHIC] [TIFF OMITTED] T4133.509
    
    [GRAPHIC] [TIFF OMITTED] T4133.510
    
    [GRAPHIC] [TIFF OMITTED] T4133.511
    
    [GRAPHIC] [TIFF OMITTED] T4133.512
    
    [GRAPHIC] [TIFF OMITTED] T4133.513
    
    [GRAPHIC] [TIFF OMITTED] T4133.514
    
    [GRAPHIC] [TIFF OMITTED] T4133.515
    
    [GRAPHIC] [TIFF OMITTED] T4133.516
    
    [GRAPHIC] [TIFF OMITTED] T4133.517
    
    [GRAPHIC] [TIFF OMITTED] T4133.518
    
    [GRAPHIC] [TIFF OMITTED] T4133.519
    
    [GRAPHIC] [TIFF OMITTED] T4133.520
    
    [GRAPHIC] [TIFF OMITTED] T4133.521
    
    [GRAPHIC] [TIFF OMITTED] T4133.522
    
    [GRAPHIC] [TIFF OMITTED] T4133.523
    
    [GRAPHIC] [TIFF OMITTED] T4133.524
    
    [GRAPHIC] [TIFF OMITTED] T4133.525
    
    [GRAPHIC] [TIFF OMITTED] T4133.526
    
    [GRAPHIC] [TIFF OMITTED] T4133.527
    
    [GRAPHIC] [TIFF OMITTED] T4133.528
    
    [GRAPHIC] [TIFF OMITTED] T4133.529
    
    [GRAPHIC] [TIFF OMITTED] T4133.530
    
    [GRAPHIC] [TIFF OMITTED] T4133.531
    
    [GRAPHIC] [TIFF OMITTED] T4133.532
    
    [GRAPHIC] [TIFF OMITTED] T4133.533
    
    [GRAPHIC] [TIFF OMITTED] T4133.534
    
    [GRAPHIC] [TIFF OMITTED] T4133.535
    
    [GRAPHIC] [TIFF OMITTED] T4133.536
    
    [GRAPHIC] [TIFF OMITTED] T4133.537
    
    [GRAPHIC] [TIFF OMITTED] T4133.538
    
    [GRAPHIC] [TIFF OMITTED] T4133.539
    
    [GRAPHIC] [TIFF OMITTED] T4133.540
    
    [GRAPHIC] [TIFF OMITTED] T4133.541
    
    [GRAPHIC] [TIFF OMITTED] T4133.542
    
    [GRAPHIC] [TIFF OMITTED] T4133.543
    
    [GRAPHIC] [TIFF OMITTED] T4133.544
    
    [GRAPHIC] [TIFF OMITTED] T4133.545
    
    [GRAPHIC] [TIFF OMITTED] T4133.546
    
    [GRAPHIC] [TIFF OMITTED] T4133.547
    
    [GRAPHIC] [TIFF OMITTED] T4133.548
    
    [GRAPHIC] [TIFF OMITTED] T4133.549
    
    [GRAPHIC] [TIFF OMITTED] T4133.550
    
    [GRAPHIC] [TIFF OMITTED] T4133.551
    
    [GRAPHIC] [TIFF OMITTED] T4133.552
    
    [GRAPHIC] [TIFF OMITTED] T4133.553
    
    [GRAPHIC] [TIFF OMITTED] T4133.554
    
    [GRAPHIC] [TIFF OMITTED] T4133.555
    
    [GRAPHIC] [TIFF OMITTED] T4133.556
    
    [GRAPHIC] [TIFF OMITTED] T4133.557
    
    [GRAPHIC] [TIFF OMITTED] T4133.558
    
    [GRAPHIC] [TIFF OMITTED] T4133.559
    
    [GRAPHIC] [TIFF OMITTED] T4133.560
    
    [GRAPHIC] [TIFF OMITTED] T4133.561
    
    [GRAPHIC] [TIFF OMITTED] T4133.562
    
    [GRAPHIC] [TIFF OMITTED] T4133.563
    
    [GRAPHIC] [TIFF OMITTED] T4133.564
    
    [GRAPHIC] [TIFF OMITTED] T4133.565
    
    [GRAPHIC] [TIFF OMITTED] T4133.566
    
    [GRAPHIC] [TIFF OMITTED] T4133.567
    
    [GRAPHIC] [TIFF OMITTED] T4133.568
    
    [GRAPHIC] [TIFF OMITTED] T4133.569
    
    [GRAPHIC] [TIFF OMITTED] T4133.570
    
    [GRAPHIC] [TIFF OMITTED] T4133.571
    
    [GRAPHIC] [TIFF OMITTED] T4133.572
    
    [GRAPHIC] [TIFF OMITTED] T4133.573
    
    [GRAPHIC] [TIFF OMITTED] T4133.574
    
    [GRAPHIC] [TIFF OMITTED] T4133.575
    
    [GRAPHIC] [TIFF OMITTED] T4133.576
    
    [GRAPHIC] [TIFF OMITTED] T4133.577
    
    [GRAPHIC] [TIFF OMITTED] T4133.578
    
    [GRAPHIC] [TIFF OMITTED] T4133.579
    
    [GRAPHIC] [TIFF OMITTED] T4133.580
    
    [GRAPHIC] [TIFF OMITTED] T4133.581
    
    [GRAPHIC] [TIFF OMITTED] T4133.582
    
    [GRAPHIC] [TIFF OMITTED] T4133.583
    
    [GRAPHIC] [TIFF OMITTED] T4133.584
    
    [GRAPHIC] [TIFF OMITTED] T4133.585
    
    [GRAPHIC] [TIFF OMITTED] T4133.586
    
    [GRAPHIC] [TIFF OMITTED] T4133.587
    
    [GRAPHIC] [TIFF OMITTED] T4133.588
    
    [GRAPHIC] [TIFF OMITTED] T4133.589
    
    [GRAPHIC] [TIFF OMITTED] T4133.590
    
    [GRAPHIC] [TIFF OMITTED] T4133.591
    
    [GRAPHIC] [TIFF OMITTED] T4133.592
    
    [GRAPHIC] [TIFF OMITTED] T4133.593
    
    [GRAPHIC] [TIFF OMITTED] T4133.594
    
    [GRAPHIC] [TIFF OMITTED] T4133.595
    
    [GRAPHIC] [TIFF OMITTED] T4133.596
    
    [GRAPHIC] [TIFF OMITTED] T4133.597
    
    [GRAPHIC] [TIFF OMITTED] T4133.598
    
    [GRAPHIC] [TIFF OMITTED] T4133.599
    
    [GRAPHIC] [TIFF OMITTED] T4133.600
    
    [GRAPHIC] [TIFF OMITTED] T4133.601
    
    [GRAPHIC] [TIFF OMITTED] T4133.602
    
    [GRAPHIC] [TIFF OMITTED] T4133.603
    
    [GRAPHIC] [TIFF OMITTED] T4133.604
    
    [GRAPHIC] [TIFF OMITTED] T4133.605
    
    [GRAPHIC] [TIFF OMITTED] T4133.606
    
    [GRAPHIC] [TIFF OMITTED] T4133.607
    
    [GRAPHIC] [TIFF OMITTED] T4133.608
    
    [GRAPHIC] [TIFF OMITTED] T4133.609
    
    [GRAPHIC] [TIFF OMITTED] T4133.610
    
    [GRAPHIC] [TIFF OMITTED] T4133.611
    
    [GRAPHIC] [TIFF OMITTED] T4133.612
    
    [GRAPHIC] [TIFF OMITTED] T4133.613
    
    [GRAPHIC] [TIFF OMITTED] T4133.614
    
    [GRAPHIC] [TIFF OMITTED] T4133.615
    
    [GRAPHIC] [TIFF OMITTED] T4133.616
    
    [GRAPHIC] [TIFF OMITTED] T4133.617
    
    [GRAPHIC] [TIFF OMITTED] T4133.618
    
    [GRAPHIC] [TIFF OMITTED] T4133.619
    
    [GRAPHIC] [TIFF OMITTED] T4133.620
    
    [GRAPHIC] [TIFF OMITTED] T4133.621
    
    [GRAPHIC] [TIFF OMITTED] T4133.622
    
    [GRAPHIC] [TIFF OMITTED] T4133.623
    
    [GRAPHIC] [TIFF OMITTED] T4133.624
    
    [GRAPHIC] [TIFF OMITTED] T4133.625
    
    [GRAPHIC] [TIFF OMITTED] T4133.626
    
    [GRAPHIC] [TIFF OMITTED] T4133.627
    
    [GRAPHIC] [TIFF OMITTED] T4133.628
    
    [GRAPHIC] [TIFF OMITTED] T4133.629
    
    [GRAPHIC] [TIFF OMITTED] T4133.630
    
    [GRAPHIC] [TIFF OMITTED] T4133.631
    
    [GRAPHIC] [TIFF OMITTED] T4133.632
    
    [GRAPHIC] [TIFF OMITTED] T4133.633
    
    [GRAPHIC] [TIFF OMITTED] T4133.634
    
    [GRAPHIC] [TIFF OMITTED] T4133.635
    
    [GRAPHIC] [TIFF OMITTED] T4133.636
    
    [GRAPHIC] [TIFF OMITTED] T4133.637
    
    [GRAPHIC] [TIFF OMITTED] T4133.638
    
    [GRAPHIC] [TIFF OMITTED] T4133.639
    
    [GRAPHIC] [TIFF OMITTED] T4133.640
    
    [GRAPHIC] [TIFF OMITTED] T4133.641
    
    [GRAPHIC] [TIFF OMITTED] T4133.642
    
    [GRAPHIC] [TIFF OMITTED] T4133.643
    
    [GRAPHIC] [TIFF OMITTED] T4133.644
    
    [GRAPHIC] [TIFF OMITTED] T4133.645
    
    [GRAPHIC] [TIFF OMITTED] T4133.646
    
    [GRAPHIC] [TIFF OMITTED] T4133.647
    
    [GRAPHIC] [TIFF OMITTED] T4133.648
    
    [GRAPHIC] [TIFF OMITTED] T4133.649
    
    [GRAPHIC] [TIFF OMITTED] T4133.650
    
    [GRAPHIC] [TIFF OMITTED] T4133.651
    
    [GRAPHIC] [TIFF OMITTED] T4133.652
    
    [GRAPHIC] [TIFF OMITTED] T4133.653
    
    [GRAPHIC] [TIFF OMITTED] T4133.654
    
    [GRAPHIC] [TIFF OMITTED] T4133.655
    
    [GRAPHIC] [TIFF OMITTED] T4133.656
    
    [GRAPHIC] [TIFF OMITTED] T4133.657
    
    [GRAPHIC] [TIFF OMITTED] T4133.658
    
    [GRAPHIC] [TIFF OMITTED] T4133.659
    
    [GRAPHIC] [TIFF OMITTED] T4133.660
    
    [GRAPHIC] [TIFF OMITTED] T4133.661
    
    [GRAPHIC] [TIFF OMITTED] T4133.662
    
    [GRAPHIC] [TIFF OMITTED] T4133.663
    
    [GRAPHIC] [TIFF OMITTED] T4133.664
    
    [GRAPHIC] [TIFF OMITTED] T4133.665
    
    [GRAPHIC] [TIFF OMITTED] T4133.666
    
    [GRAPHIC] [TIFF OMITTED] T4133.667
    
    [GRAPHIC] [TIFF OMITTED] T4133.668
    
    [GRAPHIC] [TIFF OMITTED] T4133.669
    
    [GRAPHIC] [TIFF OMITTED] T4133.670
    
    [GRAPHIC] [TIFF OMITTED] T4133.671
    
    [GRAPHIC] [TIFF OMITTED] T4133.672
    
    [GRAPHIC] [TIFF OMITTED] T4133.673
    
    [GRAPHIC] [TIFF OMITTED] T4133.674
    
    [GRAPHIC] [TIFF OMITTED] T4133.675
    
    [GRAPHIC] [TIFF OMITTED] T4133.676
    
    [GRAPHIC] [TIFF OMITTED] T4133.677
    
    [GRAPHIC] [TIFF OMITTED] T4133.678
    
    [GRAPHIC] [TIFF OMITTED] T4133.679
    
    [GRAPHIC] [TIFF OMITTED] T4133.680
    
    [GRAPHIC] [TIFF OMITTED] T4133.681
    
    [GRAPHIC] [TIFF OMITTED] T4133.682
    
    [GRAPHIC] [TIFF OMITTED] T4133.683
    
    [GRAPHIC] [TIFF OMITTED] T4133.684
    
    [GRAPHIC] [TIFF OMITTED] T4133.685
    
    [GRAPHIC] [TIFF OMITTED] T4133.686
    
    [GRAPHIC] [TIFF OMITTED] T4133.687
    
    [GRAPHIC] [TIFF OMITTED] T4133.688
    
    [GRAPHIC] [TIFF OMITTED] T4133.689
    
    [GRAPHIC] [TIFF OMITTED] T4133.690
    
    [GRAPHIC] [TIFF OMITTED] T4133.691
    
    [GRAPHIC] [TIFF OMITTED] T4133.692
    
    [GRAPHIC] [TIFF OMITTED] T4133.693
    
    [GRAPHIC] [TIFF OMITTED] T4133.694
    
    [GRAPHIC] [TIFF OMITTED] T4133.695
    
    [GRAPHIC] [TIFF OMITTED] T4133.696
    
    [GRAPHIC] [TIFF OMITTED] T4133.697
    
    [GRAPHIC] [TIFF OMITTED] T4133.698
    
    [GRAPHIC] [TIFF OMITTED] T4133.699
    
    [GRAPHIC] [TIFF OMITTED] T4133.700
    
    [GRAPHIC] [TIFF OMITTED] T4133.701
    
    [GRAPHIC] [TIFF OMITTED] T4133.702
    
    [GRAPHIC] [TIFF OMITTED] T4133.703
    
    [GRAPHIC] [TIFF OMITTED] T4133.704
    
    [GRAPHIC] [TIFF OMITTED] T4133.705
    
    [GRAPHIC] [TIFF OMITTED] T4133.706
    
    [GRAPHIC] [TIFF OMITTED] T4133.707
    
    [GRAPHIC] [TIFF OMITTED] T4133.708
    
    [GRAPHIC] [TIFF OMITTED] T4133.709
    
    [GRAPHIC] [TIFF OMITTED] T4133.710
    
    [GRAPHIC] [TIFF OMITTED] T4133.711
    
    [GRAPHIC] [TIFF OMITTED] T4133.712
    
    [GRAPHIC] [TIFF OMITTED] T4133.713
    
    [GRAPHIC] [TIFF OMITTED] T4133.714
    
    [GRAPHIC] [TIFF OMITTED] T4133.715
    
    [GRAPHIC] [TIFF OMITTED] T4133.716
    
    [GRAPHIC] [TIFF OMITTED] T4133.717
    
    [GRAPHIC] [TIFF OMITTED] T4133.718
    
    [GRAPHIC] [TIFF OMITTED] T4133.719
    
    [GRAPHIC] [TIFF OMITTED] T4133.720
    
    [GRAPHIC] [TIFF OMITTED] T4133.721
    
    [GRAPHIC] [TIFF OMITTED] T4133.722
    
    [GRAPHIC] [TIFF OMITTED] T4133.723
    
    [GRAPHIC] [TIFF OMITTED] T4133.724
    
    [GRAPHIC] [TIFF OMITTED] T4133.725
    
    [GRAPHIC] [TIFF OMITTED] T4133.726
    
    [GRAPHIC] [TIFF OMITTED] T4133.727
    
    [GRAPHIC] [TIFF OMITTED] T4133.728
    
    [GRAPHIC] [TIFF OMITTED] T4133.729
    
    [GRAPHIC] [TIFF OMITTED] T4133.730
    
    [GRAPHIC] [TIFF OMITTED] T4133.731
    
    [GRAPHIC] [TIFF OMITTED] T4133.732
    
    [GRAPHIC] [TIFF OMITTED] T4133.733
    
    [GRAPHIC] [TIFF OMITTED] T4133.734
    
    [GRAPHIC] [TIFF OMITTED] T4133.735
    
    [GRAPHIC] [TIFF OMITTED] T4133.736
    
    [GRAPHIC] [TIFF OMITTED] T4133.737
    
    [GRAPHIC] [TIFF OMITTED] T4133.738
    
    [GRAPHIC] [TIFF OMITTED] T4133.739
    
    [GRAPHIC] [TIFF OMITTED] T4133.740
    
    [GRAPHIC] [TIFF OMITTED] T4133.741
    
    [GRAPHIC] [TIFF OMITTED] T4133.742
    
    [GRAPHIC] [TIFF OMITTED] T4133.743
    
    [GRAPHIC] [TIFF OMITTED] T4133.744
    
    [GRAPHIC] [TIFF OMITTED] T4133.745
    
    [GRAPHIC] [TIFF OMITTED] T4133.746
    
    [GRAPHIC] [TIFF OMITTED] T4133.747
    
    [GRAPHIC] [TIFF OMITTED] T4133.748
    
    [GRAPHIC] [TIFF OMITTED] T4133.749
    
    [GRAPHIC] [TIFF OMITTED] T4133.750
    
    [GRAPHIC] [TIFF OMITTED] T4133.751
    
    [GRAPHIC] [TIFF OMITTED] T4133.752
    
    [GRAPHIC] [TIFF OMITTED] T4133.753
    
    [GRAPHIC] [TIFF OMITTED] T4133.754
    
    [GRAPHIC] [TIFF OMITTED] T4133.755
    
    [GRAPHIC] [TIFF OMITTED] T4133.756
    
    [GRAPHIC] [TIFF OMITTED] T4133.757
    
    [GRAPHIC] [TIFF OMITTED] T4133.758
    
    [GRAPHIC] [TIFF OMITTED] T4133.759
    
    [GRAPHIC] [TIFF OMITTED] T4133.760
    
    [GRAPHIC] [TIFF OMITTED] T4133.761
    
    [GRAPHIC] [TIFF OMITTED] T4133.762
    
    [GRAPHIC] [TIFF OMITTED] T4133.763
    
    [GRAPHIC] [TIFF OMITTED] T4133.764
    
    [GRAPHIC] [TIFF OMITTED] T4133.765
    
    [GRAPHIC] [TIFF OMITTED] T4133.766
    
    [GRAPHIC] [TIFF OMITTED] T4133.767
    
    [GRAPHIC] [TIFF OMITTED] T4133.768
    
    [GRAPHIC] [TIFF OMITTED] T4133.769
    
    [GRAPHIC] [TIFF OMITTED] T4133.770
    
    [GRAPHIC] [TIFF OMITTED] T4133.771
    
    [GRAPHIC] [TIFF OMITTED] T4133.772
    
    [GRAPHIC] [TIFF OMITTED] T4133.773
    
    [GRAPHIC] [TIFF OMITTED] T4133.774
    
    [GRAPHIC] [TIFF OMITTED] T4133.775
    
    [GRAPHIC] [TIFF OMITTED] T4133.776
    
    [GRAPHIC] [TIFF OMITTED] T4133.777
    
    [GRAPHIC] [TIFF OMITTED] T4133.778
    
    [GRAPHIC] [TIFF OMITTED] T4133.779
    
    [GRAPHIC] [TIFF OMITTED] T4133.780
    
    [GRAPHIC] [TIFF OMITTED] T4133.781
    
    [GRAPHIC] [TIFF OMITTED] T4133.782
    
    [GRAPHIC] [TIFF OMITTED] T4133.783
    
    [GRAPHIC] [TIFF OMITTED] T4133.784
    
    [GRAPHIC] [TIFF OMITTED] T4133.785
    
    [GRAPHIC] [TIFF OMITTED] T4133.786
    
    [GRAPHIC] [TIFF OMITTED] T4133.787
    
    [GRAPHIC] [TIFF OMITTED] T4133.788
    
    [GRAPHIC] [TIFF OMITTED] T4133.789
    
    [GRAPHIC] [TIFF OMITTED] T4133.790
    
    [GRAPHIC] [TIFF OMITTED] T4133.791
    
    [GRAPHIC] [TIFF OMITTED] T4133.792
    
    [GRAPHIC] [TIFF OMITTED] T4133.793
    
    [GRAPHIC] [TIFF OMITTED] T4133.794
    
    [GRAPHIC] [TIFF OMITTED] T4133.795
    
    [GRAPHIC] [TIFF OMITTED] T4133.796
    
    [GRAPHIC] [TIFF OMITTED] T4133.797
    
    [GRAPHIC] [TIFF OMITTED] T4133.798
    
    [GRAPHIC] [TIFF OMITTED] T4133.799
    
    [GRAPHIC] [TIFF OMITTED] T4133.800
    
    [GRAPHIC] [TIFF OMITTED] T4133.801
    
    [GRAPHIC] [TIFF OMITTED] T4133.802
    
    [GRAPHIC] [TIFF OMITTED] T4133.803
    
    [GRAPHIC] [TIFF OMITTED] T4133.804
    
    [GRAPHIC] [TIFF OMITTED] T4133.805
    
    [GRAPHIC] [TIFF OMITTED] T4133.806
    
    [GRAPHIC] [TIFF OMITTED] T4133.807
    
    [GRAPHIC] [TIFF OMITTED] T4133.808
    
    [GRAPHIC] [TIFF OMITTED] T4133.809
    
    [GRAPHIC] [TIFF OMITTED] T4133.810
    
    [GRAPHIC] [TIFF OMITTED] T4133.811
    
    [GRAPHIC] [TIFF OMITTED] T4133.812
    
    [GRAPHIC] [TIFF OMITTED] T4133.813
    
    [GRAPHIC] [TIFF OMITTED] T4133.814
    
    [GRAPHIC] [TIFF OMITTED] T4133.815
    
    [GRAPHIC] [TIFF OMITTED] T4133.816
    
    [GRAPHIC] [TIFF OMITTED] T4133.817
    
    [GRAPHIC] [TIFF OMITTED] T4133.818
    
    [GRAPHIC] [TIFF OMITTED] T4133.819
    
    [GRAPHIC] [TIFF OMITTED] T4133.820
    
    [GRAPHIC] [TIFF OMITTED] T4133.821
    
    [GRAPHIC] [TIFF OMITTED] T4133.822
    
    [GRAPHIC] [TIFF OMITTED] T4133.823
    
    [GRAPHIC] [TIFF OMITTED] T4133.824
    
    [GRAPHIC] [TIFF OMITTED] T4133.825
    
    [GRAPHIC] [TIFF OMITTED] T4133.826
    
    [GRAPHIC] [TIFF OMITTED] T4133.827
    
    [GRAPHIC] [TIFF OMITTED] T4133.828
    
    [GRAPHIC] [TIFF OMITTED] T4133.829
    
    [GRAPHIC] [TIFF OMITTED] T4133.830
    
    [GRAPHIC] [TIFF OMITTED] T4133.831
    
    [GRAPHIC] [TIFF OMITTED] T4133.832
    
    [GRAPHIC] [TIFF OMITTED] T4133.833
    
    [GRAPHIC] [TIFF OMITTED] T4133.834
    
    [GRAPHIC] [TIFF OMITTED] T4133.835
    
    [GRAPHIC] [TIFF OMITTED] T4133.836
    
    [GRAPHIC] [TIFF OMITTED] T4133.837
    
    [GRAPHIC] [TIFF OMITTED] T4133.838
    
    [GRAPHIC] [TIFF OMITTED] T4133.839
    
    [GRAPHIC] [TIFF OMITTED] T4133.840
    
    [GRAPHIC] [TIFF OMITTED] T4133.841
    
    [GRAPHIC] [TIFF OMITTED] T4133.842
    
    [GRAPHIC] [TIFF OMITTED] T4133.843
    
    [GRAPHIC] [TIFF OMITTED] T4133.844
    
    [GRAPHIC] [TIFF OMITTED] T4133.845
    
    [GRAPHIC] [TIFF OMITTED] T4133.846
    
    [GRAPHIC] [TIFF OMITTED] T4133.847
    
    [GRAPHIC] [TIFF OMITTED] T4133.848
    
    [GRAPHIC] [TIFF OMITTED] T4133.849
    
    [GRAPHIC] [TIFF OMITTED] T4133.850
    
    [GRAPHIC] [TIFF OMITTED] T4133.851
    
    [GRAPHIC] [TIFF OMITTED] T4133.852
    
    [GRAPHIC] [TIFF OMITTED] T4133.853
    
    [GRAPHIC] [TIFF OMITTED] T4133.854
    
    [GRAPHIC] [TIFF OMITTED] T4133.855
    
    [GRAPHIC] [TIFF OMITTED] T4133.856
    
    [GRAPHIC] [TIFF OMITTED] T4133.857
    
    [GRAPHIC] [TIFF OMITTED] T4133.858
    
    [GRAPHIC] [TIFF OMITTED] T4133.859
    
    [GRAPHIC] [TIFF OMITTED] T4133.860
    
    [GRAPHIC] [TIFF OMITTED] T4133.861
    
    [GRAPHIC] [TIFF OMITTED] T4133.862
    
    [GRAPHIC] [TIFF OMITTED] T4133.863
    
    [GRAPHIC] [TIFF OMITTED] T4133.864
    
    [GRAPHIC] [TIFF OMITTED] T4133.865
    
    [GRAPHIC] [TIFF OMITTED] T4133.866
    
    [GRAPHIC] [TIFF OMITTED] T4133.867
    
    [GRAPHIC] [TIFF OMITTED] T4133.868
    
    [GRAPHIC] [TIFF OMITTED] T4133.869
    
    [GRAPHIC] [TIFF OMITTED] T4133.870
    
    [GRAPHIC] [TIFF OMITTED] T4133.871
    
    [GRAPHIC] [TIFF OMITTED] T4133.872
    
    [GRAPHIC] [TIFF OMITTED] T4133.873
    
    [GRAPHIC] [TIFF OMITTED] T4133.874
    
    [GRAPHIC] [TIFF OMITTED] T4133.875
    
    [GRAPHIC] [TIFF OMITTED] T4133.876
    
    [GRAPHIC] [TIFF OMITTED] T4133.877
    
    [GRAPHIC] [TIFF OMITTED] T4133.878
    
    [GRAPHIC] [TIFF OMITTED] T4133.879
    
    [GRAPHIC] [TIFF OMITTED] T4133.880
    
    [GRAPHIC] [TIFF OMITTED] T4133.881
    
    [GRAPHIC] [TIFF OMITTED] T4133.882
    
    [GRAPHIC] [TIFF OMITTED] T4133.883
    
    [GRAPHIC] [TIFF OMITTED] T4133.884
    
    [GRAPHIC] [TIFF OMITTED] T4133.885
    
    [GRAPHIC] [TIFF OMITTED] T4133.886
    
    [GRAPHIC] [TIFF OMITTED] T4133.887
    
    [GRAPHIC] [TIFF OMITTED] T4133.888
    
    [GRAPHIC] [TIFF OMITTED] T4133.889
    
    [GRAPHIC] [TIFF OMITTED] T4133.890
    
    [GRAPHIC] [TIFF OMITTED] T4133.891
    
    [GRAPHIC] [TIFF OMITTED] T4133.892
    
    [GRAPHIC] [TIFF OMITTED] T4133.893
    
    [GRAPHIC] [TIFF OMITTED] T4133.894
    
    [GRAPHIC] [TIFF OMITTED] T4133.895
    
    [GRAPHIC] [TIFF OMITTED] T4133.896
    
    [GRAPHIC] [TIFF OMITTED] T4133.897
    
    [GRAPHIC] [TIFF OMITTED] T4133.898
    
    [GRAPHIC] [TIFF OMITTED] T4133.899
    
    [GRAPHIC] [TIFF OMITTED] T4133.900
    
    [GRAPHIC] [TIFF OMITTED] T4133.901
    
    [GRAPHIC] [TIFF OMITTED] T4133.902
    
    [GRAPHIC] [TIFF OMITTED] T4133.903
    
    [GRAPHIC] [TIFF OMITTED] T4133.904
    
    [GRAPHIC] [TIFF OMITTED] T4133.905
    
    [GRAPHIC] [TIFF OMITTED] T4133.906
    
    [GRAPHIC] [TIFF OMITTED] T4133.907
    
    [GRAPHIC] [TIFF OMITTED] T4133.908
    
    [GRAPHIC] [TIFF OMITTED] T4133.909
    
    [GRAPHIC] [TIFF OMITTED] T4133.910
    
    [GRAPHIC] [TIFF OMITTED] T4133.911
    
    [GRAPHIC] [TIFF OMITTED] T4133.912
    
    [GRAPHIC] [TIFF OMITTED] T4133.913
    
    [GRAPHIC] [TIFF OMITTED] T4133.914
    
    [GRAPHIC] [TIFF OMITTED] T4133.915
    
    [GRAPHIC] [TIFF OMITTED] T4133.916
    
    [GRAPHIC] [TIFF OMITTED] T4133.917
    
    [GRAPHIC] [TIFF OMITTED] T4133.918
    
    [GRAPHIC] [TIFF OMITTED] T4133.919
    
    [GRAPHIC] [TIFF OMITTED] T4133.920
    
    [GRAPHIC] [TIFF OMITTED] T4133.921
    
    [GRAPHIC] [TIFF OMITTED] T4133.922
    
    [GRAPHIC] [TIFF OMITTED] T4133.923
    
    [GRAPHIC] [TIFF OMITTED] T4133.924
    
    [GRAPHIC] [TIFF OMITTED] T4133.925
    
    [GRAPHIC] [TIFF OMITTED] T4133.926
    
    [GRAPHIC] [TIFF OMITTED] T4133.927
    
    [GRAPHIC] [TIFF OMITTED] T4133.928
    
    [GRAPHIC] [TIFF OMITTED] T4133.929
    
    [GRAPHIC] [TIFF OMITTED] T4133.930
    
    [GRAPHIC] [TIFF OMITTED] T4133.931
    
    [GRAPHIC] [TIFF OMITTED] T4133.932
    
    [GRAPHIC] [TIFF OMITTED] T4133.933
    
    [GRAPHIC] [TIFF OMITTED] T4133.934
    
    [GRAPHIC] [TIFF OMITTED] T4133.935
    
    [GRAPHIC] [TIFF OMITTED] T4133.936
    
    [GRAPHIC] [TIFF OMITTED] T4133.937
    
    [GRAPHIC] [TIFF OMITTED] T4133.938
    
    [GRAPHIC] [TIFF OMITTED] T4133.939
    
    [GRAPHIC] [TIFF OMITTED] T4133.940
    
    [GRAPHIC] [TIFF OMITTED] T4133.941
    
    [GRAPHIC] [TIFF OMITTED] T4133.942
    
    [GRAPHIC] [TIFF OMITTED] T4133.943
    
    [GRAPHIC] [TIFF OMITTED] T4133.944
    
    [GRAPHIC] [TIFF OMITTED] T4133.945
    
    [GRAPHIC] [TIFF OMITTED] T4133.946
    
    [GRAPHIC] [TIFF OMITTED] T4133.947
    
    [GRAPHIC] [TIFF OMITTED] T4133.948
    
    [GRAPHIC] [TIFF OMITTED] T4133.949
    
    [GRAPHIC] [TIFF OMITTED] T4133.950
    
    [GRAPHIC] [TIFF OMITTED] T4133.951
    
    [GRAPHIC] [TIFF OMITTED] T4133.952
    
    [GRAPHIC] [TIFF OMITTED] T4133.953
    
    [GRAPHIC] [TIFF OMITTED] T4133.954
    
    [GRAPHIC] [TIFF OMITTED] T4133.955
    
    [GRAPHIC] [TIFF OMITTED] T4133.956
    
    [GRAPHIC] [TIFF OMITTED] T4133.957
    
    [GRAPHIC] [TIFF OMITTED] T4133.958
    
    [GRAPHIC] [TIFF OMITTED] T4133.959
    
    [GRAPHIC] [TIFF OMITTED] T4133.960
    
    [GRAPHIC] [TIFF OMITTED] T4133.961
    
    [GRAPHIC] [TIFF OMITTED] T4133.962
    
    [GRAPHIC] [TIFF OMITTED] T4133.963
    
    [GRAPHIC] [TIFF OMITTED] T4133.964
    
    [GRAPHIC] [TIFF OMITTED] T4133.965
    
    [GRAPHIC] [TIFF OMITTED] T4133.966
    
    [GRAPHIC] [TIFF OMITTED] T4133.967
    
    [GRAPHIC] [TIFF OMITTED] T4133.968
    
    [GRAPHIC] [TIFF OMITTED] T4133.969
    
    [GRAPHIC] [TIFF OMITTED] T4133.970
    
    [GRAPHIC] [TIFF OMITTED] T4133.971
    
    [GRAPHIC] [TIFF OMITTED] T4133.972
    
    [GRAPHIC] [TIFF OMITTED] T4133.973
    
    [GRAPHIC] [TIFF OMITTED] T4133.974
    
    [GRAPHIC] [TIFF OMITTED] T4133.975
    
    [GRAPHIC] [TIFF OMITTED] T4133.976
    
    [GRAPHIC] [TIFF OMITTED] T4133.977
    
    [GRAPHIC] [TIFF OMITTED] T4133.978
    
    [GRAPHIC] [TIFF OMITTED] T4133.979
    
    [GRAPHIC] [TIFF OMITTED] T4133.980
    
    [GRAPHIC] [TIFF OMITTED] T4133.981
    
    [GRAPHIC] [TIFF OMITTED] T4133.982
    
    [GRAPHIC] [TIFF OMITTED] T4133.983
    
    [GRAPHIC] [TIFF OMITTED] T4133.984
    
    [GRAPHIC] [TIFF OMITTED] T4133.985
    
    [GRAPHIC] [TIFF OMITTED] T4133.986
    
    [GRAPHIC] [TIFF OMITTED] T4133.987
    
    [GRAPHIC] [TIFF OMITTED] T4133.988
    
    [GRAPHIC] [TIFF OMITTED] T4133.989
    
    [GRAPHIC] [TIFF OMITTED] T4133.990
    
    [GRAPHIC] [TIFF OMITTED] T4133.991
    
    [GRAPHIC] [TIFF OMITTED] T4133.992
    
    [GRAPHIC] [TIFF OMITTED] T4133.993
    
    [GRAPHIC] [TIFF OMITTED] T4133.994
    
    [GRAPHIC] [TIFF OMITTED] T4133.995
    
    [GRAPHIC] [TIFF OMITTED] T4133.996
    
    [GRAPHIC] [TIFF OMITTED] T4133.997
    
    [GRAPHIC] [TIFF OMITTED] T4133.998
    
    [GRAPHIC] [TIFF OMITTED] T4133.999
    
    [GRAPHIC] [TIFF OMITTED] T4133A.000
    
    [GRAPHIC] [TIFF OMITTED] T4133A.001
    
    [GRAPHIC] [TIFF OMITTED] T4133A.002
    
    [GRAPHIC] [TIFF OMITTED] T4133A.003
    
    [GRAPHIC] [TIFF OMITTED] T4133A.004
    
    [GRAPHIC] [TIFF OMITTED] T4133A.005
    
    [GRAPHIC] [TIFF OMITTED] T4133A.006
    
    [GRAPHIC] [TIFF OMITTED] T4133A.007
    
    [GRAPHIC] [TIFF OMITTED] T4133A.008
    
    [GRAPHIC] [TIFF OMITTED] T4133A.009
    
    [GRAPHIC] [TIFF OMITTED] T4133A.010
    
    [GRAPHIC] [TIFF OMITTED] T4133A.011
    
    [GRAPHIC] [TIFF OMITTED] T4133A.012
    
    [GRAPHIC] [TIFF OMITTED] T4133A.013
    
    [GRAPHIC] [TIFF OMITTED] T4133A.014
    
    [GRAPHIC] [TIFF OMITTED] T4133A.015
    
    [GRAPHIC] [TIFF OMITTED] T4133A.016
    
    [GRAPHIC] [TIFF OMITTED] T4133A.017
    
    [GRAPHIC] [TIFF OMITTED] T4133A.018
    
    [GRAPHIC] [TIFF OMITTED] T4133A.019
    
    [GRAPHIC] [TIFF OMITTED] T4133A.020
    
    [GRAPHIC] [TIFF OMITTED] T4133A.021
    
    [GRAPHIC] [TIFF OMITTED] T4133A.022
    
    [GRAPHIC] [TIFF OMITTED] T4133A.023
    
    [GRAPHIC] [TIFF OMITTED] T4133A.024
    
    [GRAPHIC] [TIFF OMITTED] T4133A.025
    
    [GRAPHIC] [TIFF OMITTED] T4133A.026
    
    [GRAPHIC] [TIFF OMITTED] T4133A.027
    
    [GRAPHIC] [TIFF OMITTED] T4133A.028
    
    [GRAPHIC] [TIFF OMITTED] T4133A.029
    
    [GRAPHIC] [TIFF OMITTED] T4133A.030
    
    [GRAPHIC] [TIFF OMITTED] T4133A.031
    
    [GRAPHIC] [TIFF OMITTED] T4133A.032
    
    [GRAPHIC] [TIFF OMITTED] T4133A.033
    
    [GRAPHIC] [TIFF OMITTED] T4133A.034
    
    [GRAPHIC] [TIFF OMITTED] T4133A.035
    
    [GRAPHIC] [TIFF OMITTED] T4133A.036
    
    [GRAPHIC] [TIFF OMITTED] T4133A.037
    
    [GRAPHIC] [TIFF OMITTED] T4133A.038
    
    [GRAPHIC] [TIFF OMITTED] T4133A.039
    
    [GRAPHIC] [TIFF OMITTED] T4133A.040
    
    [GRAPHIC] [TIFF OMITTED] T4133A.041
    
    [GRAPHIC] [TIFF OMITTED] T4133A.042
    
    [GRAPHIC] [TIFF OMITTED] T4133A.043
    
    [GRAPHIC] [TIFF OMITTED] T4133A.044
    
    [GRAPHIC] [TIFF OMITTED] T4133A.045
    
    [GRAPHIC] [TIFF OMITTED] T4133A.046
    
    [GRAPHIC] [TIFF OMITTED] T4133A.047
    
    [GRAPHIC] [TIFF OMITTED] T4133A.048
    
    [GRAPHIC] [TIFF OMITTED] T4133A.049
    
    [GRAPHIC] [TIFF OMITTED] T4133A.050
    
    [GRAPHIC] [TIFF OMITTED] T4133A.051
    
    [GRAPHIC] [TIFF OMITTED] T4133A.052
    
    [GRAPHIC] [TIFF OMITTED] T4133A.053
    
    [GRAPHIC] [TIFF OMITTED] T4133A.054
    
    [GRAPHIC] [TIFF OMITTED] T4133A.055
    
    [GRAPHIC] [TIFF OMITTED] T4133A.056
    
    [GRAPHIC] [TIFF OMITTED] T4133A.057
    
    [GRAPHIC] [TIFF OMITTED] T4133A.058
    
    [GRAPHIC] [TIFF OMITTED] T4133A.059
    
    [GRAPHIC] [TIFF OMITTED] T4133A.060
    
    [GRAPHIC] [TIFF OMITTED] T4133A.061
    
    [GRAPHIC] [TIFF OMITTED] T4133A.062
    
    [GRAPHIC] [TIFF OMITTED] T4133A.063
    
    [GRAPHIC] [TIFF OMITTED] T4133A.064
    
    [GRAPHIC] [TIFF OMITTED] T4133A.065
    
    [GRAPHIC] [TIFF OMITTED] T4133A.066
    
    [GRAPHIC] [TIFF OMITTED] T4133A.067
    
    [GRAPHIC] [TIFF OMITTED] T4133A.068
    
    [GRAPHIC] [TIFF OMITTED] T4133A.069
    
    [GRAPHIC] [TIFF OMITTED] T4133A.070
    
    [GRAPHIC] [TIFF OMITTED] T4133A.071
    
    [GRAPHIC] [TIFF OMITTED] T4133A.072
    
    [GRAPHIC] [TIFF OMITTED] T4133A.073
    
    [GRAPHIC] [TIFF OMITTED] T4133A.074
    
    [GRAPHIC] [TIFF OMITTED] T4133A.075
    
                                   - 
                                
```