This investigation, which arose from a preliminary inquiry initiated by the Subcommittee Minority during the 105th Congress, is examining the dimensions of the problem, how banks and other financial service providers are responding to the risks and challenges posed by money laundering, and the efforts of federal regulators and law enforcement to detect, halt and prevent such activities. This investigation builds upon Subcommittee hearings held in the 1980s that contributed significantly to defining the problem and focusing national and international resources on it. There is growing evidence of fraud in the sale of small company stocks, ranging from putting out false financial statements to bribing brokers to peddle shares to customers by inflating their market value. Consumers often lose thousands and thousands of dollars when the stock prices fall after this fraudulent manipulation. Officials from the Securities and Exchange Commission, NASD-Regulation, Inc., state regulators, and victims testified about the growing problem of securities fraud.
Day trading is a highly risky activity for the average investor.
Securities regulators estimate that more than 75 percent of retail investors who engage in day trading lose a substantial percentage, if not all, of their capital. These firms estimated in the aggregate that their customers execute twenty-nine trades per day. Moreover, certain day trading firms appear to engage in fraudulent or questionable practices including deceptive advertising, forgery, and margin abuses that serve to increase risks to day traders. The hearing focused on three case study firms. At the hearings, the Subcommittee heard testimony from former day trading customers, past and current employees of day trading firms and securities regulators.