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Scottrade settles over charges leveled by the SEC

Tuesday, June 24, 2008 | 5:34 p.m. CDT; updated 11:55 a.m. CDT, Sunday, July 20, 2008

ST. LOUIS — The discount brokerage firm Scottrade Inc. on Tuesday agreed to pay $950,000 to settle charges leveled by the Securities and Exchange Commission over the handling of trade executions.

The settlement came the same day the SEC announced the allegations against the St. Louis-based company. The SEC charged Scottrade with fraudulent misrepresentations made to customers concerning Nasdaq pre-open orders from 2001 through 2004. Those orders are placed after the day’s market close to be executed at the next market opening.

The agency said Scottrade falsely disclosed to customers that it would route orders based on factors including liquidity at market opening.

The SEC said that by accepting customer orders, a broker implies that it will constantly review the quality of execution. Scottrade failed to do so, the SEC said.

“Scottrade failed to conduct a regular and rigorous review when it did not consider the impact of technological advances on Nasdaq pre-open orders,” said Linda Chatman Thomsen, director of the SEC’s Division of Enforcement.

Scottrade did not admit wrongdoing and said in a written statement that the SEC order found no instances where customers took losses.

“Since 2004, changes in Nasdaq market structure and new procedures by Scottrade have rectified the issues addressed in the Order,” the statement read. “Our customers’ satisfaction remains our top priority.”

In 2005, Scottrade was fined $250,000 by securities regulators who said the discount brokerage improperly extended credit to customers in more than 27,500 transactions in 2001.

In that case, the National Association of Securities Dealers, the brokerage industry’s self-policing organization, said that Scottrade allowed customers with cash accounts to buy and sell stocks in a series of trades without requiring full cash payment for each purchase, in violation of federal banking rules.


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