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Regulators Fine E-Trade Unit for Allegedly Violating Ad Rules

July 10, 2001|From Bloomberg News

E-Trade Securities, the No. 2 on-line brokerage, on Monday was fined $90,000 by regulators for deceptively advertising the costs of investing in a new mutual fund it was starting in 1999.

The National Assn. of Securities Dealers' regulatory arm also alleged the E-Trade Group Inc. unit used misleading language in direct-mail marketing to current and prospective investors. The NASD said E-Trade's advertising supervision was inadequate.

Menlo Park, Calif.-based E-Trade neither admitted nor denied the NASD's allegations. The company's shares (ticker symbol: ET) fell 15 cents to $5.85 on the New York Stock Exchange, nearing their three-year low of $5.56 set in April.

The NASD, the brokerage industry's self-regulatory group, alleged that E-Trade used an August 1999 ad that said the firm's new mutual fund, the E-Trade Technology Index Fund, was "ranked by Morningstar as the lowest-cost tech index fund."

In fact, Morningstar Inc., a Chicago-based mutual-fund research group, hadn't ranked the fund, the NASD contended.

The ad was published on several days in the Wall Street Journal, Investors Business Daily and other newspapers.

The NASD also alleged that an E-Trade direct-mail campaign to 6.6 million potential investors falsely said they would immediately receive a $75 bonus if they opened accounts with the firm. In fact, they might have had to wait several weeks to receive the bonus, the regulator said.

NASD Regulation, headed by Mary L. Schapiro, has filed charges against a number of brokerages for misleading fund advertising in recent years.

An E-Trade spokesman, John Metaxas, said there was "no finding that any rules were violated intentionally, nor that anyone was harmed or misled by the advertisements."

He said the firm stopped using the ads in question once it was notified of regulators' concerns. E-Trade also has developed new advertising supervisory procedures, he said.

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