Check this out... Datek Pays $6.3 Million to Settle Securities Charges By DAVID BARBOZA January 25, 2002 New York Times Datek Online Holdings, a big online brokerage firm, has agreed to pay $6.3 million to settle federal charges that its former day trading unit engaged in securities fraud in the 1990's. The Securities and Exchange Commission accused the company's former day trading unit, Datek Securities, of making hundreds of millions of dollars in profits by engaging in illegal trading practices and fraudulent bookkeeping. The S.E.C. said yesterday that the fine was among the largest ever paid by a brokerage firm. Datek Online, the privately held online brokerage firm that evolved out of a day trading unit, was not implicated. Federal officials described an arrangement in which Datek Securities developed a sophisticated computerized trading system that from 1993 to 1998 was able to take advantage of the small-order execution system on the Nasdaq stock market. This gave Datek an advantage over other firms, investigators said. Because brokerage firms were not allowed to use the system (which was intended to benefit smaller investors) for proprietary trading, Datek created accounts in the names of investors to trade and make profits for the firm and its owners, the S.E.C. said. The commission said Sheldon Maschler and Jeffrey A. Citron, two former day traders and owners of Datek, made huge profits and eventually used fraudulent bookkeeping to transfer about $277 million into shell corporations that they controlled. The two have a history of trading violations. "The scale of the use of false books and records was massive," said William R. Baker 3rd, an enforcement official at the S.E.C. The S.E.C. said Datek often filed fraudulent reports with the agency. In 1995 and 1996, for instance, Datek sent $200 million in trading profits to a company controlled by Mr. Citron. Datek fraudulently recorded it as a payment for "computer services." The S.E.C. did not take any action against Mr. Maschler or Mr. Citron, officials said, but an investigation is continuing. Just over a year ago, Mr. Maschler and Mr. Citron, who helped pioneer discount online trading by creating Datek Online, sold their majority stake in the company to private investors, including Bain Capital and TA Associates, both of Boston, for about $500 million. Will Steere, a spokesman for Mr. Citron, said, "Mr. Citron looks forward to amicably resolving the matter." Mr. Maschler could not be reached for comment. Datek Online, the fifth-largest online broker with over 800,000 online accounts, spun off its day trading assets in 1998 to a company called Heartland Securities and later changed its management team to distance itself from Mr. Citron and Mr. Maschler. A spokesman said yesterday that Datek was relieved to have the accusations behind it. "We are pleased this matter is settled," said Rob Bethge, a spokesman at Datek, which is based in Jersey City. "This all happened in a different business under a different management team." Yesterday, the office of the United States attorney for the Southern District of New York said that it would not prosecute Datek Online largely because it has been cooperating with the investigation.