Settlement Expected on E*Trade Ads


WASHINGTON — For the past few years, securities regulators have been battling E*Trade Group Inc., questioning whether some of the online broker’s cheeky, aggressive advertisements crossed the legal line, Wednesday’s Wall Street Journal reported.

But after months of negotiations, an investigation of E*Trade’s ads could soon be settled — with a whimper, not a bang.

The Menlo Park, Calif., firm disclosed in a quarterly earnings report in August that its advertising practices were being investigated by the National Association of Securities Dealers’s regulatory arm and the Securities and Exchange Commission. The firm’s practices were targeted after former SEC Chairman Arthur Levitt and traditional brokerage firms criticized the online-brokerage industry for advertising they said unfairly portrayed the benefits of online investing without disclosing the risks.

The SEC has dropped its case, but a settlement with the NASD is expected soon, according to people familiar with the matter. At one point, the NASD had informed E*Trade (ET) that there could be a “systematic failure” that involved questions about a few dozen E*Trade advertisements dating back to 1998 from among 2,400 print, radio and television ads, according a document filed in the case and a person familiar with the situation.

Now, however, the case could be boiled down to issues involving a handful of possible violations, including a newspaper advertisement for a technology index mutual fund which E*Trade promoted as the “lowest cost” such fund, according to a person with knowledge of the case. E*Trade, while admitting that there was no support for the claim, blamed the problem on a clerical error and pulled the ad after NASD objected.

Asked about a settlement with the NASD and specifics of the allegations, John Metaxas, an E*Trade spokesman, said: “It is the standard policy of E*Trade not to respond to questions of this type.” The NASD declined to comment.

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