Small broker/dealers say regulators' crackdown on firms who failed to file or were late to file year 2000 forms was unfair and heavy-handed.
The SEC slapped 37 firms for failing to file part or all of their Y2K readiness reports by Oct. 2, the extended deadline Nineteen firms settled. Fines offered in the settlement ranged from $5,000 to $25,000, which in some cases represented 100% of a firm's net capital requirement.
The NASDR took separate disciplinary action against another 59 firms who filed after the grace period ended Sept. 21. In this instance, 37 firms settled. The actual deadline was Aug. 31. NASDR fines ranged from $2,300 to $3,200.
All of the firms fined were small dealers. Some may not be active--more than half of the firms the SEC fined were no longer in business as of Nov 1.
Most of the firms receiving sanctions were nonclearing broker/dealers with net capital requirements of less than $100,000. Originally, the SEC had planned to exempt these firms from the filing requirement because they were much less likely to encounter
year 2000 computer problems. But the NASDR objected, saying 72% of all b/ds would be exempt. Consequently, the commission required small dealers to file only the first part of form BD-Y2K, described as a "less burdensome" check-the-box-style report.
Small-firm owners say the little guys should have been exempted because they pose little or no threat to investors. "I'm an introducing broker and I do not handle any client money," says Alex Alonzo, president of Laguna Financial, a one-person outfit in San Jose, Calif., that was sanctioned by the SEC. "I don't really use computers in my business. It seems pretty exorbitant for them to fine me $5,000."
Alonzo says he filed the Y2K form but was informed the SEC didn't receive it. A hearing has been scheduled for him in Chicago. Alonzo plans to contact his congressional representative and fight the SEC sanction.
The principal of another broker/dealer, who asked not to be identified, also intends to challenge its $15,000 fine. The owner says the firm was one day late with a filing. "We thought it was really unfair and heavy-handed," the principal says. "We're a nonclearing broker/ dealer with PCs. ... The minimum net capital for our firm is $100,000 and we were fined 15% of that."
The principal says he turned his form in on time but inadvertently failed to complete one section. When he did turn in the completed form, it was one day past the deadline.
While firms argue that the punishment does not fit the crime, the SEC defends its action as necessary to get people's attention: "The commission [and the NASDR take] very seriously the responsibility to get the securities industry through the year 2000," says SEC Midwest Regional Director Mary Keefe in a phone interview with RR. "We took this opportunity to make a very strong statement."
