life. The impression given was that day trading was simple and easy and anyone could do it.

After seeing the television ads, I visited All-Tech's office in San Diego, California, and then attended a seminar presented by Harvey Houtkin, the CEO of All-Tech, at a hotel in La Jolla, California. During the seminar, Mr. Houtkin extolled the virtues of the All-Tech system and stressed that All-Tech's training course and All-Tech's methods had created a level playing field which enabled the average individual to trade with professional market makers on equal terms and enabled the average individual to do well day trading in the stock market. Mr. Houtkin promised that All-Tech would teach everything one needed to know to be successful in the stock market. Mr. Houtkin and All-Tech implied that if you had the slightest bit of intelligence, you could make money day trading, and this gave me the strong impression that it involved little or no risk at all.

I paid $3,000 and took All-Tech's training course. The course was taught in All-Tech's San Diego office on a Saturday and a Sunday. The All-Tech course did not teach me how to be successful in the stock market. Rather, All-Tech taught me how to use the software and trained me to enter orders as frequently as possible to generate commissions for All-Tech. No one at All-Tech ever discussed risk or my tolerance for risk, my background, goals, or objectives, past experiences, my financial position, or anything else. At AllTech, none of this information seemed to matter. Furthermore, although some written documents contained disclosures, All-Tech led me to believe that anyone with ordinary intelligence simply could not fail at this.

I lost a tremendous amount of money trading at All-Tech and left All-Tech after only a few months. I realized that I did not know what I needed to know, and I had not been taught by All-Tech what I needed to be successful day-trading stocks. Additionally, the monies I lost were a sizeable portion of what I had been able to accumulate over my lifetime and it will be extremely difficult at this point in my life to try to earn those monies back.

After I left All-Tech, I decided to pursue a proper education and took courses on technical analysis and read numerous books about the stock market in general and analyzing and trading in the stock market in particular. I also studied for, took, and easily passed the Series 6, 7, and 63.

My education after leaving All-Tech made me realize how little All-Tech had taught me. I was trading at All-Tech, but did not know enough to realize that I really did not know what I was doing. All-Tech had basically trained me to enter orders but had not taught me why. The bottom line at All-Tech was that they wanted you to trade and trade often. All-Tech set me and others up for failure because they taught virtually nothing about how the market works, the strategies of the market makers, order flow, or the price action of stocks. Perhaps even more importantly, All-Tech taught me nothing about money management or risk management. Further, the staff at All-Tech constantly reiterated that anyone could be successful day trading. The risks attendant to day trading

During the few months I was at All-Tech, I also found that the environment was more conducive to failure than to success. Mr. Parish was constantly harassing me and others, often making suggestions regarding which stocks to buy and sell, including when to buy and sell. When I was hesitant to trade, he would egg me on, telling me that I would never get experience or learn how to trade or make up my losses unless I traded often.

After I had been at All-Tech for a while, I realized that most people were losing and not making money. When I suggested to Mr. Parish that he was going to lose his clients if most of them continued losing money, he told me that he was not concerned because there was always another body around the corner. I left soon after that comment.

Senator COLLINS. Thank you very much, Ms. Harlacher. I am very impressed that after your experience, you went to such great lengths to become very educated and actually took your securities exams, and I will be asking you in a moment what the benefit of hindsight and that education has given you as you look back on your experience.

Ms. Wenzel, one of the concerns that I have is that often times first-time day traders have no idea of how risky day trading is. You mentioned that your son, Scott, told you how excited he was about embarking on this new career and how optimistic he was about his chances of success. Do you think that he had any concept, any idea when he decided he was going to day trade for a living just how risky and speculative this activity was?

MS. WENZEL. No, I do not, and the reason I say that is because whenever he went to Atlanta, he thought he was going to be rich, he was going to have this lavish lifestyle, and 2 weeks after he was in Atlanta, when I talked to him, he was a different person.

Senator COLLINS. Because by then he had started losing money already?

MS. WENZEL. Then, I think the realities were beginning to set in. I had no idea that he had borrowed another $30,000 from Momentum. All his money was borrowed to begin with, but his father, we could have dealt with that. But he was in so deep, he felt he probably could not get out. He had to keep going, and he was stressed. The first time I saw him after he came home from Atlanta, I could see in his eyes, Scott had lost some weight and he was very, very stressed.

Senator COLLINS. And he had gone through a difficult period. He had lost two jobs. He was not currently employed. As you said, all of the money he used to open his account was borrowed. He had very little cash. His credit record was not good. You subsequently learned he had lost money at a previous firm. Is it your impression that Momentum was aware of his poor financial condition and the fact that it was borrowed money-they were obviously aware of some of it, because they arranged for the money to be borrowedwhen they approved him as a client?

MS. WENZEL. Well, if they were not aware, they should have been aware, because they should have checked. If anyone has to come in and before they even get started they have to borrow $30,000, that has to tell you something. And I am sure the stress he was

We thought he was-just the money his father had loaned him was what he was going to get started with. In the meantime, with all this other stress, not letting anyone know, and then losing it on top of it and being down all the time, he was under a tremendous amount of stress. He was covering from all sides. I do not think he even knew where to turn.

Senator COLLINS. One of my concerns is that day-trading firms are enticing perhaps naive individuals like your son who are investing money they cannot afford to lose. In this case, it was not even his money, is that correct?

MS. WENZEL. That is correct.

Senator COLLINS. Ms. Margala, when you went to inquire about opening up your account and you found you were enticed by this ad that again appeared to offer the prospect of each riches, did anyone sit you down at the firm and say, now, wait a minute. Your financial situation really is not that strong and you could lose a lot of money day trading. Did anyone warn you of the risks involved? Ms. MARGALA. No, no one did. That was not even discussed. In actuality, what occurred is I asked if anybody was making money and several people were pointed out to me as making money.

Senator COLLINS. Mr. Buchwalter, when Amy Le opened her account, and we have a copy of her new account form which I think you have been provided with a copy of—if not, I will ask the Subcommittee clerk to give you a copy, as well-this form indicates that Ms. Le did not provide her information on her net worth. It also shows that she checked income as her investment objective. Do you know what Amy Le's financial goal was for opening a day trading account with Providential and Mr. Cao?

Mr. BUCHWALTER. Her goal was to basically beat the 6.25 percent interest rate that the CDs were charging. What she really wanted to get out of this was an air conditioned car. She had no idea what she was getting into, and the reason why income was checked is because it was at the top of the list, and what she said was top of the list would be less risky. It is the farthest away from shortterm growth. It is the farthest away from long-term growth. It is the top of the list. It should be the least risky.

Senator COLLINS. So she felt that by switching to day trading, that she was actually moving to an investment that would give her a higher rate return but that was not particularly risky, is that fair?

Mr. BUCHWALTER. As a matter of fact, what she was told is that Providential had two different programs, one where they would guarantee a return of 20 percent and one where they would do the day trading for you. Mr. Cao recommended the day trading for you because the returns are higher, the risk is lower. His particular words were, "If a stock starts to drop, my computer tells me. I immediately click the sell button. How can you lose?" And "how can you lose❞ seemed to be the theory throughout any risk disclosure. How can you lose? This is not risky. How could you lose? Can I lose money? How could you lose?

Senator COLLINS. And Ms. Le was working, you said, part-time at minimum wage. This really was her life savings, is that correct? Mr. BUCHWALTER. It was more than just her life savings. It was

Senator COLLINS. So this was not what we would commonly consider to be risk capital, money that she could afford to lose?

Mr. BUCHWALTER. Correct, and they went so far as to arrange loans for Amy, also.

Senator COLLINS. Now, this new account form also indicates that she initially funded her account at Providential with a $10,000 deposit. Did you know that at the time that Ms. Le opened her account, that Providential's stated minimum deposit requirement was $50,000 and not $10,000? Is that a fact you subsequently learned? Mr. BUCHWALTER. That is a fact I subsequently learned, but the important thing is, right now, we see a blank on the bottom right where it says required signature. That was eventually-sometime during the hearing, we got that back signed by a corporate officer of Providential, which means by signing that, the officer says that he has read everything, everything is proper, she is suitable for this, and he also signed something saying that he knew Amy for a year when they have never met.

Senator COLLINS. And this was signed by an official of Providential?

Mr. BUCHWALTER. A corporate officer, right.

Senator COLLINS. The corporate officer. I bring up that fact because, as you well know, Providential has tried to wash its hands of this case and put the blame entirely on Mr. Cao. Could you tell us the results of the arbitration, the National Association of Securities Dealers, and what the findings were of NASD on the issue of who was responsible for the losses in Ms. Le's account?

Mr. BUCHWALTER. Well, the first thing I would like to say is that the broker of record for her account was a corporate officer of Providential. When I mentioned that she received $13,000 back, that was paid for by Providential Securities and that was the part of the award that they were responsible for. By being held responsible for at least part of the award, I would say that the NASD panel felt there was some liability. Maybe they felt that at a certain point, Providential should have known what was going on and that is the time that they should have stopped it. It is very hard to read into the minds of arbitrators, but that is the way I took it.

Senator COLLINS. Did Mr. Cao have total discretion over Ms. Le's account at all times? Did he trade as he wished, or pursuant to her direction?

Mr. BUCHWALTER. He had pretty much total discretion except he was not allowed to take funds out of the account. Other than that, he can pretty much do whatever he wanted.

Senator COLLINS. And in California, it is my understanding that a person who trades for another has to be licensed as an investment advisor, is that correct?

Mr. BUCHWALTER. After a certain amount of clients

Senator COLLINS. A certain number of customers?

Mr. BUCHWALTER [continuing]. Which Mr. Cao did exceed.

Senator COLLINS. And, to your knowledge, was Mr. Cao registered as an investment advisor in California?

Mr. BUCHWALTER. He was not.

Senator COLLINS. And to date, Mr. Cao has not paid Ms. Le the

Mr. BUCHWALTER. I believe approximately 2 months after we received the award, Mr. Cao filed for bankruptcy.

Senator COLLINS. Thank you. Ms. Margala, did you know at the time that you opened your account that All-Tech's minimum standards required at least a $50,000 deposit?

Ms. MARGALA. No, I did not.

Senator COLLINS. So no one said to you when you went forward to open your account originally with $10,000 that you, in fact, to meet their requirements needed $50,000?

Ms. MARGALA. No. As a matter of fact, the commercial that sort of lured me into this whole thing stated that the minimum requirement was $10,000. That was all you needed to trade, to open an account, was $10,000, not the $50,000.

Senator COLLINS. And was the $20,000 that you ultimately used to open your account, was it risk capital? Was it money that you could afford to lose?

Ms. MARGALA. It was not money I could afford to lose. It was savings. I was unemployed at the time and that was money that we were using for our livelihood, for a nest egg. It was not money I could afford to lose.

Senator COLLINS. Ms. Harlacher, I mentioned that I was impressed that you went on to learn a great deal about the securities industry. Now, it is my understanding from your testimony that you took All-Tech's 2-day training course and you paid good money for it. You paid $3,000 for that course. Based on what you know now, how would you evaluate the quality of All-Tech's training course?

Ms. HARLACHER. I think it was totally inadequate. All it really taught you to do was operate the software and to make as many trades as possible and to rack up as many commissions as possible for All-Tech, and All-Tech charged $25 a trade at that time, and they also encouraged you to trade no less than 1,000 shares of any particular stock at one time, but they taught you nothing about the price action of stocks, how to read charts, technical analysis, fundamental analysis, nothing like that.

Senator COLLINS. So, really, the course taught you the mechanics of how to trade quickly and often, is that fair?

Ms. HARLACHER. Right. In other words, what they taught you was to scalp for eighths and quarters, or in other words, churn your account. Basically, that is all they taught you. They were interested in you trading as often as possible and that is all that seemed to matter.

Senator COLLINS. My time has expired. I am just going to ask you one more question. I understand that when you first saw an All-Tech advertisement, that you went in person to the San Diego branch office and you attended the seminar. At any point along the way, in the training course, when you were talking with All-Tech officials at the San Diego office, did anyone explain to you how much you might be racking up in commissions each day through all these trades and how risky it was and that the probability was that, at least initially, you were going to lose your money? Ms. HARLACHER. Not at all.

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