Iselin, New Jersey, July 9 (Bloomberg) -- Datek Online Holdings Corp., the fourth-largest Internet brokerage, postponed plans for an initial public offering amid reports of government investigations, said a person familiar with the situation.
Datek said it ``does not comment on its capital-raising or financing activities or press reports of investigations.'' It said it has been ``busy implementing'' a plan to improve management controls since late 1997.
The New York Times reported yesterday that the Securities and Exchange Commission is investigating whether Datek encouraged illegal practices in a trading unit it sold in March. Today, the Wall Street Journal reported that CIBC Oppenheimer Corp. and Piper Jaffray were to have co-managed the offering.
CIBC Oppenheimer said that its involvement with Datek's proposed IPO was very preliminary.
We didn't go through the committees here to the point where we felt that we had accepted that role,'' said Tom Ortwein, managing director of equity capital markets at CIBC Oppenheimer. ``We made no commitment.''
Officials at Piper Jaffray couldn't be reached for comment.
The trading unit, which had more than 200 day traders on its desks, developed a reputation as a Wall Street renegade by using computers to exploit a rule designed to give small investors direct access to prices. The rule requires market makers on the electronic Nasdaq Stock Market in many cases to make good on up to 1,000 shares even if a move in the price makes the trade unprofitable for them.
Traders who take advantage of the rule are called ``SOES bandits,'' after the Nasdaq's small-order execution system. Datek agreed to sell the day trading business to Heartland Securities Corp., a money management firm, in March, to focus on its brokerage business.
The government also is looking into whether Datek offered customers guaranteed stock returns, a practice that could run afoul of SEC anti-fraud provisions, the New York Times said yesterday in its ``Market Place'' column, citing people who said they were interviewed by the SEC.
The ``SEC can neither confirm nor deny investigations,'' said John Heine, deputy director of the SEC's office of public affairs.
The office of Manhattan District Attorney Robert M. Morgenthau said in May it was investigating whether Datek had participated in a money-laundering operation, the Times said.
A spokesperson said the DA's office couldn't confirm or deny an investigation into Datek.
Datek, like competitors such as E*Trade Group Inc. and Charles Schwab Corp., lets customers buy and sell stock through its World Wide Web site.
The firm ranked fourth among online brokerages at the end of last year in terms of average daily transactions, behind Charles Schwab Corp., E*Trade Group Inc., and Waterhouse Securities, according to Piper Jaffray.
Datek hired several new officers as part of its plan to improve management controls.
It hired John Grifonetti, a veteran of Deloitte & Touche LLP, as its chief financial officer; Jerry Duhovic, the former chief operating officer of Titan Value Equities Group Inc., an Irvine, California-based brokerage, as its chief operating officer; and Ralph Sorrentino as its director of clearing operations.
Datek also hired Deloitte as its accounting firm, and Highland Group, an executive search firm, to find a president for its online brokerage.
The IPO postponement comes during a weak IPO market. On Monday, Time Warner Inc., the world's largest entertainment company, delayed a $175 million initial stock sale of shares in its local telephone business, blaming the cool reception investors have given recent stock debuts.
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