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Author: scottdeaver Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 50161  
Subject: Thinking about E*Trade? Think again Date: 4/29/2001 8:30 PM
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Thinking About E*Trade? Think Again!
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Imagine, if you will, meeting a man on the street whom you do not know but recognize as someone your friends have talked about and who is seen regularly about town. Suppose he asks you for your wallet, offering to organize and clean it for you in exchange for a small fee. Having never had the experience of a clean and organized wallet, you give it to him, expecting it to be returned momentarily.

Upon receiving it, the stranger opens the wallet, examines it briefly, puts it in his pocket, turns, and walks away without a word. Alarmed, you chase after him, asking him what in the world he thinks he is doing and demanding the return of your wallet. He walks on for a mile, seemingly ignoring you, and finally stops. In the most condescending tone imaginable, he tells you that he does not believe you live at the address printed upon the driver's license contained in the wallet. Flabbergasted, you say "I've lived there for four months, and what does it matter? Listen, why don't you give me back my wallet and let's forget the whole thing?"

His response? "I cannot give you back the wallet until you can prove who you say you are - these are my rules of business". Sputtering, now becoming angry, you yell at him, "But my identification is in the wallet, which you have not returned to me! You yourself witnessed me handing it to you! And in that wallet are thousands of dollars of my own money, my family pictures, my good luck charm, none of which belong to you!" All to no avail...twenty-three days after giving it up, you find you still do not have access to all of the contents of your wallet, nor do you have any comfort you ever will.

Welcome to the business practices of E*Trade! The story you have just read is not a fabrication, it is a metaphor for one of thousands of real-life situations going on right now at www.etrade.com as you are reading this article. Sadly, to many of those caught in the scenarios like the one described above, their personal finances are an intensely private matter. They are even more protective over their embarrassment at having been "taken" or their loved ones perceiving them as having made a poor business decision ("I told you not to play the stock market"). Unless you perused the newsgroups devoted to the subject or were immersed in the topic yourself (perhaps as part of your work), you would never realize the extent or nature of E*Trade's abuses upon it's own clients.

However, I am Irish and prone therefore to be more vocal about the injustices I perceive in the world. My loved ones are already well aware of any failings I might have, and I have a strong personal suspicion that underlying all of this is some form criminal activity on the part of E*Trade or it's stockbrokers (more about that later). Ultimately, I am writing this because I wish there had been an article like it available for me to read when I first made my choice of on-line stockbrokers. That is my agenda. You have your own - hopefully you are reading this because you have an interest in gaining control of your own life and money. So you can make an informed decision about your own investments and the tools you use to manage them, I have described below a series of events as accurately as possible that took place beginning on April 6, 2001 and still continue as I write this. As you read, consider that every conversation described has been recorded on tape, and I have copies of the e-mails and letters exchanged. The names have not been changed since the individuals involved have no innocence to protect.

First, let me tell you a little about myself. My name is Scott Deaver, and I am a 46-year-old computer software engineer living and working in Houston, Texas. I've been a contractual DOS/Windows 3.0/95/98/ME/NT/2000 programmer for over fourteen years, and I am currently assigned to Continental Airlines downtown. I've owned a home in the Copperfield subdivision ofHouston for a little over four years, and sold it on December 15, 2000, moving into one of the nicer apartments on the west side of Houston. I've had a good relationship since coming to Houston with Sterling Bank, a growing small-business-oriented local bank

Over the years, I have programmed all or part of five financial software packages - commercial personal income tax software for CLR FastTax, the DacEasy Lite consumer product for DacEasy, a commercial auditing package for the former Big 8 accounting firm Coopers and Lybrand, an income tax product for Intuit (makers of the popular Quicken home/small-business accounting software), and a professional financials package for Practioner's Publishing, a company specializing in servicing the needs of accountants.

However, despite my technical expertise in the rules and methods of managing finances, I came to this episode of my life lacking any experience in the actual trading of stocks and securities. Because of my choice of professions, the income has been there but I've spent my money on toys and the vagaries of being single in the big city, and there is the ever-present fear of the unknown. But, we all grow up sometime and about a year ago I began to actively manage my money. I started by controlling my spending, then decided to sell my house (it was expensive to maintain alone and way too far from where the bulk of my work is). I decided to start an IRA account, and wrestled with whether I should use my local bank or try my hand at on-line investing. I decided a traditional IRA would be an excellent way to dip my toe into the pond of on-line investing. I debated between the various on-line brokers, comparing prices and services, eventually flipping a coin between Ameritrade and E*Trade. Unfortunately for me, it came up tails and I opened my first on-line account with E*Trade. One of the factors which kept E*Trade in the mix as one of my choices was their advertising, which is heavily focused on the novice investor. I took that to mean there would be additional support for the inexperienced trader. I did not consider (but hope you will) the flip side - be prepared for the argument, whenever something goes wrong, that it is your ineptitude to blame no mater how obviously the problem was caused by an E*Trade policy or website defect. You've been warned!

I think an accurate recounting of events would serve better than endlessly spewing forth my personal opinions (though a lot less fun to write!). So, back to March 21, 2001. At that time, I had $2000 in a single traditional IRA, consisting mainly of stocks and a little cash. This represented my year 2000 IRA contribution. I added $2000 over the next two weeks towards my year 2001 contribution. At this point, I am making contributions to an IRA for a future tax year, using post-tax money (taxes have been deducted from the paycheck I am using to fund the IRA), and have made no claim for a tax credit (that won't happen, if at all, until April 15, 2002).

I have to digress here with an explanation. I will try to keep it brief - it's importance is that you understand the significance of being able to control and manage you own funds to your own advantage. What I am describing here works for me in my situation, and is not intended as a recommendation for others. I offer it simply as a real-world example of a situation where the ability to see and manage a stock account is critical (that visibility and control will have a bearing in a moment). There is a widespread myth about IRAs - that you are limited to contributing $2000 to an IRA. While it is true you can only claim a tax deduction on $2000, and it is true that at the time you file your taxes the amount representing the claimed tax year can only be $2000, that has no bearing on the amount you can contribute in the meantime. In my personal circumstances, I leverage this fact along with an annuity to maximize the return and minimize the tax load for my retirement strategy, in part to compensate that I have no 401K from my employer. Note that there are no penalties for transferring excess contributions from an IRA to an annuity as long as those excess contributions are transferred prior to the filing deadline of the targeted year (in this case that would be April 15, 2002). So, for several years now, I have used IRA accounts at my local bank and at established brick-and-mortar brokerages such as Charles Schwab and Merrill Lynch to micromanage an over-funded IRA account. The stocks are purchased in even $1000 blocks. The IRA accounts allow me as much or as little management of the securities within them during the year prior to filing my taxes. Then, prior to filing and based on which $1000 blocks performed best/worst, I transfer the overfunded amount into an annuity (which has higher costs and is far less flexible). For a more authoritative discussion of some of these issues, refer to the 1994 copyrighted edition of Eric Tyson's "Personal Finance For Dummies", pages 151 through 152. (Incidentally, my notation above that I am new to investing refers to on-line, self-managed stock accounts - I have off-and-on for several years used a number of discount and full-service brokers, including the two mentioned).

Regardless of whether you agree with the strategy, whether it's suitable for your circumstances, or even whether you think it's good investing at all, this is what I have been doing since 1994. And, since it's my money (at least for the brief period of time prior to my surrender to the Lord and my money's surrender to the IRS!), I hope you will agree that it is my right to do with it what I wish within the law and public policy.

Back to the sequence of events. With $4000 in a single traditional IRA account covering two tax years, I received another of those annoying solicitations to open an E*Trade checking account. This one caught my eye in part because it suggest itself as a way to avoid the two-to-three-day delay E*Trade is imposing on direct electronic transfers from my account at my local bank (Sterling). Despite the fact that the electronic transfers remove the funds immediately from my checking account, I do not see them (and therefore have no access to those funds) for two to three business days. Given that within the city of Houston I have immediate access to any one of a number of discount brokers within walking distance of my downtown office, with that kind of response time the E*Trade account had provided no advantage whatsoever. A specific instance rings in my mind - I had been watching Pfizer (PFE), and they dipped to what I thought was a low point earlier this year at the bottom of the general downturn (~$35.00). I transferred the money in on Friday morning. On Monday the market rallied. Frustrating, but stiil a good buy. However, by Wednesday of the following week when I was finally allowed to spend my own money, the extreme value advantage had disappeared (the price was around $40.00). It still would not have been a terrible investment (at this writing it's ~$42.50) but unless you've been through it you have no idea how vexing it can be to have your money tied up for a good cause but totally useless for it's intended purpose.

So, the idea of an account from which I could both transact my menial daily personal business and negotiate rapid stock trades appealed to me. I bit, and filled out the on-line form (essentially the same information they had in the securities account with which I had logged on to the website account, which is an unnecessary duplication of effort grating on me as a professional programmer). If you are keeping track, the date is now April 6th, 2001.

The transaction failed miserably, locking up my browser. Fortunately I was running Windows 2000, and so didn't have to reboot the machine. Later that same evening, I tried again to open a checking account. This time I got all the way through the application process, setting up a direct transfer from my Sterling bank account (that account was the same one with which I had for months been successfully transferring funds to my securities accounts). However, when I pressed the "Finish" button to complete the transaction, a failure message announced that I had opened too many accounts that day (huh?) and that the transaction was being aborted.

Okay, apparently down, but certainly not out. As a programmer, I am aware that exciting new technologies such as Web sites for which the coder employs relatively high-level easy-to-use tools do not always draw the best, most experienced, or most business-savvy programmers (ever counted the number of updates Microsoft issues for security holes in their browsers and other tools?). So, armed with the appropriately cynical attitude and resolved not to accept defeat, on the ensuing day I tried again. Again, I manage it through the redundancies of the application process, but now it is refusing to accept an electronic transfer from my Sterling bank account. Knocked out again. Ah, but surely inspiration can overcome moronic adversity - a sudden thought: I have $1000 in cash in my IRA account I had moved in several days before to make a purchase. I apply again for the fourth time, using a $1000 transfer from my traditional IRA account to fund the new checking account, and success! I get a nice little welcome message, and some descriptions of what to expect next (checkbooks, ATM card, etc.).

Contented I had slain yet another dragon born of wannabe programmers, I went about my business. I received a welcoming e-mail, and in what I was beginning to see as an E*Trade pattern regarding any transaction having a cash component, their very slow (over two weeks) delivery of checks and eventually, ATM card. Of course, during that time I have no access by any means (web or conventional) to the money in the checking account (logon to banking services required an account number I was not provided until my checks finally arrived). In the meantime, while re-funding the $1000 taken from my traditional IRA for the checking account, I opened a Roth IRA account with an additional $500. Because I had sold my house in the prior year, I wanted to maximize the number of options available to me when I filed for year 2000 taxes on April 15, 2001. This is perfectly permissible - quoting from the "Consumers Report Money Book", fifth printing 1994, by Janet Bamford et al [page 495]: "There are no restrictions on the number of accounts you may have, provided that you abide by the limits governing total annual contribution" (see the comments above regarding what constitutes a total anual contribution). Beginng on on page 506 of that book with the question "What if you hastily opened a savings account to meet the April 15 deadline, only to find out later that another type of account offers greater earnings?", the author describes movement options between accounts, and makes the specific recommendation that movement is easier if the accounts are established with the same company.

In any case, the E*Trade website happily accepted my new Roth IRA application and the $500 electronically deposited into it. Again I noticed the deduction from my personal Sterling checking account was immediate, yet it was several business days before the cash (and for that matter, the account itself) showed up in my portfolio on the website.

Up to this point in time, nothing extraordinary has happened - I now know E*Trade has a fascination for fondling my cash in the dark for a few days before letting me see it again when I do a transaction, but it does eventually show up. The website has good and bad points, and suffers from poor coding and foresight. So far, having an on-line broker hasn't helped me any (probably has hurt me a little), but the system works in the same sense the Model T worked. With the rate of Web growth, hopefully things will improve and during the meantime I can hone my trading skills. The story to this point isn't even worth the telling. However, so far I've been dealing with E*Trade only electronically - as with Freddy Kruger, it takes a certain personal contact with a real human being to make life interesting.

I enjoyed my false sense of everything being in it's rightful place for all of about a day. I wake up one morning to receive an e-mail from E*Trade's bank that I would not be allowed access to my account because the address on the account was analyzed by their software to be a maildrop. I read this message with incredulity, looking over at my stack of checks and the ATM card still sitting on the counter. I go to the website, and sure enough, the bank account has totally disappeared! Thank God I had not written any checks on the account in the two weeks I'd had it, or done any other transactions! Thoroughly alarmed, and very concerned about the $1000 cash that had been sitting in the checking account, I fired back FAXes of my utility bills, bank account statements, and anything else I could think of to prove my address. I went to several websites to look up my address, and each dutifully provides instructions and/or maps to my apartment complex. Ultimately, E*Trade is satisfied, I can see my account again, and though my confidence in the E*Trade bank is thoroughly shaken, I'm assuming this is just one of those things that can happen with new ventures.

Not so. Now I receive a letter (snail-mail, aparently sent five days previously) stating that the checking account I had opened could not be funded because the transfer of money from a traditional IRA account wasn't allowed. No previous warning, no e-mail (what about "on-line" had I misunderstood?), no notice from the E*Trade website each day as I checked my accounts, even though all of the other information on my portfolios page was geared to my personal situation only. The letter stated that I would need to fund the account before I could use it. Panicked once again, I go to the www.etrade.com website. I can still see the checking account with the original funding apparently still in it, but I also notice that an additional $1000 has now turned up as cash in my traditional IRA account. OK, Scott, breathe slowly, chill out, focus on the original goal - to gain more immediate responsiveness in your trades. My goals are long-tern, this is just a little wrinkle I'll laugh about later, once I get regular on-going transactions between the checking and securities accounts, it will all work out, right? I happened to have the $1000 available for that week's savings, so instead of transferring it to my securities accounts for stock purchases, I wrote out a check for $1000 from my personal Sterling account. I placed that check into the return envelope. They had sent a blank paper account application with the letter. I filled out that application with the same information I had provided two and a half weeks previously in the electronic application (imagine my uncertainty when I came to the address field!) and placed upon it the same account number as was on the checks and ATM card I already had in my possession. I wrote a note in the margins on both the front and the back side of the application begging the recipient not to screw the account up any further. I then immediately mailed the entire contents of the envelope. My rationale at this point, though I am upset, is that even if two thousand dollars winds up in that checking account rather than one thousand, or if there's one thousand in the checking account and one thousand in the securities account, it's the same money and will all come out in the wash. The idea of out-and-out theft, or of being separated from use of my own money for three weeks, didn't even occur to me. In hindsight, it should have.

AmeriTrade is looking ever more promising as a replacement on-line broker. When I go to the site to apply, something interesting happens. Before ever taking a dime of my money or making me complete multiple pages of an application form (I am using the express application option), the site informs me that there is a problem with my address. It says that since I have changed addresses in the past six months (this is true - it is now mid-April and I sold my house the previous December) they must verify my address manually and cannot therefore accept an online application - would I like to print out a paper form containing the information I'd already provided so I could mail it in? This is a brokerage I can live with - intelligent programming, some knowledge of the business they're in, and a real concern for the end user as expressed by the extra few hours of paid programming time devoted to customer convenience.

OK, this is a no-brainer decision...Now the question is, how to effect a transition. First. let me rollover the small Roth IRA with $500 in it to see how that goes. Go to the E*Trade website and get the Roth IRA account number...wait a minute, there IS no Roth IRA acccount! Not only that, the checking account has now disappeared. I'm getting way outside what I'm able and willing to deal with to open a simple checking account and IRA accounts, it is time to get some (hopefully) professional help. Hands shaking, muttering to myself, I call E*Trade's customer support line, and after negotiating the requisite (and ridiculous - but's that's an issue for another time) hierarchy of telephone menu items and a five-minute wait, I find myself talking to Mark. Mark, as it turns out, is competent, knowledgeable, and seemingly effective, one of those rare types perfectly suited to technical support (in short, he won't last long!). I spill out all the events, more in order of emotional impact than chronology, as well as some choice opinions. He looks up the information, seems to understand exactly what has happened, explains it to me patiently, tells me what to expect, and assures me in convincing fashion it will all be taken care of within "one to two business days". For the record, he said that the E*Trade bank, upon rebating my original electronic deposit of $1000, had used a back-door mechanism in the software which bypassed the normal user-input defenses. Had it been entered through the "front" door, the input software algorythm would have enforced rules that state you cannot have more than one IRA account in the same name and have the totality of IRA contributions for a year exceed $2000. On the following day, when the reconciliation processes attempted to resolve my accounts, they had no defenses for what they saw as an unresolvable conflict and basically invalidated the Roth IRA account. I pointed out to Mark that even if the business rules had been enforced, they would have been incorrect, but at least I would have had some inkling of what was going on.

The conversation with Mark transpired on Wednesday, April 18, 2001. On Friday, the situation had not been corrected, and I called the support desk again. A young male answered. I cannot determine from the tape his name (he begins speaking his introduction before the mouthpiece has reached his lips), nor do I recall it from memory. In any case, he is NOT a natural as a support person. His approach is almost accusatory, he lacks the ability to decipher the computer screen apparently in front of him, and he is obviously taken aback when what I am telling him matches the truth, and the truth points the finger at E*Trade. He does, however, have one redeeming quality - when faced with that inescapable truth, he is willing to do the legwork to obtain a resolution I will accept. He (apparently) has an offline conversation with E*Trade bank employees while I am on hold, and another with E*Trade brokerage representatives. He comes back to the phone and tells me that everything Mark had told me was in fact in process, that an E*Trade IRA specialist had to approve the fix and that was causing the delay. The last item had not been passed along to me by Mark, and I questioned what would be difficult about correcting an error E*Trade themselves made. I was then told I had erred in overfunding my IRA accounts, and (though not specifically stated, certainly implied) must pay homage to the E*Trade IRA gods in the form of a time penalty. I pointed out to him the overfunding was caused by the kickback of $1000 to my IRA account by the bank in their boneheaded attempts to correct a series of their own errors. In the end, I was assured by this support person that processing over the coming weekend would finally resolve the problem.

Again, not so. On Monday, I called the E*Trade support desk again, and again waited. This time I was answered by a young man calling himself "Wai", and spelling it out to me at my request as W-A-I. Wai is totally out of his element - he sincerely believes it is his responsibility and duty to convince me all of this is my fault, that having my own money out of my sight and control for over two weeks is a right and proper punishment for whatever errors I may have made, and that any statements made by any other support staff promising relief in one-to-two busines days were improper. He says it will take a minimum of three to five days. I asked him whether this was an honest estimate, or whether he simply as a matter of practive adds two days to whatever time has already passed. He insinuates that I am lying about the original estimates. I ask him if he would like to hear a recording of the conversations I have had. Busted, he totally freaks out (OK, my formative years were during the '60s). He says it is against company policy for me to record his conversations. I asked him where exactly that policy is published, why a tone was consistently going off in my ear indication E*Trade itself was recording the conversation, and why as a non-employee of E*Trade their policies would extend to me? He hung up.

Let me digress just a moment. First, Texas law (and I'm sure most other states in the union have similar regulations) allows you to record any conversation to which you are a party. You may not record any conversation to which you are NOT a party without so stating prior to the onset of recording, and without providing an obviously audible periodic tone during the conversation (for example, the E*Trade announcement tells you supervisors who are not a part of the conversation may be monitoring the call - that is why they must tone in and you are not required to). I believe (and any lawyers out there who know are welcome to chime in, because I'm obviously not an attorney) Federal law allows defensive recordings - that is, making a recording of a conversation you know the other party is already recording. Either one or both would apply to my recording of a conversation in which I was a participant and knew the other side was recording as well. E*Trade employees sign off any rights to privacy in their employment agreement with E*Trade where they acknowledge they know at least one party (E*Trade) will record ALL their incoming (and I've been told also outgoing) telephone conversations.

Just the mere suggestion that they might take offense to being recorded raises the question: What do they have to hide? OK, back to my sordid tale of woe. Upon being hung up on, I took the trouble to reduce the recordings I had to CD-ROM - I was beginning to get the feeling I had stumbled into something that involved intent and deceit, well beyond simple mistakes and incompetence. It was not lost upon me that all of the problems to this point had involved cash, and I couldn't shake something I'd heard on late-night TV years ago, to the effect that "if you want to catch a crook, follow the money". In any case, I called E*Trade support again, this time demanding a supervisor. I now have a ringmaster for the circus unfolding in front of me, and his name is Robert Laughter. I don't know if God intended the name to be a premonition about the sincerity of the "help" I was to receive from this man, or whether it might be an intentionally suggestive stage name not unlike that taken on by a queen of the local porn club. In any case Robert presents himself as the single-source solution to all my problems, apologizing for the conduct of all who had gone before and making generalized promises it would be difficult later to pin him to. Whereas Mark had offered the calming reassurance of someone who was competent, focused on mutual interests, and responsive to the issues at hand, Robert is more like the glad-handing schmoozer whom you've confronted after the transmission fell out of the used car he just sold you. After offering his personal phone extension, e-mail address, and full name, Robert proceeds to rehash all of the same old ground covered in the past 21 days to no avail. Thinking maybe this will be the final conversation, I am patient with him, gently guiding him around his own arrogance to some grasp of the problem. He tells me he needs some time to look into it, and promises to get back to me within the hour.

However, it wasn't to be an hour, nor was it to be a direct conversation. At 4: 30 p.m., he e-mails the following:

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From: Robert Laughter <rlaughter@etrade.com>
To: "'SCOTTDEAVER@HOTMAIL.COM'"
Subject: IRA Contribution
Date: Mon, 23 Apr 2001 16:28:37 -0700
Dear Mr. Deaver
Thank you for your patience in this matter. I have received the response back from the retirement department and it turns out you are over the contribution limit of $2000 for the IRA. I believe the confusion occurred when the contributions were split into separate IRA accounts. The IRS allows a total maximum of only $2000 in all IRA's under your social security number. Please contact me se we can discuss how you can retrieve the excess contributions on your account. I will be more than happy to answer any questions you may have. My number is 916-858-5090 Ext. 3694.
Robert Laughter
Financial Service Specialist
E*Trade OptionsLink
Ext. 3694
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I was beside myself - first, what happened was already known to him and had been revisited half a dozen times before: The bank had kicked back $1000 into the traditional IRA account causing the 2001 contribution have an extra $1000. Secondly, the letter discusses nothing about resolution of the fact I can no longer see the Roth IRA account, and thirdly, I'd already been on the phone to him going over and over these issues. Fourthly (is that a word?), he raises another issue not heretofore mentioned - that I can't have more than one IRA account under my Social Security number AT ALL. Fifthly (?), yet another day had passed with no access to my funds. However, I know several things I didn't before: This guy is a pompous self-serving moron who seems more concerned with accountability (as in, avoiding it) than in resolving the issues. And, I am apparently stuck with him. So, my response:

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From: Scott Deaver
To: rlaughter@etrade.com
Subject: Re: IRA Contribution
Sent: Monday, April 23, 2001 10:00 PM
Robert -
In the course of a week, having spoken to not one but THREE other representatives, this is the first time this has come up. Secondly, you are incorrect. I have written parts or all of five tax and financial packages as a DOS/Windows/WindowsNT/2000 programmer/software engineer for fourteen years (Coopers and Lybrand, DacEasy, Intuit, FastTax, and Practitioners Publishing). The IRS currently allows tax-free contributions INTO one traditional IRA account and after-retirement tax-limited deductions FROM one Roth IRA accountant into which contributions are limited to $2000. However, those rules apply only to the tax liabilities relative to income taxes. I can have as few or as many accounts as I wish, and contribute as much or as little as I want, still subject to certain penalties and restrictions, of course. And the rules pertain only to the tax status subsequently claimed for a given tax year - the tax year affirmations for 2001 haven't been made yet. Up until such time as I file (yes, that is correct, all the way up to four and one-half months after the tax year has ended) I can make whatever manipulations I want to adjust my tax burden.
To make it simpler for you to grasp, it's not unlike income taxes generally - the fact that the IRS imposes penalties and higher tax burdens the more money I make does not prohibit me from making as much money as I can (though it certainly makes it more difficult). The final tax burden for whatever money I make is not determined at the time I make it, but on April 15th of the ensuing calendar (with some movement locked in at the end of the calendar year, of course). You may be attempting to enforce rules you or E-Trade have imposed to make management of such accounts easier for yourselves. That is not my issue or problem, and I will point out that your creative enforcement of such rules is after the fact and totally unsupported by your website. You as a company were perfectly aware of my traditional IRA account status when you offered a free Microsoft Money program to open another, you allowed me to contribute $500 to the new account, and provided all the tools necessary to open it, up to and including a two-business day delay for you to review it. I have had the aforementioned conversations, each averaging 30-45 minutes, explicitly over the subject of these contributions, and as I said, no mention whatsoever until nearly two weeks of E-trade playing a shell game with my funds, causing me to miss the largest on-day run-up of the stockmarket since I started investing. The horror stories I have experienced attempting to open a bank account are even worse. You as a company are incompetent, and a threat to my resources. However, for me to move my money now would defeat the purpose of my investing plan and cause me to take losses due to untimely removal in negative market circumstances. In the case of my Conextant shares, I would lose over 50% of my investment. I am sending a copy of the tape I made of Mr. Wai in which he reveals himself to be ignorant, manipulative, and dishonest, a copy of this letter, and the names, dates, and events of all my transactions with E-trade to the FTC, SEC, and IRS in a letter of complaint.
Now that it is bundled together in convenient form anyway, I am posting a copy of these materials to my own websites, the bulletins boards here at Continental Airlines and other Fortune 500 companies for whom I've worked, and the various discussion groups to which I belong (Motley Fool, etc.). I intend to write a companion article for submission to the Fool. I also intend to share my opinions verbally wherever I am involved in any discussion related to investing (and I expect there to be many over the next several decades). I am considering suing E-trade and each of the individuals involved, not for the small bit of money involved, but for the principle and the advertisement. I will post a request on the various legal boards to join any class-action suits currently filed against (or under consideration against) E-trade for similar abuses of its clientele.
That is what I am going to do. What you are going to do is move the stocks and cash I now own above and beyond the $4000 "limit", without ANY cost or loss to me, into a traditional on-line stock trading account (that seems to be your only area of competence, and I have severe doubts about that). And one final note: your insolence and cowardice (as a company and on the part of your support associates) is not appreciated. I should not have to call YOU to straighten out YOUR mess (after three phone calls and several hours of my own spent attempting to resolve these matters), YOU should be on your hands and knees calling ME. The cowardice? That the empty suits to whom you are running for 'advice' are so incompetent and ignorant of their chosen field of endeavor, and do not come forth personally to answer to the mess they've created. That they are rejects from conventional brokerages hiding behind a website is obvious on its face. I do have a small piece of investment advice to offer them, hopefully to improve their paltry and meaningless existence: Take the $2000 you think you're limited to contributing to an IRA and use it instead to by yourself a clue.
I will call you tomorrow. It will be in both our interests for it to be a short and effective conversation after all of the energy I've wasted so far. I will, therefore, call your line direct. I expect you to have available to you immediately whatever expertise or assistance will be required to finally resolve these issues - further delays and excuses will not be tolerated. I cannot control what you do, but I assure you I am devoting the day to a final and complete resolution, up to and including a Priceline reservation for a flight to meet any roadblocks personally.
Thank you for your assistance,
F. Scott Deaver

*********************************************************

Well, of course Mr. Laughter did not call me, and I must call him. Ultimately he tells me he can move all of my "overfunding" into a traditional stock trading account, and will absorb the costs of the transactions to first sell, then buy back the stock holdings currently in the traditional IRA. Near defeat and sick of battles for no purpose with some of the most incompetent, self-absorbed, pea-brained bureaucrats outside of Houston city politics, I agree. But, of course there's a catch: I must send them more cash. Remember, all or parts of all my accounts are now hidden from me or inaccessible to me, so I cannot transfer from those accounts. Opening an account requires a minimum $1000 investment. With extreme distaste, I open yet another account, funded with cash.

Now I get another snail-mail letter (four days in the mail) from E*Trade Bank. This one states that I am to tear up all of the checks that were sent to me, destroy the ATM card, and the account can never be used because it was inappropriately funded. Fine, but remember the $1000 check sent from my personal Sterling account in response to the first snail-mail letter? No mention of it whatsoever in the latest letter (again, without prior e-mail or website notification of any kind). I again call the support line, but this time I'm told no bank officers are available after-hours and I must call back in the morning.

Think I've paid a high-enough price for a simple checking account and IRA? Not according to E*Trade!. On the next morning after having opened a new, cash-funded account, none of my accounts - not even the stock-heavy traditional IRA account - are visible to me at all. Nothing - totally empty portfolio screens. $8,500, mostly in cash, wiped off the map for what would turn out to be two days.

Mr. Laughter does not accept my phone calls. Ultimately I call E*Trade support regarding the checking account issue. I am told that they do not yet have a record of my check having been received, but that check processing is done mechanically and the check could well still be in the system. I am told the old account is in fact dead, and I inform them that I no longer desire to have any account with E*Trade Bank. I am assured that I will be notified once the check wends it's way through the system, and I can then decide it's final disposition. In a moment of clarity I ask to be transferred to Robert Laughter. Apparently caught without the benefit of CallerID, Mr. Laughter answers the phone.

At this point, I now longer engage in idle chit-chat with Mr. Laughter. I demand he immediately determine the reason my accounts are again invisible to me, and correct it. After some time spent on hold, he informs me that (yes, you've heard this same line before) in my application for the new traditional stocktrading account I used an address believe to be a mail drop! Furthermore, once an account has been automatically determined to be potentially fraudulent, all accounts belonging to the same social security number are automatically frozen. Remember the little story I told at the beginning of this article? Now Mr. Laughter informs me that they must have proof of my address before they will have any further interaction with me whatsoever. I angrily denounce him, and demand he use the information and proof I've already supplied to the bank when I jumped through the same hoops before. He cattily tells me they cannot use that information because that account has been closed.

I now fully and completely understand the meaning of the term "apoplectic". Before fully succumbing to a stroke, I regain my senses enough to get from him a FAX number where I can, upon returning home, reFAX the proof he seeks. But before I get off the phone, he can't resist twisting the knife. He coldly informs me that as far as the transfer of money from the IRA accounts to that new stocktrading account are concerned, I will have to submit by snail-mail a completed and signed withdrawal form for each account, have it reviewed and accepted by an E*Trade IRA specialist, and that the process can't even begin until I satisfy the proof of address requirements. He did not say, but fully conveyed, that it was his intention I would not see any of my funds, much less control them, for months.

At this point in time, I told him that I had recordings of every syllable uttered by an E*Trade employee since back in early April when this all began, and that I had kept the mailings from E*Trade Bank as well as copies of every e-mail. For all of Mr. Laughter's defects as a human being, he is not stupid. After complaining (ineffectually, at best) about my practice of recording when I know I've been recorded, his tone became markedly more cooperative. He stated he would see if he could get his supervisors to accept FAXed IRA distribution forms, and try to expedite the address verification process.

After returning home, I was disappointed but not surprised to learn the FAX number he had given me as his direct FAX line was in truth a disconnected number. Not to be swayed from the task at hand (did I mention I'm Irish?), I FAXed the address validation information to the general FAX number listed on the E*Trade website. I took pains to include copies of all the E*Trade Bank activity (including a printed check and the cover letter for the ATM card) which had been delivered, of course, to my current address. I then printed off the IRA distribution forms from the website, filled them out as best I could. The following morning I sent the following e-mail to Mr. Laughman (in part to let him I was not being dissuaded by childish games on his part):

*********************************************************
From: Scott Deaver
Sent: Thursday, April 26, 2001 8:50 M > >To: rlaughter@etrade.com
Subject: RE: IRA Contribution
Robert -
The fax number you gave me originally was a disconnected number. Also, I am at work and the account numbers of
1. the Roth IRA account; and
2. the new standard stock account
are concealed from me on my view of the website (as well as any other information about those accounts). The distribution forms require those account numbers. Would you please email me the accounts numbers and a valid FAX number (or tell me to use the same number I did before)?
Thank you,
Scott Deaver
*********************************************************

I received the following response from him (I have X'ed out the account numbers):

*********************************************************
From: Robert Laughter
To: "'Scott Deaver'"
Subject: RE: IRA Contribution
Date: Thu, 26 Apr 2001 09:07:10 -0700
Mr. Deaver,
Your accounts are as follows:
Roth IRA: XXXX-XXXX
Traditional IRA: XXXX-XXXX
Individual: XXXX-XXXX
Please use the 916-463-2871 to fax the forms over.
*********************************************************

Shortly thereafter, I received the following e-mail:

*********************************************************
From: Robert Laughter
To: "'Scott Deaver'"
Subject: RE: IRA Contribution
Date: Thu, 26 Apr 2001 10:25:13 -0400
Mr. Deaver,
I have received your fax and have submitted it to my account services department to have the restriction removed from your account. You will be able to access your account shortly. I also received approval from my supervisor to accept your distribution forms via fax so we can cut the processing time. Please let me know if you have any questions.

*********************************************************

In response, I immediately FAXed over the completed forms, getting a confirmation report from the sending FAX machine that the transmission was successful. On Friday morning, nothing had yet changed (it has now been a week since Mr. Laughter assured me he would perosnally warrant a quick solution to the problems that at that time had been two and a half weeks without successful conclusion). So, yet another e-mail to Mr. Laughter:

*********************************************************
From: Scott Deaver
Sent: Friday, April 27, 2001 8:27 AM
To: rlaughter@etrade.com
Subject: RE: IRA Contribution
Robert -
It is now Friday, and I am finally able to see the account I put $1000 into Monday. However, neither the Roth IRA account nor the $500 in it is visible to me 15 days after having created the account, nor has the money been transferred to the new account.
Similarly, 21 days after the E-trade error that caused it, the excess contribution to the traditional IRA account, consisting of $1056 in cash as well as stock originally valued at +-$1000 (time of purchase), has not been transferred, though at least it is still visible to me. As has been the case for the past three weeks, I am hesitant to do anything with the account given the situation.
In short, we're almost back to where we were Monday (except for the missing $500), with no apparent progress whatsoever on the original problem. Could you recap where you think things are at, the prognosis for eventual sanity, what you are doing about it, and how much longer I am going to be denied full access to my own funds and securities?
Thank you,
F. Scott Deaver

*********************************************************

But, of course, we're not done yet. Remember, I still have a thousand-dollar check floating around E*Trade Bank somewhere I need to get back, stop payment on, or something. The answer to that little mystery comes from an unexpected direction. While checking my account balances in my local Sterling Bank accounts via the automated telephone response system, I was alarmed to discover I was short $1000 in my checking account. Sure enough, E*Trade had cashed the check three days before, without any notice whatsoever, and it had cleared that morning. In spite of the fact I have nearly $10,000 in cash and negotiable securities buried within E*Trade somewhere, I now can't access enough cash to eat lunch.

Distraught, angry, and absolutely overwhelmed by the sheer magnitude of all the hypocrisy, lying, manipulation, and intimidation, I called E*Trade support once again. A woman named "Neda" responded, complete with an attitude. In answer to my first question, which could roughly be translated "What the hell does E*Trade think it is doing?", she demurely responded, "Why, we opened you a new account, of course!" I asked her, "Without my consent and without telling me for three days?" To which her response was "These things take time"(!) I then reiterated to her that I did not want the account, had called beforehand several times to check on the status of the original closed account, and she had no authority to open the new account. She then agreed to close the new account - under the condition, of course, that not only must I jump through a few hoops, I had to convince others to jump through as well. In short, I had to provide a signed letter from an officer - not a teller, not a manager, an officer - of the Sterling Bank stating the check had cleared and that no stop payment had been placed against the check. The insinuation, of course, was that I (and by implication one or more of unclean cockroaches with whom I reside here in cowtown Texas) was trying to do something underhanded in closing the account and having the money refunded back, not to me, but to my bank.

Ultimately, she may have shot herself in the foot, because she put me in touch with a forgotten ally - my local bank. I have to say something here and now. For all the trashing Internet and big consortium banks have done of smaller institutions, having a friendly smiling face at your side in this kind of situation is a Godsend. Sandra (whose last name I did not get, and for that I apologize) at Sterling Bank listened to all of this despite the fact that it was Friday and the bank's busiest in-branch day. She agreed to help me jump the hoops presented to me, and then came up with an idea for which I would have kissed her were I not on the phone. For those of you who have patiently waded through all of this to this point, here is something in return, regardless of your interest in the Internet or stock trading, so pay attention. Sandra said to me, "you know, I see here that all of your transactions except for this check are by electronic transfer. Now there are two forms of electronic transfer, and the form we normally use in this kind of transaction can be rolled back for sixty days after execution."

Finally, a ray of sunshine. Yes, each transaction was reversible, each was in the requisite time window, and yes, she'd be glad to help me through the steps. How difficult would it be? I would simply have to sign a letter in my own words stating the dates and amounts of the tranasctions to which I objected. That having been said, I subsequently rolled back $5500 in transactions subsequent to March 21, 2001. Assuming the return of the $1000 check in like funds, that put me exactly where I was when I had only $2000 in a year 2000 traditional IRA (already claimed on my April 15, 2001 tax submission). I now have $5500 in cash to invest in AmeriTrade, and I will immediately roll over the traditional IRA away from any involvement with E*Trade.

I called Robert Laughter's direct number, and again he avoided my call. I left a message that the bank had sent the letter regarding the clearing of the check, and informing him of the rollback of all contributions to my accounts since March 21, 2001. His response belatedly informs me that rather than hiding from me (yeah, right) he is instead punishing me for recording phone calls:

*********************************************************
From: Robert Laughter
To: "'Scott Deaver'"
Subject: RE: IRA Contribution
Date: Fri, 27 Apr 2001 16:45:03 -0400
Mr. Deaver,
I have not received the distribution forms at this time to complete the transfer of the excess contribution into your individual account. Once I receive them I can complete this request. Please fax them to my attention at 916-463-2871. The banking issue that you brought up in the voice mail is currently ending resolution. We are waiting for a confirmation letter from your bank that the check was cashed prior to releasing the funds. Please be advised that it is E*TRADE's policy not to have phone calls recorded by customers. Until you guarantee that the calls will not be recorded by you, all correspondences will be completed through email.

*********************************************************

To which I responded with the following (note that during all of this I am having regular conversations with the Texas Attorney General's office, postal authorities, the IRS, various coworkers, and the SEC):

*********************************************************
From: Scott Deaver
Sent: Friday, April 27, 2001 2:17 PM
To: rlaughter@etrade.com
Subject: RE: IRA Contribution
Mr. Laughing:
E*Trade's policies are not material to me. I am not an employee, nor was the condition expressed to me in any form prior to your taking from me and then denying me access to thousands of dollars of my own money. E*Trade records all conversations by phone, and therefore it is disengenuous for an employee to claim they did not know they were being recorded - being recorded is a condition of their employment. Fear of being recorded is strictly reserved to the criminal element, and there is no other legitimate reason for anyone to fear me having a recording given you have an identical copy. As you are well aware, you received the distribution forms by FAX yesterday, and I have a confirmation report from the Continental Airlines fax machine.
In cooperation with an investigation, I have retrieved copies of every web page on your site, and nowhere is a restriction placed on support from you relative to voice recordings of any kind. Each of the barriers erected by you to delay my retreival of my own funds is artificially imposed, and not supported by any advance warning on your website. I believe your actions to be deceitful, enacted for the purpose of committing fraud, and to allow you or your superiors illicit and illegal control of my personal funds.
Your dishonesty in hiding the fact you have the 'required' forms in your possession, your refusal to provide me the same level of services you provide other consumers, establishing after-the-fact conditions of communication to further harrass me and separate me from my funds, hiding my assets from me on your website, and 21 days of delay to resolve problems your bank and your website created, lead me to the conclusion you are deliberately engaging in criminal activities. I have turned over records of our conversations to my bank along with other pertinent information, and with their cooperation have rolled back the electronic transfers by which you took money from my account. I have talked at length with the authorities.
Since fax'ing you results only in your denial of receipt, I took the liberty of faxing a copy of the forms to the IRS directly, and they are satisfied (actually, they have no such requirement for post-tax contributions to an IRA for which tax credits have not been requested!) that I should have full and immediate access to my funds without penalty, as you yourself are recorded stating to me.
You are prohibited from removing any money from my accounts until such time as you address the authorities and are held accountable for your behavior.
Sincerely, F. Scott Deaver

*********************************************************

His answer (shown below) was rather terse and to the point, don't you think? (Note that all of a sudden he's "found" the IRA distribution forms he claimed he had not received):

*********************************************************

From: Robert Laughter <rlaughter@etrade.com>
To: "'Scott Deaver'" <scottdeaver@hotmail.com>
Subject: RE: IRA Contribution
Date: Fri, 27 Apr 2001 16:34:14 -0700

Mr. Deaver,

I have received your distribution forms and will have the excess
contributions moved on Monday.

*********************************************************


All over? Not quite - I am writing all of this on a Sunday following the Friday just described. I fully expect more problems from E*Trade, but I now have support from my local bank, and with the distribution of this article, hopefully a podium from which to help others avoid the mistakes I have made, starting with any involvement whatsoever with E*Trade.

Fair warning: up to this point the discussion has been based on fact. There is a voice, electronic, or paper recording of each activity described - in fact, there are some things that have been left out which, while supporting the facts as stated, do little to add to an understanding of the events as they have occurred. There is every likelihood all of this will appear in some form in a court of record.

But the facts by themselves don't mean very much. They may have more value as a harbinger of future behavior where E*Trade is concerned. In my particular case, I am fortunate to be in circumstances where I can immediately come up with $1000 if necessary (though that has not always been so). I have a supportive bank and employer, a strong technical base of understanding, and the dogged determination needed to fight such battles. I also was very lucky that I began recording everything at the first hint of trouble, and happened (quite by accident) to use electronic transfers to fund my accounts. There are people out there (certainly the E*Trade employees involved!) who would like you to chalk all of this up as a single series of unfortunate events peculiar to me, the time of year, the newness of the enterprise, certainly nothing likely to happen again.

However, remember that all of this happened without me ever attempting to withdraw any funds from E*Trade control - these events occurred simply because I tried to move money between accounts of my own free will. The point of investing is to eventually withdraw the funds. I cannot speak for you, of course, but I can't imagine trusting E*Trade to honorably and efficiently allow me to withdraw funds.

Imagine a situation where your retirement income depends on withdrawals from your investment accounts, and you are ill and incapacitated for some reason. Can you be comfortable picturing your aged wife or other loved ones inexperienced in such matters negotiating the attitudes and roadblocks illustrated by my experiences? Do you feel secure that you will always have the necessary resources, skills, partnerships, and strength to fight this kind of battle over that which is rightfully yours? And are you confident that in the event of your demise your survivors will enjoy painless access to their inheritance? What do you think might happen if someone at E*Trade just simply decides they don't like you, or one of your representatives? Do you think access to and control of your own funds should be determined by your popularity among E*Trade employees at any given point in time? My own father recently required quadruple bypass surgery. Presume he had no insurance, but fortunately had the resources to foot the bill himself. Assuming the hospital refused to provide the operation without proof of financial responsibility, how might a three- or four-week battle to gain access to and control of his investments have affected his life and future prospects?

Though painful, the art of investing requires a realistic approach to the world at large, including such subjects as death, aging, and quality of life during the infirm years. There are some realities beyond the personal that also must be factored in. Consider these: A certain percentage of E*Trade employees beat their wives. A certain percentage of E*Trade employees ingest cocaine. Some E*Trade employees drink too much, some gamble, some sleep with prostitutes, and, like it or not, some steal. Some will commit murder (we will assume for the moment that past offenders are not employed there). Now to be fair, I could have substituted any company's name for E*Trade's in the previous several statements and the statements would be just as true. The statements are true because it is a reality in our world that a certain percentage of the general population does every one of those things, and even worse. Every large company draws from the general population, and given you cannot discriminate against a job candidate based on what he or she might do, as well as the general prohibitions against discrimination by skin color, religious background, etc.

"OK, so what?", you say,"E*Trade's no worse than any other company." Not quite. The problem is bad enought when you're drawing from the top of the barrel. As a discount broker offering little or no prestige with the positions they have to offer, and being too visible to offer the "churning" opportunities known to be available at more prestigious firms, and constrained by economic forces from offering lucrative salaries, E*Trade must settle for junior-level fresh recruits, mediocre middle-level hasbeens, older burnouts and...opportunists. Yes, I like being able to trade stocks at $14.95 per trade, but I am not oblivious to what that ultimately means in terms of quality of service, the available knowledge pool, and the likely motivations of the average employee. In all of my conversations with E*Trade personnel, I've yet to speak to anyone over the age of 30, or who understands even the basics of the business they're in. Sure, they can tell you what button to push on the web page and they can quote fro the IRS rules and regulations (assuming someone offline points them in the right direction), but the ones with a clue, the motivated, hardworking young studs with good business-school degrees, the seasoned professionals who've weathered many a storm, the older visionaries who conquer other companies and drive markets...they don't work for E*Trade. There are times when cliches are the only suitable form of communication: There is no such thing as a free lunch, and you get what you pay for.

Add this to the mix - consider the temptations of billions of dollars in very liquid, often cash, assets in small accounts belonging to millions of novice amateur investors. My friend at Charles Schwab, while he won't go on the record, tells me that it is the rumor that E*Trade will look the other way regarding after-hours leveraging of these accounts in foreign market speculation which allows them to recruit candidates. Whether there is truth or even possibility to the rumor is not material to the issue - what is material is that the candidates believe it.

And a final consideration: movies and pop culture have long promoted the stockbroker community's abuse of power, women, and particularly drugs such as cocaine. Among up-and-coming stars in the field, there is an expectation of excess as a sign of even moderate success. Which do you think is more important to a young stockbroker on a cocaine high - the appearance of wealth in the presence of a runway model, or the moral fine points of how you obtained the money?

I made a reference to criminal activity in my last letter to Robert Laughter. As my problems with E*Trade grew and the situation became ever more ludicrous, I began hearing more and more stories specific to E*Trade abuses, first from Continental employees, and then via e-mail from friends, coworkers, usenet groups, other online-broker customers. At first, particularly where immediate coworkers were involved, I took the feedback as simply a form of support and expression of comradery. But now I'm getting e-mail from all over the country, from people I don't even know and I haven't yet even published this article. One lady sent me FAXes of her account statements - she was so troubled she sent deeply detailed and very personal financial statements halfway across the country to a complete stranger, and amateur investor to boot, seeking any kind of help she could get.

I am now of a belief, in part because I am 46 years old and have seen a lot of the world, something very wrong is going on at E*Trade. I honestly feel I would believe that even if the story I've written had happened to someone else. The anecdotes I've heard and my own experiences lead me to believe there is an entrenched delay mechanism in place at E*Trade specifically directed at cash assets. I believe (again with the cliches) where there is smoke there is fire, and there is a great deal of smoke there. I think because individual investors are concerned with their own particular tree, there's been a failure to step back and look at the condition of the forest. And, I think that problem is magnified by the inexperience of the investors E*Trade attempts to draw in.

I doubt the problem, if there is one, is centered on the Robert Laughmans of E*Trade's staff. Certainly the defects of personality, efficacy, motivation, and sincerity someone like that brings to the equation muddies up the waters, and that may work to the advantage of those higher up in the food chain. I don't have the skills or interest required to ferret out the wrongdoers, but I have to admit to a certain satisfaction if someone, after reading this, were to pick up the torch and ultimately expose them for what they are. But whatever the truth, I thank you for your patience in allowing me to recount my experiences, and whether or not you accept the conclusions I've come away with, I hope you'll carefully consider your future business ventures with E*Trade. At the minimum, please invest in a good tape recorder!
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