TD Ameritrade is an American online broker with over 6 million U.S. customers, and many more internationally, that has grown rapidly through acquisition to become the 746th-largest US firm in 2008. TD Ameritrade Holding Corporation is the owner of TD Ameritrade Inc. Services offered include common and
preferred stockPreferred stock, also called preferred shares, preference shares, or simply preferreds, is a special equity security that has properties of both an equity and a debt instrument and is generally considered a hybrid instrument...
s,
futuresIn finance, a futures contract is a standardized contract between two parties to exchange a specified asset of standardized quantity and quality for a price agreed today with delivery occurring at a specified future date, the delivery date. The contracts are traded on a futures exchange...
,
ETFsAn exchange-traded fund is an investment fund traded on stock exchanges, much like stocks. An ETF holds assets such as stocks, commodities, or bonds, and trades close to its net asset value over the course of the trading day. Most ETFs track an index, such as the S&P 500 or MSCI EAFE...
,
optionIn finance, an option is a derivative financial instrument that specifies a contract between two parties for a future transaction on an asset at a reference price. The buyer of the option gains the right, but not the obligation, to engage in that transaction, while the seller incurs the...
trades, mutual funds,
fixed incomeFixed income refers to any type of investment that is not equity, which obligates the borrower/issuer to make payments on a fixed schedule, even if the number of the payments may be variable....
,
marginIn finance, a margin is collateral that the holder of a financial instrument has to deposit to cover some or all of the credit risk of their counterparty...
lending, and cash management services.
Ameritrade Apex
The preferred customers of Ameritrade, Apex clients average five trades per month over a three month period and/or have an account balance of one hundred thousand dollars to qualify. Ameritrade Apex clients also receive free access to tools, such as level-two QuoteScope software. With level two they can see all stock orders placed by market makers in real time. Apex clients also pay no service fees (commissions still apply).
History
TD Ameritrade traces back its lineage to a small investment banking firm and
First Omaha Securities, Inc.First Omaha Securities, Inc., was one of the early pioneers in the discount brokerage business.-About:The company started as an investment banking business named Rahel, Knack and Co. in the 1960s in Omaha, Nebraska. It was purchased in 1975 by J. Joseph Ricketts, Robert Perelman, and David G...
(later Accutrade) in
Omaha, NebraskaOmaha is the largest city in the state of Nebraska, United States, and is the county seat of Douglas County. It is located in the Midwestern United States on the Missouri River, about 20 miles north of the mouth of the Platte River...
. Ameritrade Clearing Inc. was established as a
clearing brokerCentral Counterparty Clearing is a process by which financial transactions in equities are cleared by a single counterparty. Please see Clearing for general information about clearing...
in 1983, and by 1987 TransTerra Company became the holding company for Ameritrade, and the company was subsequently known as TransTerra Company. In 1988, the company introduced the first quote and order entry system via the touch-tone phone. In 1995, the company acquired K. Aufhauser & Company, Inc. and its WealthWeb, the first firm to offer online securities trading, receiving the first order in August 1994. In October 1995, Ameritrade acquired All American Brokers. In January 1996, TransTerra's Accutrade launched "Accutrade for Windows," the first online investing system that let individuals partake in program investing and basket trading. By May 1996, TransTerra launched an Internet only broker called eBroker, and by November, TransTerra Company became Ameritrade Holding Corporation.
In March 1997, Ameritrade became a publicly held company, and its IPO opened at $15 per share. In August 1999, Accutrade (then a Division of Ameritrade) acquired The R. J. Forbes Group, Inc.. Ameritrade formed Freetrade in November 2000, which provided commission-free equity market orders. Freetrade was later replaced by Ameritrade Izone, which offered $5 equity market orders, though it no longer exists. In 2001, Ameritrade made two acquisitions: the February acquisition of TradeCast, giving Ameritrade a presence in the business-to-business arena, and the September acquisition of National Discount Brokers Corporation, adding $6.3 billion in client assets.
In 2002, Ameritrade merged with Datek Online Holdings Corporation, and changed commissions to $10.99 from $8 for market orders and $12 for limit and stop orders. Ameritrade purchased Mydiscountbroker.com in June 2003, and client accounts reached 3 million. In 2004, Ameritrade completed the purchase of Bidwell and Company in January, BrokerageAmerica in February, Investex in May and JB Oxford and Company in October. As of August 2007, there were reports suggesting that Ameritrade was engaged in merger talks with E*TRADE.
In 2008, long-time CEO
Joe MogliaJoe Moglia is the current head football coach of the Omaha Nighthawks of the United Football League. Moglia is also the current Chairman and former CEO of TD Ameritrade, the largest online discount brokerage firm in the world in terms of the number of retail online equity trades placed each...
announced he would be vacating the CEO position in the upcoming fall after seven years to pursue other interests. Fred Tomczyk, the former COO, was named his successor and took over in September 2008. Rumors started that the company was going to move its headquarters out of the Omaha area after Moglia took over the Chairman position from founder and former CEO
J. Joseph RickettsJ. Joseph Ricketts is the founder, former CEO and former chairman of TD Ameritrade, one of the largest online discount brokerages in the world, based in Omaha, Nebraska...
. With the departure of Ricketts, who founded the company in Omaha, the company for the first time in its history had no members from the founding family on its management team, outside of the two that remained on the Board of Directors. Tomczyk further strengthened the rumors when he stated that he would not be moving out to Omaha, but rather staying in the New York City area, where he is based out of. However, those rumors were put to rest when in October 2008 plans were unveiled of the new TD Ameritrade headquarters in Omaha. The new headquarters would consolidate the call center and corporate offices together into one building. The new building, planned for development in the Old Mill area of Omaha, has a scheduled completion date of 2012. Tomcyzk later confirmed that the company considered moving out of the Omaha area, but decided to stay because of the large number of employees based in Omaha.
Tomczyk announced on June 10, 2009, that the name of the new ballpark will be TD Ameritrade Park Omaha. He had also made a statement that morning that this move is a sign that the company will continue to be headquartered in Omaha. TD Ameritrade will be paying an average of $1 million a year for the naming rights. The NCAA has also mentioned that they are interested in talking with the company about a corporate sponsorship.
Acquisition of Thinkorswim Group Inc.
On January 7, 2009 TD Ameritrade acquired Thinkorswim Group Inc. (NASDAQ:SWIM) in a cash and stock deal valued at approximately $606 million. The transaction aimed to advance TD Ameritrade's growth strategy on the trading side of the business.
Acquisition of TD Waterhouse USA
On January 24, 2006, Ameritrade Holding Corporation acquired
TD Waterhouse USATD Waterhouse is the brand used for both Canadian and British brokerages within the TD Bank Financial Group. It was also formerly used for TD's American brokerage....
from
TD Bank Financial GroupThe Toronto-Dominion Bank , is the second-largest bank in Canada by market capitalization and based on assets. It is also the sixth largest bank in North America. Commonly known as TD and operating as TD Bank Group, the bank was created in 1955 through the merger of the Bank of Toronto and the...
. Following the acquisition, it renamed itself TD Ameritrade. TD Ameritrade is one of the largest online brokerages, with 7.2 million client accounts and $225 billion in client assets. Revenue and net income are expected to increase to $1.8 billion and $557 million, respectively. TD Bank now owns 39% of TD Ameritrade, and purchased Ameritrade's Canadian brokerage operations for $60 million cash. As part of the acquisition, Ameritrade investors received a special one-time $6 dividend, funded from Ameritrade borrowings and excess cash contributed to TD Waterhouse USA by TD Bank. TD Bank will limit their ownership of TD Ameritrade to 45% for up to ten years after the acquisition, while founder
J. Joseph RickettsJ. Joseph Ricketts is the founder, former CEO and former chairman of TD Ameritrade, one of the largest online discount brokerages in the world, based in Omaha, Nebraska...
will limit his family's ownership of TD Ameritrade to 29% for ten years after the acquisition. Ameritrade CEO
Joe MogliaJoe Moglia is the current head football coach of the Omaha Nighthawks of the United Football League. Moglia is also the current Chairman and former CEO of TD Ameritrade, the largest online discount brokerage firm in the world in terms of the number of retail online equity trades placed each...
became the CEO of TD Ameritrade.
Security breach and resulting identity theft risk and class action lawsuit
In October 2005, several people posting to nanae (the news.admin.net-abuse.email Usenet newsgroup) began to uncover what was at the time the 3rd largest dataloss incident ever when they reported spam to the disposable email addresses they'd given (only) to Ameritrade that were not the result of a
Directory Harvest AttackA Directory Harvest Attack or DHA is a technique used by spammers in an attempt to find valid/existent e-mail addresses at a domain by using brute force. The attack is usually carried out by way of a standard dictionary attack, where valid e-mail addresses are found by brute force guessing valid...
and TD Ameritrade staff reported that it was investigating the matter.
Reports of an ongoing problem continued. For example, on March 30, 2007, a
SlashdotSlashdot is a technology-related news website owned by Geeknet, Inc. The site, which bills itself as "News for Nerds. Stuff that Matters", features user-submitted and ‑evaluated current affairs news stories about science- and technology-related topics. Each story has a comments section...
article reported that unique email addresses provided only to TD Ameritrade were frequently becoming
targets for spammers. There was speculation that one of TD Ameritrade's affiliated companies was the source of the leaks.
However, in mid-September 2007 media including the
Associated PressThe Associated Press is an American news agency. The AP is a cooperative owned by its contributing newspapers, radio and television stations in the United States, which both contribute stories to the AP and use material written by its staff journalists...
and British tabloid IT-news portal
The RegisterThe Register is a British technology news and opinion website. It was founded by John Lettice, Mike Magee and Ross Alderson in 1994 as a newsletter called "Chip Connection", initially as an email service...
reported that TD Ameritrade had disclosed that TD Ameritrade had itself fallen victim to a backdoor-based network attack, and that a database containing all 6.4 million customer
Social Security numberIn the United States, a Social Security number is a nine-digit number issued to U.S. citizens, permanent residents, and temporary residents under section 205 of the Social Security Act, codified as . The number is issued to an individual by the Social Security Administration, an independent...
s,
nameA name is a word or term used for identification. Names can identify a class or category of things, or a single thing, either uniquely, or within a given context. A personal name identifies a specific unique and identifiable individual person, and may or may not include a middle name...
s,
addressesAn address is a collection of information, presented in a mostly fixed format, used for describing the location of a building, apartment, or other structure or a plot of land, generally using political boundaries and street names as references, along with other identifiers such as house or...
, and
email addressesAn email address identifies an email box to which email messages are delivered. An example format of an email address is lewis@example.net which is read as lewis at example dot net...
had been compromised. The Register alleges said breach was only disclosed after a class action lawsuit started against the TD Group. TD Ameritrade has stated that the stolen information included account information such as
account balances.
Preliminary approval a proposed class action settlement agreement was requested of Judge
Vaughn R. WalkerVaughn R. Walker served as a district judge of the United States District Court for the Northern District of California from 1989 to 2011.-Biography:Walker was born in Watseka, Illinois, in 1944...
, who denied the request on June 30, 2008. On November 13, 2008, the state of Texas, in a letter from
attorney generalGregory Wayne "Greg" Abbott is the Texas Attorney General, and is the second Republican since Reconstruction to serve in that role. Abbott was sworn in on December 2, 2002, following John Cornyn's election to the U.S. Senate...
of
TexasTexas is the second largest U.S. state by both area and population, and the largest state by area in the contiguous United States.The name, based on the Caddo word "Tejas" meaning "friends" or "allies", was applied by the Spanish to the Caddo themselves and to the region of their settlement in...
to Judge Walker objected to a revised settlement agreement.
In October 2009, Judge
Vaughn R. WalkerVaughn R. Walker served as a district judge of the United States District Court for the Northern District of California from 1989 to 2011.-Biography:Walker was born in Watseka, Illinois, in 1944...
denied final approval to a settlement proposal he had preliminarily approved, on the grounds that the proposed settlement seeks to confer no discernible benefit upon the class, the plaintiffs had mischaracterized the nature of the risks associated with the breach, and hence the settlement was not fair, reasonable and adequate. The court also decertified Kamber Edelson LLC, Parisi & Havens LLP, Scott A Kamber and Ethan Mark Preston (“Kamber et al”) as lead counsel.
Investigation of the breach is reported to be ongoing, but no leads have been reported.
Preliminary approval of a third settlement agreement filed with the court was granted on Dec 20, 2010. The new settlement offers up to $2500 cash (but in most cases $50) to any TD Ameritrade customer in the class who suffered any kind of identity theft at any time since 2004, even if not connected to the security breach. July 6, 2011 was the deadline to file a claim. January 15 was the deadline for class notification, but the printable claim was not available on the settlement website until January 20. As of January 31, 2011, the web-based claim form (now available at http://www.accountdatasettlement.com/) was unavailable, and on that day, the case was reassigned to Judge
Saundra Brown ArmstrongSaundra Brown Armstrong is a United States federal judge.Born in Oakland, California, Armstrong received an A.A. from Merritt College in 1967 and a B.A. from California State University, Fresno in 1969. She was a police officer in the Oakland Police Department from 1970 to 1977. She then received...
, due to Judge Walker's retirement.
TD Ameritrade and the Auction Rate Securities Scandal
On Monday, July 20, 2009, TD Ameritrade agreed to pay $456 million to settle a lawsuit involving the marketing of a debt class that ended up crippling investors. As part of the settlement, TD Ameritrade is set to repurchase all auction-rate securities sold prior to February 13, 2008 from retail investors with accounts of $250,000 or less within the next 75 days.
TD Ameritrade's lawsuit spawned from its involvement in the
auction rate securityAn auction rate security typically refers to a debt instrument with a long-term nominal maturity for which the interest rate is regularly reset through a dutch auction. Since February 2008, most such auctions have failed, and the auction market has been largely frozen...
scandal. Ameritrade sales people actively promoted Nuveen's auction rate securities as an alternative to money funds, resulting in individuals inability to liquidate out of their securities.
An
auction rate securityAn auction rate security typically refers to a debt instrument with a long-term nominal maturity for which the interest rate is regularly reset through a dutch auction. Since February 2008, most such auctions have failed, and the auction market has been largely frozen...
is a type of
closed-end fundA closed-end fund is a collective investment scheme with a limited number of shares. It is called a closed-end fund because new shares are rarely issued once the fund has launched, and because shares are not normally redeemable for cash or securities until the fund liquidates.Typically an...
which means the fund has a fixed initial investment and is then traded on a
secondary marketThe page applies to the finanical term; For the merchandising concept, see Aftermarket .The secondary market, also called aftermarket, is the financial market where previously issued securities and financial instruments such as stock, bonds, options, and futures are bought and sold....
. The money was to be invested in municipal securities and other instruments at rates that would be determined by weekly auctions. TD Ameritrade salespeople promoted Nuveen funds with names like "Quality Preferred Income II" to corporate and individual investors, claiming they were liquid alternatives to money market funds.[3] In fact they were not, because they had no expiration date and the issuer has no obligation to pay back money it has borrowed from the investor, who can only cash out by selling his investment to someone else.
The market for auction rate securities collapsed in February, 2008 when broker-dealers such as UBS declined to continue to participate in
dutch auctionA Dutch auction is a type of auction where the auctioneer begins with a high asking price which is lowered until some participant is willing to accept the auctioneer's price, or a predetermined reserve price is reached. The winning participant pays the last announced price...
s that determined the rate of interest for the securities. Up to this point, brokers and issuers had propped up the auctions by acting as a bidder of last resort; without their participation, the market quickly folded. Investors were left with "frozen" accounts, that essentially were worth nothing, since they could not be redeemed and the investment houses that created them refused to close them out or return the money.
Investor groups are said to be organizing class action suits against Ameritrade, Nuveen, and other organizations such as UBS and
Merrill LynchMerrill Lynch is the wealth management division of Bank of America. With over 15,000 financial advisors and $2.2 trillion in client assets it is the world's largest brokerage. Formerly known as Merrill Lynch & Co., Inc., prior to 2009 the firm was publicly owned and traded on the New York...
, that have been involved in the
auction rate securityAn auction rate security typically refers to a debt instrument with a long-term nominal maturity for which the interest rate is regularly reset through a dutch auction. Since February 2008, most such auctions have failed, and the auction market has been largely frozen...
scandal.
TD Ameritrade and the Reserve money funds
The firm's customers were approached by TD Ameritrade brokers and recommended to invest their liquid money in a
money fundA money market fund is an open-ended mutual fund that invests in short-term debt securities such as US Treasury bills and commercial paper. Money market funds are widely regarded as being as safe as bank deposits yet providing a higher yield...
managed by
The Reserve, RYPQX (the Reserve Yield Plus Class R fund), according to investors in the fund. More than 98% of the fund had been sold to TD Ameritrade's clients, as disclosed in a statement from the Reserve on July 29, 2008. When the fund broke the buck along with several other Reserve
money fundA money market fund is an open-ended mutual fund that invests in short-term debt securities such as US Treasury bills and commercial paper. Money market funds are widely regarded as being as safe as bank deposits yet providing a higher yield...
s in September, 2008, money assets of thousands of TD Ameritrade clients (including many senior citizens) were frozen. For the larger
Reserve Primary FundThe Reserve Primary Fund was a large money market mutual fund.On September 16, 2008, during the Global financial crisis of September-October, 2008, it lowered its share price below $1 because of exposure to Lehman Brothers debt securities. This resulted in demands from investors to return their...
that also broke the buck, TD Ameritrade said it will reimburse clients for up to a 3% loss. Other Reserve funds, such as the Interstate Tax Exempt Fund, were sold by TD Ameritrade, and were caught up in the Primary Fund's Failure, leaving investors in these funds without liquidity. However, the Reserve Yield Plus fund previously marketed by the company is not covered by the offer.
Investors allege a
conflict of interestA conflict of interest occurs when an individual or organization is involved in multiple interests, one of which could possibly corrupt the motivation for an act in the other....
for TD Ameritrade to promote the fund over its clients in the presence of a distribution agreement between The Reserve and TD Ameritrade that earns Ameritrade an undisclosed slice of fee revenue. Fred Tomczyk (TD Ameritrade president) argued that the contract was a standard one and that "an investment firm has to make money in some way." According to the
Chicago TribuneThe Chicago Tribune is a major daily newspaper based in Chicago, Illinois, and the flagship publication of the Tribune Company. Formerly self-styled as the "World's Greatest Newspaper" , it remains the most read daily newspaper of the Chicago metropolitan area and the Great Lakes region and is...
article, the distribution agreement clearly was effective: assets in Yield Plus Class R shares sold almost exclusively to TD Ameritrade clients shot from almost nothing in 2006 to $770 million by March of this year, public documents show. Another class dominated by the Omaha firm shot from $2 million to $171 million.
The SEC along with several state regulatory agencies are investigating TD Ameritrade's fund promotion and marketing practices. The company is named in a
class actionIn law, a class action, a class suit, or a representative action is a form of lawsuit in which a large group of people collectively bring a claim to court and/or in which a class of defendants is being sued...
lawsuit for
misrepresentationMisrepresentation is a contract law concept. It means a false statement of fact made by one party to another party, which has the effect of inducing that party into the contract. For example, under certain circumstances, false statements or promises made by a seller of goods regarding the quality...
and marketing of the Reserve Yield Plus fund as a money market fund. The Sacramento Bee reported that the SEC filed a civil complaint against Reserve Management, chairman Bruce Bent Sr., and vice chairman and president Bruce Bent II in May 2009. It also reported anticipated investor losses of 8.3%, and TD Ameritrade spokeswoman Kim Hillyer said it will cover up to $50 million of losses in the Primary Fund.
As of November 16, 2009, about $85.5 million Yield Plus Fund assets are still being held by the Reserve Management Co., which decided to hold off on distributions to shareholders in order to "set aside money to cover potential claims" against itself.
Competitors
- E*TRADE
- Fidelity Investments
FMR LLC or Fidelity Investments is an American multinational financial services corporation one of the largest mutual fund and financial services groups in the world. It was founded in 1946 and serves North American investors. Fidelity Ventures is its venture capital arm...
- Scottrade
Scottrade is a privately owned American discount retail brokerage firm headquartered in St. Louis, Missouri. Its Founder, President and CEO is Rodger O. Riney. Scottrade has 500 branch offices around the U.S...
- The Charles Schwab Corporation
See also
- Auction rate security
An auction rate security typically refers to a debt instrument with a long-term nominal maturity for which the interest rate is regularly reset through a dutch auction. Since February 2008, most such auctions have failed, and the auction market has been largely frozen...
- Investing
- Marketing ethics
Marketing ethics is the area of applied ethics which deals with the moral principles behind the operation and regulation of marketing. Some areas of marketing ethics overlap with media ethics....
- Stock broker
A stock broker or stockbroker is a regulated professional broker who buys and sells shares and other securities through market makers or Agency Only Firms on behalf of investors...
- Sweep account
A sweep account is an account set up at a bank or other financial institution where the funds are automatically managed between a primary cash account and secondary investment accounts.- Overview :...
External links