Online Investing and the Suitability Obligations of Brokers and Broker-Dealers Note 34 Suffolk University Law Review 2000-2001

34 Suffolk U. L. Rev. 395 (2000-2001)
Online Investing and the Suitability Obligations of Brokers and Broker-Dealers

handle is hein.journals/sufflr34 and id is 403 raw text is: Online Investing and the Suitability Obligations of Brokers and
Broker-Dealers
An unkempt tow truck driver, while transporting a sophisticated
businessman, elicits conversation about the stock market. The truck driver tells
his passenger that he trades securities online, suggesting that he has performed
well in this new investment arena. The businessman, obviously skeptical of the
truck driver's expertise in the stock market, dismisses the conversation and
subsequently inquires into a photograph displayed inside the truck. The
photograph is of a tropical island, which the driver proudly admits of owning,
adding, Technically, it's a country.,,I
This was the situation presented in a popular television commercial created
for Discover Brokerage, an online investment brokerage firm. Although the
commercial is cloaked in humor, the message is clear: anyone can make
money by trading securities online, regardless offinancial means or investment
knowledge. This perception, combined with the ever-expanding range of
investment services offered electronically, raises questions about the extent to
which online broker-dealers are responsible for the suitability of their
customer's transactions.
I. INTRODUCTION
The emergence of the Internet has revolutionized methods of
communication.2 As a result, the securities industry has experienced dramatic
change.3 The most significant change is a move by investors to online trading
of securities.4 In 1994, there were no broker-dealer firms providing internet
1. Discover Brokerage Direct, a Unit of Morgan Stanley Dean Witter (NBC television commercial,
1999).
2. Peter C. McMahon, Securities Law and the Internet: Enforcement Issues, 1127 PLI/CoRP. 265, 270
(1999) (stating Internet most powerful medium of communication in history). McMahon also notes that the
growth of the Internet has created a tremendous problem for regulators by virtue of its size. Id. at 271.
3. Day Trading: Hearings Before the Senate Permanent Subcomm. on Investigations Comm. on
Governmental Affairs (1999) (testimony of Arthur Levitt, Chairman of U.S. Securities and Exchange
Commission). Recognizing the technological advances in the securities markets, Chairman Levitt stated that
the Internet is a valuable tool for investors who seek to monitor, manage, and trade their own portfolios. Id; see
also John C. Coffee, Jr., Brave New World?: The Impact(s) of the Internet on Modern Securities Regulation,
52 Bus. LAW. 1195, 1195-96 (1997) (recognizing speed of information to securities markets increases with
technological advancements).
4. See generally Andrew R. Thompson, Taming the Frontier?: An Evaluation of the SEC's Regulation
of the Internet and Securities Trading Systems, 1999 COLUM. Bus. L. REv. 165, 165 (1999) (arguing online
investing among most popular uses of Internet); see also Leah Nathans Spiro, Who Needs a Broker?, BuS.

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