Bad April Fool's Joke: Give Away Millions In Fake Money; Users Start Trading With It

from the how-to-define-a-bad-idea dept

See Update Below. Well here's an idea that must have sounded good at one point. Upstart online brokerage Zecco (already known for pulling attention-grabbing stunts) had the bright idea for April Fool's Day to load up users' balances with much more money than they actually had -- sometimes millions more. Except... it looks like they never bothered to make sure people couldn't use that money. So plenty of users started making trades with the fake money... and when Zecco realized it, the company apparently started to force sell, even at a loss, charging the losses to the customers along with a "$19.99 broker-assisted trading fee." Oops. Update: Consumerist has updated their post with a message from Zecco claiming that it was not an April Fool's joke, but noting "Some clients may experience incorrect display of Buying Power and Account Balances." It's not entirely clear how those "incorrect displays" were apparently off by millions in some cases. Update 2: Zecco is again insisting this was not an April Fool's joke and that it was "a bad feed" from a vendor. It's not entirely clear why it took the firm 5 days to explain that, however...

Filed Under: april fool's, fake money, trading
Companies: zecco

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  1. identicon
    Phantom Gremlin, 6 Apr 2009 @ 5:30pm

    margin account

    I was under the impression that to sell assets required the express permission of the owner.

    Not in a margin account.

    Think of it this way (somewhat simplified). You deposit $10K into an account. The broker will lend you another $10K so you can buy stocks or bonds. If your stocks go up, then great. But if they go down, you must either sell the stocks or deposit more money. The broker wants at least a "maintenance" margin, which varies by asset class. But let's say it's 25%. If the value of all assets in your account doesn't exceed what you owe the broker by at least 25%, you get a "margin call". But that's just a courtesy. The broker can sell you out at any time to protect himself.

    In this case, let's say you had $10K in your account. Then Zecco added $100K into your account by mistake, then you bought stock with that new money. Now you have $110K in stock but you owe the broker $100K. Much less than a 25% cushion. So the broker can sell your stock immediately to protect himself.

    It could be interesting if you have a "cash account" and never agreed to the terms and conditions of a "margin account".

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