Heartland and Datek made huge profits from 1994-2001, allegedly illegal. They conducted SOES trades for millions in unlawful gains. Some guess their profit could have been as high as $250 million. Now the SEC has permanently barred and fined Sheldon Maschler and Jeff Citron with 8 figure sums while day trading shop Heartland Securities will be censured and has to pay seven million dollars.

From 1995 to 1998, Datek accounted for an astounding 1/3 of all SOES executions - over 10 million trades. Millions of these trades were allegedly illegal, because the broker dealer Datek was prohibited from trading for its own benefit using SOES, which was built solely to execute small investors orders.

Maschler and Citron used the realtime software Watcher, which was at that time considerably faster than the Nasdaq workstations market makers used. Watcher was able to analyze order flow and allow the bandits to pick off market makers who were slow to update their price quotes.

The basic scheme of the SOES bandits would go like this: In the very moment the number of market makers at the ask begins to implode they would hit the SOES buy button and require the remaining market makers to sell at a price which in the next moment would become the bid. Some say with this method they milked the SOES system in an unlawful manner, because they as a broker dealer were not allowed to trade via SOES and they managed to make these trades appear as ordinary investor trades of their day trading brokerage Datek.

The question remains if not the market makers milked the small investor all the time much more, especially because later the restriction of the SOES system to be used by others than small investors was removed, the spread tick was trimmed down to 1 cent and ECNs were allowed to compete with market makers.

Exactly the first such competing ECN - the Island ECN - was built by Citron and Maschler, probably in order to better be able to sell at the ask after picking off the market maker. But clearly the Island ECN gave rise to the new era of narrow spreads and fair execution of small investor orders.