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Problems hit E*Trade for third day

For the third day in a row, investors are unable to trade through the online brokerage--and the New York attorney general is investigating.

E*Trade users were barred from trading and viewing their accounts for half an hour today, as the online brokerage struggled to repair the technical problems that have plagued its site for three days in a row.

E*Trade believed it had fixed the problem by 1 p.m. ET on Wednesday, but at 12:20 p.m. today, the trading function was again inaccessible to users. The service went back up around 12:50 p.m.

Today's outage was an aftershock of the malfunction that affected the site on Wednesday and Thursday, the result of a software change gone awry, the company said. "We're monitoring it very, very closely, and we were able to resolve it fairly quickly," said Judy Balint, E*Trade's president and chief operating officer.

Shares of E*Trade fell with stocks of similar companies as the Nasdaq dropped more than 35 points. E*Trade lost 4.5625 to close at 48.9375, while Ameritrade retreated 15.25 to 95.50, and Charles Schwab fell 0.4375 to end the day 66.0625.

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Balint said today's interruption did not have a great impact on user volume, which is usually heavy in the morning but lightens up around lunchtime. E*Trade executed more than 300,000 trades this week, compared with an average volume of 200,000 per week last quarter, she said.

But some who were unable to get through to their E*Trade accounts said they aren't willing to take any more chances. Mike Lydon of Mountain View, California, said his emails to a special customer service address had gone unanswered for 2 days. "I opened a Schwab account yesterday and it's working great so far," Lydon said. "It might cost a little more to trade but it's worth it when you have your money on the line." Later, Lydon called E*Trade to close his account altogether, only to be asked to stay on hold for at least 30 minutes.

Balint said the immediacy of the Internet has raised expectations about the speed of customer service. E*Trade's service address has received about 2,500 emails from account holders regarding the outage this week, but with just 100 customer service employees, response has been slow. The company plans to add another 200 people to its customer service staff by the end of the month. In the meantime, other E*Trade employees are being pulled away from their duties to help with customer queries.

This was the third day of problems on E*Trade, the third largest online broker with more than 676,000 active accounts. On Wednesday and Thursday, a software upgrade that malfunctioned caused the brokerage's trading capabilities to go dead for a period of time, the company said. Service was restored to most account holders by the end of the trading session on Thursday.

Although E*Trade has placed blame for this week's problems squarely on a software glitch, rather than trading volume, capacity has been a problem for the brokerage in the past. In December 1997, some investors sued the company after they were unable to trade during huge market fluctuations in October of that year.

But for some account holders, the reason for the service interruption was irrelevant. "I am done with E*Trade now. I will shop around for a better broker even if it is more expensive," said Rauf Adil, who trades heavily in Internet stocks.

Regulators are also taking a closer look at online trading. The New York attorney general has begun an investigation of the industry after receiving "dozens of complaints" in the past month from consumers about delays in processing trades and Web site crashes.

The New York State Law Department has sent letters to several online brokerages asking that they provide documents, reports, and other information regarding their services. The goal is to develop safety precautions to protect investors, who have complained about money lost because of poor service.

"The public knows that there are always risks involved in investing in the stock market," the attorney general, Eliot Spitzer, said in a statement. "But part of the risk should not include questions about whether trades will be executed promptly or whether online brokerage firms can deliver the services that they've promised."

Today, four Democratic congressmen sent a letter to Securities and Exchange Commission Chairman Arthur Levitt expressing their concern about the reliability of Internet-based trading systems asking him to clarify whether regulations exist to protect investors who are unable to get access to their accounts.

E*Trade has is considering whether to compensate account holders for delayed or missed trades. "We try very hard to take a look at it on a customer by customer basis," said Balint. "We believe in doing the right thing by our customers."

Adding to E*Trade users' displeasure has been the apparent slow response of the brokerage. Adil said he was kept on hold more than 30 minutes when he called the brokerage's customer service line, which played the message, "All Telemaster and Web services should now be up."

On Wednesday, Leonard Purkis, the company's executive vice president of finance, called the outage "embarrassing."

Bloomberg contributed to this report.