FOUNDER OF UNREGISTERED DAY-TRADING FIRM BARRED FROM INDUSTRY
An SEC ALJ barred the operator of a day trading firm for failing to properly disclose to its day trading customers that firm operating expenses would be deducted before applicable payouts. The firm’s recordkeeping system did not accurately reflect account balances. Although the respondent had his Series 7, which was held by the clearing firm, the day trading firm was not a registered broker-dealer and the customer/traders received compensation based on payouts accruing to their preferred share interests held in the day trading firm. The SEC charged that the day trading firm needed to be registered because it received commissions and, therefore, the failure to properly disclose and keep records violated Section 15 of the 1934 Act.
OUR TAKE: When a firm’s compensation is dependent on transactions, the SEC will require it to register as a broker-dealer regardless of how the firm re-structures the payments. And, if the SEC thinks you should be a broker-dealer, it will hold you accountable to all laws and regulations applicable to broker-dealers.