The Securities and Exchange Commission (SEC) filed a case against Israeli firm Tradenet Capital Markets Ltd for selling unregistered security-based swaps to more than 5,000 retail investors. The case also cites Tradenet’s failure to carry out transactions of those swaps on a registered national exchange.
The company has also agreed to pay the $130,000 penalty levied against it by the financial regulator. Tradenet has also agreed to stop selling the swaps that generated the fine.
Tradenet provides access to different trading programs, including interactive chatrooms, on-site coaching, as well as self-study courses.
Based on the report by SEC, Tradenet sold educational packages between November 2017 and June this year. Those packages included demo accounts with several videos, supplementary materials, and practice sessions.
Fund-based contract account violated US securities laws
When users enrolled in the program, they became qualified to apply for the account funded by Tradenet, allowing them to trade with a high drawdown and earn massive profits from their stimulated trades.
The agency revealed that the contracts providing funded based accounts violated US securities laws as they were security-based swaps.
Those who bought the products were charged between $500 and $900 by Tradenet. The company also closed the accounts of investors when their losses reached a certain level.
The financial watchdog also pointed out that Tradenet did not follow the proper registration requirements that would have provided information to the investors for proper evaluation of security transactions. The SEC also accused the company of not following the regulation when screening and approving the users.
Tradenet has accepted to pay fine
Tradenet was established in 2004 by Meir Barak. The company admits it has educated over 30,000 people all over the world on trading skills. It provides online courses for prospective investors and traders of US stocks. The company also offers chat room access, providing tips and real-time commentary on stocks and securities.
The company has accepted the charges and agreed to the cease-and-desist order by the SEC without denying or admitting the findings of the SEC.
SEC’s chief, Daniel Michael, pointed out that firms who want to sell synthetic stock exposure to U.S. retail investors need to get the necessary approval and follow the required guidelines
“Companies seeking to sell U.S. retail investors synthetic exposure to stocks must ensure compliance with the federal securities laws,” he said.
Daniel also warned that other companies that refuse to follow guidelines will be met with the same fate. It should be a deterrent to foreign investors who transact mainly with non-investors without following the US laws on such businesses.