Israeli company Tradenet Capital Markets Ltd. has agreed to a cease-and-desist order and a combined penalty of $130,000 after being charged by the US top watchdog for selling unregistered security-based swaps to retail investors.
The Securities and Exchange Commission (SEC) has charged Tradenet for the sale of unregistered security-based swaps to over 5,000 retail investors and for failing to transact those swaps on a registered national exchange. The company offered access to a plethora of trading programs, self-study courses, on-site coaching, and interactive chatrooms.
According to the SEC’s order, from November 2017 to June 2020, Tradenet sold educational packages that included demo trading accounts with dozens of videos, practice sessions and supplementary material. By enrolling in the program, users were eligible to apply for Tradenet funded account where they can trade with a maximum drawdown and earn a chunk of net profits generated from their simulated trades.
The agency states that these contracts to provide funded trading accounts were security-based swaps transactions that violated US securities law.
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Tradenet, which charged its product buyers a price tag ranging from $500 to $9,000, closed accounts of investors whose portfolios’ losses reached a specified threshold. The SEC said the company ignored the registration requirements designed to provide investors with the information necessary to evaluate securities transactions, as well as screened and approved the users.
Established in 2004 by Meir Barak, Tradenet claims to have taught more than 30,000 people worldwide. It offers online day trading training courses on US stocks, as well as access to a chat room that provides real time commentary and tips on securities.
To resolve the proceeding, the firm consented to the entry of a cease and desist order without admitting or denying the findings in the order.
“Companies seeking to sell U.S. retail investors synthetic exposure to stocks must ensure compliance with the federal securities laws,” said Daniel Michael, Chief of the Complex Financial Instruments Unit.
This enforcement action should serve as a caution to foreign firms seeking to structure their business offerings to stay outside the reach of US laws merely by transacting primarily with non-US investors.