TradeNet Busted (not surprising) and a BIG regulatory surprise

Everyone loves Meir Barak of TradeNet. Heck, I even kinda-sorta like Meir Barak.

Every day, he gets onto his dumb little YouTube channel and puts on quite a show. Quickly dashing and dancing with lots of colorful language and prognostication on how XYZ stock is breaking out, or breaking down.

Meir Barak TradeNet

Hollering into his microphone how everyone should pile in for big profits and how he supposedly earns easy money day trading.

Meir is the ultimate huckster. If you are bored, you can tune in daily for some cheap entertainment. Sort of like porn for day traders.

The “free money” funded trader program

Every 20 minutes or so, he takes a commercial break and then immediately starts hyping his “funded trader program.”

Magical Free Money!

You know the program, TradingSchools.Org wrote about it over a year ago. You can read the article here.

And of course, we wrote another article here.

The program was stupid simple. You pay Meir a fee ranging from $500 to $9k for “day trading education.”

The fee was then converted into “chuck-e-cheese tokens” where wannabe day traders could then trade on a stock video game simulator (that Meir owned and operated) and if the wannabe day trader was lucky enough to make money in simulator mode, then Meir would pay you a percentage of whatever you earned on a simulator. (AKA Meir’s Magical Trading Simulator)

TradingSchools.Org tore the program a new asshole

Of course, the simulator scheme was totally illegal as the simulator trades were based upon CFD’s or Contracts for Difference trading.

Contracts for Difference were banned in 2008(ish) under the Dodd Frank Regulatory Act.

But Meir didn’t seem to give that much thought. In fact, he recruited TradingSchools.Org to promote the program and pay us 20% of whatever the sucker students were willing to deposit.

We didn’t take the offer. Although it was tempting. And it was generous.

But many other social media types, looking to make a quick buck was all over the TradeNet promotional scheme. I personally know a few characters that made over $100k by relentlessly pumping YouTube videos hawking the affiliate offer.

But who wants to be subpoenaed by the Securities and Exchange Commission? Not me. Been there, done that.

Regardless, the whole scheme was a train wreck in the making — from day one. It was only a matter of time before the loving hand of the SEC regulators showed up and dropped a turd onto Meir’s lap.

The Securities and Exchange Commission shows up

A few months ago, the entirely predictable regulatory event transpires…the subpoenas start flying in every possible direction. All of the promotors were scrambling for cover, YouTube videos started disappearing faster than a fart in the wind.

People that had made big money referring students to TradeNet were suddenly overcome with amnesia. “Meir Barak and TradeNet? Never hear of him! Did I ever promote this dog shit? Not me!

Money started flying out of traceable bank accounts and into untraceable bitcoin wallets faster than a hamster on his wheel.

We have seen all this before. But usually, it involves bucket shop trading venues located in the Caribbean or some eastern European country like Bulgaria.

What is laughable and funny is that Meir’s official “funded trader” program was located in Vanuatu. This place is literally located in the middle of nowhere…far, far away from the SEC. Have a look for yourself:

Isn’t this charming? The “funded trader” program was located on this little coconut atoll. Apparently, somewhere hidden among the palm trees, you will find Meir sipping a cocktail and day trading on his laptop.

Vanuatu is a land known for its robust laws and consumer protections. Behold, the official police department of Vanuatu…

I would like to report a stolen coconut.

And the Vanuatu post office is something everyone must experience at least once…

Try serving your SEC Subpoena to this address!

All day trading disputes are settled according to local rules…

TradeNet simulator gave me big slippage on TSLA! Take that Meir!

I think you get the point. If this whole TradeNet “funded trader” scheme were even remotely legal, then why would Meir have it based on an island in the middle of the Pacific Ocean?

The whole thing was doomed to fail. And of course, it did.

The Securities and Exchange Investigation

Personally, I knew about the commencement of the investigation on the day the subpoenas started hitting the inboxes.

But what I didnt know was how Meir Barak would handle the situation.

Most of the characters I write about, when this sort of thing happens…the website quickly disappears and the “perp” goes deep underground.

However, with Meir, he pretty much threw up his hands and said, “Hey, I did it! But was it really so wrong?”

Well, if there is one thing everyone agrees with regarding Meir Barak, he is very charming. He is ultra nice. If there is a mean bone in his body, I certainly never discovered it. And let’s not forget that I wrote TWO really nasty articles about him.

But Meir was a real gentleman about my articles. We skyped and talked about the situation. I told him plainly…”Meir, this is going to get shut down. Its not even remotely legal under the existing framework.”

Meir responded, “I dont even know if the framework exists or has addressed this business model. In fact, how is this different than TopStep Trader where they are paying their traders for doing the exact same thing — trading on Futures simulators.”

He had a point. The guys offering “funded trader” Futures trading accounts are now all nearly exclusive simulator where the traders/students are simply betting against the house, not other market participants.

How the SEC ruled on the issue

On October 23, 2020 the SEC came down on Meir Barak with their ruling.

The SEC, through their investigation discovered that TradeNet had sold approximately 5000 of these “funded trader” programs ranging in price from $500 to $9000.

In my own estimation, the average trader probably deposited about $3,000 per student. 5000 X $3,000 gives a total amount of roughly $15,000,000.

Considering that 98% of day traders lose everything. Which was argued by the article that I recently wrote, we should consider that Meir did quite well and probably netted a few million in profit.

But the SEC, of course showed up…so how much would they claw back? Well, it turns out that the SEC hit Meir with a relatively meager fine of ‘only’ $130k.

Personally, I thought for sure that it would be in the multiples of millions. So although the SEC order looks quite scary per the language…it was a really lite fine.

In my opinion, the thing that really saved Meir’s ass was that he paid the traders what they earned on the simulator. And it appears that he fully cooperated and really charmed the SEC into an extremely favorable settlement.

So what exactly did Meir Barak and TradeNet get into regulatory trouble over? Quite simply, it was because the simulated trading was done with CFD’s — which are illegal under Dodd-Frank.

The Securities and Exchange Commission’s BIG surprise

I titled this article “TradeNet Busted (not surprising) and a BIG surprise.”

What I am about to reveal is indeed earth shattering regarding the “trader funding” business model.

We already knew that the CFTC or Commodity Futures Trading Commission had already given their blessing regarding the “trader funding” business model, and they surprisingly have allowed the “simulator pay scheme” to also continue.

However, there has been no ruling from the SEC regarding this business model. Until now.

The Regulatory Shift

Most readers are not aware, but the SEC has a section on their website titled, “Public Statements.”

Although these two little words mean very little to the average reader, these “Public Statements” are basically tantamount to “Supreme Court Rulings.”

With just a single comment, the SEC can effectuate major changes and different interpretations of existing securities laws. Just a tiny little comment can be earth-shattering news and shift competitor advantages and disadvantages into extreme positions.

On October 23, 2020 — the very same day that Meir got hit — the SEC Commissioner, Hester Peirce have a very rare public commentary.

When I read it, I was pretty much in shock.

In Hester Peirce’s public commentary, which is titled: Statement Regarding TradeNet Capital Ltd., she dramatically altered the landscape with just a two paragraph statement.

I have included the full comment below…

Oct. 23, 2020

I supported today’s Commission action against Tradenet Capital Markets Ltd., though not without reservations. Tradenet provided its customers “Day Trader Education Packages” that included a simulated “funded account” in which they could “trade” securities. The participants received a portion of the upside, and their downside was capped as their accounts were closed if they fell below predetermined thresholds. Some purchasers of these packages appear to have voluntarily purchased successive packages, and participants appear to have transacted with Tradenet voluntarily and with clear information about the terms of the deal. While Tradenet’s product offering had an educational component, it was primarily about the simulated “funded account,” which could not have been offered to U.S. retail investors under our existing rules

I do believe that there is room in our regulatory framework for creative investor education programs that give investors the opportunity to simulate trading in various financial products and assembling an investment portfolio. Gamification of educational experiences can promote learning, and the use of awards or prizes—even cash prizes—can provide incentives to take the game seriously and thus increase the educational value of the experience. I do not view this order as closing the door to these types of educational experiences. Moreover, firms, schools, and entrepreneurs who are interested in offering genuine learning opportunities to investors through simulated trading experiences with financial incentives but are concerned that their design may raise issues under the securities laws should engage with the Commission to explore how they could offer it in a manner consistent with our rules.

So what does all of this mean…?

Currently, the “funded trader” space is currently dominated by Top Step Trader and Earn2Trade, with a few smaller laggards and more than a few outright scams competing in the Futures space.

The SEC’s stance has now unshackled equities and it would appear there is going to be a mad rush for players to jump into this new open space and offer similar services (Top Step, Earn2Trade, etc).

But there are still questions that need to be answered. If you read the SEC’s position, “(if you) are concerned that their design may raise issues under the securities laws should engage with the Commission to explore how they could offer it in a manner consistent with our rules.

Essentially, the SEC is saying…”before you do this, you need to contact us, and you need to discover out stance on certain issues.

TradingSchools.Org is investigating

As many readers are aware, my wife Susanne, who is also my lawyer is already communicating with the SEC and will be drafting clear guidelines on how “trading educators” can potentially implement “funded trader” opportunities into their own product offerings.

Please reach out to emmett@tradingschools.org if you are interested in learning more. This will NOT BE LEGAL ADVICE. Instead, I will be drafting a general guide to the rules.

Some of the pertinent questions that need to be answered…

  • Will the SEC allow companies to skirt the PDT rule with the simulated accounts?
  • Will traders be deemed “professional” traders and be forced to pay “professional fees?” like what is currently happening on the Futures side?
  • Will companies offering simulated funding opportunities be subject to the same sort of anti-bank fraud and money laundering rules currently enforced with broker dealers?
  • What and where are the landmines that the SEC deems “out of bounds” with respect to current securities laws?

Obviously, this is going to set off a round of consumer fraud at levels we have not seen in quite some time.

As a writer, reviewer, and general pain in the ass whistleblower, I hope to keep exposing the frauds in this newfound space, and hopefully keep the landscape clean and clear for the new companies which I imagine will be arriving shortly.

Thanks for reading.

-Emmett

simple-ad

This is a demo advert, you can use simple text, HTML image or any Ad Service JavaScript code. If you're inserting HTML or JS code make sure editor is switched to "Text" mode.

Subscribe
Notify of
guest

This site uses Akismet to reduce spam. Learn how your comment data is processed.

8 Comments
Newest
Oldest Most Voted
Inline Feedbacks
View all comments

Sam Allen
Sam Allen (@guest_5057365)
4 days ago

Interested to read that your wife is a lawyer and is familiar with SEC procedures.

I have an account with Schwab. I recently had a short position that went slightly in the red and Schwab charged margin interest on the debit balance although there was plenty of cleared cash in my sweep fund. I have inquired of Vanguard and Fidelity and neither of them would make such a charge.

This practice is so unfair that I suspect that there may be a SEC regulation forbidding it or a court case ruling against it.

Has anyone else had such an experience? Is there a free alternative to Lexis where one may look such things up?

BigLou
BigLou (@guest_5057361)
5 days ago

Wow and holy shiiite
what the hell the SEC thinking?
like You Emmet my freaking mind shock! I mean the floodgates literally have been blown up for unfettered race to CFD funded programs will pop up like prickly acne laces teens face. So many questions now!!

BigLou
BigLou (@guest_5057367)
4 days ago
Reply to  Emmett Moore

Thank you for the response but the issue still is the CFDs, how can Meir et all circumvent this? As it stands he was charged for what he ( tradenet) “previously had done” Currently No US traders can purchase any “ educational packages”
He even has it stated on his website.
Is he planning on entering the US markets again? Are the US traders will be subjected to different rules?
Currently he has access to everyone else globally with a few exemption countries like the US
Why would he bother with the US regulatory bodies when he could just focus on China for example? ( Chinese love to gamble)
I cannot see any way around the Dodd Frank Act regarding CFDs
As for this statement:

If the student becomes profitable (which most will not) then the educational provider will lose money, and the student will be forced into the actual marketplace

This was already happening way before he got busted, several you tubers have documented this event that making Big CFD gains were met with accounts being moved from tradenet to Colmex equities account that supposedly partook in real markets which could be verified in the level II when place orders even oddlot would actually show on the level II

One thing for sure its going to be a shit show And all manner of new guru clowns will drown out my youtube videos! Geesh i was hoping to see less of that nonsense

dtchurn
dtchurn (@guest_5057373)
2 days ago
Reply to  Emmett Moore

This is just terrible news about the SEC’s statement. So if the worst comes to pass from this, they are basically letting all the new or prospective scam CFD brokers run amok selling “trading educational packages” for credits to play in their casinos. More retailers newbs would be fooled and duped by these stinking type of systemic in-house shamshows. But I guess this is the same age-old problem of all the media narrative the scammy vendors and gurus can bribe and affect. So brand new retailers could go into these thinking erroneously that their own chances are somehow always better than 2% (or the next guy) that they won’t lose money net within a year, and also thinking these CFD casinos are “alright” because too many newbs erroneously think these places can be gambling-legit enough like any regular casino. But as the prior tradingschools article on “Comex Pro and CFDs” detail, there’s all sort of shenanigans a CFD broker setup and pull off, fiddling with spreads , volatility , etc., the tricks in common with the offshore old fad forex scam brokers (such as the broker controllable version of MT4) and then the shady binary options scams. I hope this SEC official lady wises up real quick (or isn’t somehow compromised herself!) that these “education only” simu games will just be run shadily by these cfd brokers, and american retailer newbs should have no business basing their prospective trading sim or otherwise on a cfd basis in the first place. It’s dumb where there’s already micro-futures available to trade without needing 25k for the pdt rule, but too many newbs are fooled by the Ross, Bond, and the like, ad and faux trading narrative nonsense that daytrading and scalping insta-pumped, then dumped stocks is somehow much easier to trade than the drab and limited futures instruments selection. If retail newbs have trouble putting together funds to meet the PDT rule to trade stocks, they’re also likely trying to trade with funds they can’t afford to lose, made worse by all the ridculous overpriced shamshow education hotdog “packages” and monthly churn subs and fees of these snakeoil vendors. Glad to hear tradingschools will be staying on top of the news of this.

8
0
Would love your thoughts, please comment.x
()
x