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.
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.”
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…
And the Vanuatu post office is something everyone must experience at least once…
All day trading disputes are settled according to local rules…
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 firstname.lastname@example.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.