$20 million missing: Broker's client money used to cover losses

Discussion in 'Retail Brokers' started by themickey, Mar 13, 2019.

  1. themickey


    One of Australia's largest brokers, Halifax Investment Management, is set to head into liquidation after administrators discovered that some of the $210 million of client money was used to cover off losses on bad bets on investment products by other clients.

    Investigations by administrators from Ferrier Hodgson have found that just under $20 million of customers' money is missing.

    Ferrier Hodgson has likened the collapse of Halifax, which had 12,000 clients in Australia and New Zealand, to other high-profile stockbroker collapses in recent years including BBY, Sonray and Opes Prime.

    Action against the company by the corporate regulator is a distinct possibility, with sources saying the Australian Securities and Investments Commission was taking a close interest in the outcome of the administration.

    More than $190 million of client money remains frozen as the administrators seek court approval for distributing the money back to clients.

    Given the "co-mingling" of client funds, this could see all customers of Halifax receiving less money than they had placed into their trading accounts, despite not being responsible for how their money was used by the company.

    The missing money is equivalent to 9 per cent of the total customer funds held by Halifax ahead of its collapse. Halifax called in administrators just before Christmas, freezing customer funds.

    Halifax's clients can still close out trades (i.e. sell shares in a particular entity, or close off a bet on the oil price falling, etc) but they are not able to recoup their funds.

    Hallifax operated and offered three trading platforms - Interactive Brokers (IB), MetaTrader 4 (MT4) and the MetaTrader 5 (MT5) platforms. Interactive Brokers, which has a stockbroking licence, is a third party online trading platform that provides a white label product to Halifax.

    The platforms allowed Halifax's clients to invest in a range of products and equities foreign exchange derivatives, equity derivatives and indexed contracts for difference.

    "There appears to be extensive co-mingling of client monies," the administrators said on Wednesday.
    "As a result, the funds invested by MT4 and MT5 investors may have been used to ‘top up’ the accounts of IB investors (and vice-versa). In simple terms, the monies of other investors may have been used to credit the IB platform.

    "Our investigations indicate that while the IB platform may appear to be ‘whole’ in that it is fully funded, we have determined that investor funds may have been mixed or co-mingled in a way that affects the claims of all investors on all three platforms in both the Australian and New Zealand businesses."

    Ferrier Hodgson said the only option for creditors now would be to place the company in liquidation after the administrators' attempts to salvage the company through a deed of company arrangement (DOCA).

    "We have explored options for a potential DOCA at length, whereby investors agree to share the deficiency proportionally to expedite the distribution process," Ferrier Hodgson said.

    "After careful legal consideration, it has been determined that a DOCA is not achievable," it added.
    soulfire, TraDaToR, dealmaker and 2 others like this.
  2. traderjo


    Here we go again...one more example of OTC products risk even in a supposed to be tough regulator's domain! ASIC toothless watchdog
    IB is no longer safe for Australian clients either as IB AUS is not covered by SIPC since they forced to convert accounts from US to AUS
    jys78 likes this.
  3. Fain


    IB funds were safe. The money was short-changed from the MT4 platform.
  4. traderjo


    yes same happened with Sonray it was also a mix part of money was with IB and part was white label Saxo ..those with IB got the money back ( perhaps becaue IB made sure that all money from client DID come to them and not stayed with Sonray! rest got 62 cents in a dollar
    The only people who made money in this is the administrator over 2 years
  5. So, clients' money with Interactive Brokers is safe, right? No wrongdoing or negligence on the part of IB for this incident, correct?

    As a customer of IB, this is a very important question to me.
  6. traderjo


    Please don;t take my word for it...You will have to ask that question to the administrator...if you want to get more in to it see if you can get on to "Creditor's committee" assuming you were a client of Halifax / or are you asking about IB in general?
  7. Yes, from what I have read and enquired about all funds at IB were segregated, safe and handled properly. A bunch of the FAs maintain accounts via multiple brokers though.