Is this illegal?

Discussion in 'Trading' started by Marc to Market, Sep 28, 2002.

  1. I'm sure this has to be illegal, but I'm just curious... And no, I haven't done this nor do I plan on doing it.

    There are two traders: trader #1, who is up $100,000 YTD and trader #2, who is down $100,000 YTD. Since trader #1 is greedy and doesn't want to pay capital gains taxes on his profits, he decides to make several losing trades on extremely low volume stocks. Trader #2 is on the other end of each trade, benefiting greatly. These trades continue until trader #1 AND trader #2 are both even on the year. Trader #2 now pays Trader #1 the $100,000 minus whatever he would have been able to write off to the IRS for his losses. Trader #1 now has almost all of his profits and the IRS won't have any record of it.

    I'm sure there is a specific law in place to prevent this, but I haven't heard of it. Anyone?

  2. yup.. i have a friend who decided to get creative trading between his IRA and his regular account, transfering money between them using trades on ecns.. the SEC inquired with his broker and the clearing firm closed his account and blacklisted him.. its illegal to circumvent the law..

  3. And just how are these two traders going to orchestrate this "transfer" through an open market without the possibility of huge leakage? God help you both if you happen to set off some program buy/sell on one of these "illiquid" stocks and then both you and your friend are down!

    Any intentional method to deceive the United States Internal Revenue Service of earned income is illegal. There may be other methods that are much safer, but this sounds like a sure-fire way to screw up on all fronts.

  4. leakage - exactly

    what trader 1 is going to do is make a gift to holders of those losing low volume stocks, holder he will never meet - very generous

    as far as what he pays trader 2, anything over 10,000 is over the limits for gift tax

    so what he would probably end up doing is paying a fortune to get in trouble with the IRS
  5. Quah


    Yep, gift tax. Anything over $11K this year is taxable anyway.
  6. Without going too deeply into technicalities, it IS possible to do this with zero leakage.

    However, this is still highly illegal.
  7. TSaimoto

    TSaimoto Guest

    Hey someone want to this with me!!!

    We can make a lot of money with this...

    Funny thing is the Borsellino Brothers were accused of doing this before.
  8. I know 2 people that got caugt doing this 2 years ago. They got caught because the market makers that normally trade the stocks noticed something fishy, they called market reg and 2 days later the guys were busted! I got fined because I was the principal I was supppose to be supervising the traders.
  9. TGregg


    I had this idea some time ago, a way to deposit tax deductable money into your ROTH IRA. First, buy a thinly traded stock during market hours from a normal trading account. Then, after hours, put in a lowball bid (but still the highest bid) from your ROTH IRA account to some ECN. Then, hit the bid from your trading account. Next day, dump the stock in your ROTH IRA account. Yeah, there is a possibility of some loss due to stock movement overnight. But, sure would be nice to have unlimited tax deductable donations to your ROTH :D

    100% illegal - you are not allowed to trade with yourself (they don't want people printing fake prices). Not to mention the various IRS regs broken.
  10. I know this was not the intention of this thread but, since the subject of wash trades has been raised.... does anyone know what the result of Swifttrade being charged with trading with itself was? I know that the NASDR had filed charges against them but I never heard anything after that. They were charged with doing wash trades in the QQQ's on island.

    Just curious.
    #10     Sep 28, 2002