Isn't it illegal for brokers to scam their customers with this account statements?

Discussion in 'Professional Trading' started by latinotrader, Apr 5, 2010.

  1. A US futures broker account balance is depicted here.

    In their managed accounts program,
    they were simultaneously buying and selling similar futures contracts (5), so that the "Account Balance" was inflated to $100,475.14 near the $100k initially invested.

    The real account market value was the "Net liquidity", $3,287.64

    They were touting the "Account Balance" as the real account value so that customers couldn't realize the massive losses so they could keep daytrading (thus earning commissions).

    If customers could detect the losses they would close their accounts and withdraw their funds much earlier without getting into 96%+ losses, but this would end their commissions flow.

    Isn't this illegal?
  2. olias


    check with the NFA.
  3. J.P.


    What broker is this?
  4. How would you recommend/prefer they show it?

    A. Cash Balance
    B. Open Positions
    C. Net Liquidity

    These are the facts shown, not misleading IMO. Massive open position losses are reflected in Net Liquidity, i.e. the net value of the account if the positions are closed.
  5. Shagi


    The position itself makes no sense. They were long both Sept & Dec contracts ? But they held a one EU contract up to 14K loss!!!!!
  6. 6E never broke 1.50 in August of 2008.
  7. olias


    They were short September and long December, and got their ass handed to them on both
  8. Blotto


    The statement shows EMU Euro Currency futures at the CME.

    Line 74022 shows you bought 2 contracts at 1.6650.

    Check with the exchange whether 1.6650 ever traded in the Dec 08's. I'm pretty sure it didn't. Half the loss shown on the account was from purchases of the Euro futures at 1.6650. If this never traded, then you could not have acquired those contracts on the exchange at those prices and therefore there is something fishy going on. The broker can't record a loss for a trade which was never done. If the other trades were done, then the account is net short two contracts from ~1.47, which should be rather profitable now! (+$30k plus the erroneous -$50k on the out trade)

    The '08 high in the EUR/USD spot market was around 1.6 if I recall, and the CME would bust a trade done six big figures away on the futures....certainly something wrong with this.

    I've looked at the statement again to make sure I've not made a mistake. I've either missed something very obvious, or this is the strangest thing I have ever seen. It looks like trades have been recorded for your account which could never have been done on the exchange. Have a professional look into this on your behalf, and please get back to us with the outcome.
  9. Blotto


    Well spotted - I saw this too. Maybe traders wouldn't remember the exact prices for the month, but 1.66 is 6 big figures off the Dec 08 contract high if I recall correctly. Something very fishy going on.
  10. I'm only working off of the front month data. In August 2008 6E took a nasty plunge around expiration... dropped like 0.300 overnight.
    I wouldn't expect such a large difference between the Sept/December contracts but it was the start of some crazy swings...

    #10     Apr 5, 2010