Hi everyone, It's been a long time since I posted something here last. I'm not experienced in dealing with these new non registered LLC prop shops. They all seem to be very vague in what they can and can't do. Thus, I'm seeking help from the community for a friend who got into a bind with a LLC prop firm. He had a small 5k prop account with a firm and traded part time but took a large 1 day loss and the account went negative by roughly $1200. He is not licensed but did sign some agreements and verbally promised that he would have risk controls so the account doesn't go negative. Now the firm is coming after him for the money and is threatening legal action, ie small claims court. Does the firm have any standing? He did not trade beyond what the firm said was his limits in terms of share size etc... I work for an investment bank and it seems to me that it should be the firm's risk manager's job to make sure a trader doesn't go beyond their account limits and that it's the risk they take giving traders large leverage. Feel free to PM me if you feel uncomfortable speaking about legal issues in public. Thanks everyone for your insights
Read the account agreements that were signed. Every brokerage firm has the legal right to require that a customer pay back a negative account balance. $1200 isn't even worth arguing about. Legal fees and courts costs will be much higher. Your friend needs to quickly come to an agreement to pay back the $1200 and move on.
Legal jibberish aside, your "friend" should be the one who makes good on the loss. Otherwise, he'll have a tendency of reneging on other deals in the future and probably gain a bad reputation.