Boz. That's correct, but if you have concerns, consult an attorney. As I indicated earlier, the problems always occur when things go wrong. As long as things are going well, who is going to complain/object? It's what I call the 'good time exemption' - as long as everybody's having a good time, you're exempt. What a family company/corporation/llc does (as long as it doesn't violate criminal laws) is really no one's business unless some sort of complaint is filed and some governing entity has the motivation to actually do work and take action. Another factor is that when state lines are crossed, federal authorities have jurisdiction. I was actually aware of several companies and individuals that violated exactly the items listed above AND fradulently sold/brokered mortages and promisorry notes. The state's attorney general gave an opinion that the products were un-registered securities and the people involved were guilty on the face of the transactions for selling un-registered securities, having no broker's liscense and would be prosecuted, but never were. My involvement was that I worked for a competitor of those individuals and we were forced to do lengthy research (at a high cost - yet another story in itself) to ensure we were not in potential violation, which we weren't, since we had met the criteria as well as not selling securities but rather existing promisorry notes. Additionally, in unrelated dealings, we had purchased some fradulent mortgages and tried unsuccessfully to get the principals involved prosecuted under these laws and couldn't get the state or federal securities authorities involved - they were just not interested. We finally had the local district attorney prosecute the case under general fraud statues. We preferred to have the securities laws enforced since the remedies were much more favorable. The result was that we had only 5% of the fraud prosecuted in a jury trial, and the guys never spent a day in jail and are paying back restitution over 20 years. Lessons Learned: There are much bigger issues involved in a hedge fund than this area. IMO, create an LLC, having 1 to N members, trade with it and see if you can make money. If so, then take the steps to add others if you stiil see the need. My question for you. If you are making money trading, why do you want to distract from trading just to add others to report to and dilute your profits with? .02
Are you licensed (series 7 or 24 or 55)? Then you should have already known the answer to your questions. Simply put, since the test have gone towards a round robin random questioning series, then you would have recognized your trap question. It is a trap, isn't it? Because if you think that: . just accepting money from a customer (irrespective of being a family member) . and aggregating it into an omnibus account (which is what the account that you're trading, irrespective of whatever you have called it) . and then misrepresenting it to the brokerage firm as "your" account . is all legal, then I'm going to give you the benefit of the doubt, and simply call this a trick question. If you're not licensed, and you still did this, and aggregated the funds into one account with your name on it, you still have crossed a number of SEC lines/rules/restrictions that were specifically designed to protect the investing public from fraud, misrepresentation and from unscrupulous brokers. By not representing the parties as a joint account, that's misrepresentation. By lying to the brokerage firm by signing the account forms as an individual account when knowing that the monies represent more than one party, is misrepresentation to a Federal authority. Hence, you're already talking Federal Pen and serving time, good long time. Should the other parties ever want to enact legal representation and protections afforded them by the Law, then the only person who's in writing, on the applications, is YOU. You've just placed yourself under the worst kinds of microscopes that you could ever imagine, whether or not the "worst case scenario" ever comes to fruition. And you thought investing in shifting markets was difficult..... Now, should you be licensed, then the brokerage firm that you're associated with will also be in trouble, and your CRD on file with the NASD and SEC will be destroyed, and you will be referred to the FBI for prosecution. Being a SRO (self regulatory organization) don't think for one minute that the supervisory brokers (Series 8, or Series 24, or Series 55) will not report you; they'll do it in a heart beat. Simply put, they will report this or be reported themselves upon the regular audits that occur. Now this scenario requires that somehow they become aware that the funds deposited are not of the account holder's origin but represent combined funds "not properly represented" through account holder's name. So you see, the attorney that the other party contacts to prosecute against you, only has to "raise the spector of impropriety" regarding the account, which has YOUR name on it, and you haven't stepped into a court room yet. This also smacks of laundering, which is what monetary misrepresentation really is, especially in our climate. My advise, simply put is stay so far behind the legal lines, that whence accounts are checked, and verified, and the eventual regular audits occur, then your name, especially being licensed, is cleared, and you never experienced the events I've described. Now, just to add insult to injury, the events that have followed the WTC scenario, are about searching for accounts that are represented as clean, but actually are front accounts for others, and have been frozen by Presidential order, as well as been referred to the FBI for immediate prosecution. Stay above the frey...
Limitdown and BigEd are right. The only way to do what you want to do without registration is to open an "Investment Club" account. Everyone signs the same paperwork, and there are ways to limit who have the ability to execute trades. Using an Investment Club also means that the "poooling of interests" is a matter of public record and income/losses will get reported and taxed correctly. Check it out. It's the only solution I found that doesn't involve LLCs, SEC registration, licensing etc.
The idea I was presenting was one of using an LLC, where there is a manager/owner and other owners who own a share. Not to be confused with someone purporting to be something they are not - a dealer/broker for others, soliciting money from others, trading those funds for a fee. There is not an individual name on the account. It is a LLC, propery established, registered and on all the applications with the brokerages. I have seen this done many times and am familiar with how it works. It is not a money laundering scheme. It is a vehicle used by traders. It is the most commonly used organizational structure for traders to achieve optimal tax treatment. For more information, see www.taxtrader.com Ted Tesser has an extensive book on the tax treatment of traders and organizational structures (FLP, LP, LLC, Corporations, etc.). He also has a service that will consult you on the specific organization you should use and will organize it for you and assist in the initial bookepping - all legal. Be advised however, that in my posts I have clearly stated to consult your attorney. This is not intended to give legal advice, only offer some of the tools, experience and ideas that others use and pass on. Good Trading.
be VERY, ,VERY, , Careful... these market conditions with the FBI, SEC and other unnamed government agencies scouring all kinds of things in search of ANY form of irregularity are just so dangerous, that you'd better be correct.... or watch the wrath....
I don't think Limitdown was referring to your opinion (which I agree with since I've done it), he was referring to the pooling of funds in a single persons account (originator of thread and a couple respondents).
delfina, you the trader..... I thought I read the original post correctly, and saw over 4 pages of commentary regarding exactly what the originatory stated. BigEd, I commend you for stating things clearly, and initially, however, your comments were lost in those 4 pages of replies and further discussions. Perhaps you should have started a thread. Your proposal to do things correct initially was right-on, and I support those conclusions also. I also commend you for siting a reference work that does 2 things: 1) further educates all of us by providing a reference 2) shows you gave due consideration to your decisions and are not just fluff taking up replies and padding these threads with relatively useless verbage (no offense) All the best... One thing that the books like Larry Williams and others have stated in both words and/or implication is that large accounts (whether pooled or not) have a far better chance of survival than individual/smaller accounts, and can live beyond their mistakes, provided the trader takes an active approach to improve themselves.
vikana, The way I understand it (please, anyone correct me if I am wrong) is that if you start an investment club, but you are the only manager (as opposed to all sharing the duties) you could be in violation of securities laws. Now, if everyone is a friend or family member and not solicited, then, well, that goes to my original question and maybe isn't a violation.
RAY I guess part of the answer lies in how much money,for how many people.If you have "clients" that pay you to manage money you may need to register with your state.Here in NY its more than 5 clients and under 25mil.Once you manage over 25mil you must reg with sec.Many other variations but if your charging money the government is going to want some of it.