Velocity Futures, LLC

August 26, 2013

Velocity Futures, LLC Agrees to Pay a $300,000 Penalty to Settle Charges that It Failed to Comply with Its Minimum Financial Requirements
Washington, DC - The U.S. Commodity Futures Trading Commission (CFTC) today issued an Order filing and simultaneously settling charges against Velocity Futures, LLC (Velocity), a registered Futures Commission Merchant (FCM) headquartered in Houston, Texas, for failing to comply with the minimum financial requirements for FCMs.

According to the Order, Velocity failed to meet its minimum adjusted net capital requirement because it failed to properly account for certain events relating to two arbitration awards issued by the National Futures Association (NFA) on June 16, 2011, against Velocity and its Chief Executive Officer (CEO), and Velocity’s subsequent settlement of those awards for $2 million. Pursuant to that settlement, Velocity agreed to pay a $1 million lump payment, and Velocity’s CEO agreed to pay the remaining $1 million over 24 months. According to the Order, Velocity paid and properly accounted for the original $1 million lump sum payment. However, Velocity also paid the remaining installments on behalf of its CEO pursuant to the CEO’s indemnification claims. According to the Order, it was reasonable and probable, under generally accepted accounting principles, that the $1 million in deferred payments owed by Velocity’s CEO was, in fact, a liability of Velocity and should have been recorded as such on Velocity’s financial statements.

The Order further finds that Velocity received an $800,000 cash infusion from its parent company that it improperly classified as a subordinated loan. Under CFTC Rules, proceeds from a subordinated loan may be included in a company’s assets in calculating adjusted net capital. According to the Order, however, Velocity’s classification of this cash infusion was improper, because it was not made pursuant to a valid subordinated loan agreement that was approved by NFA, as required by CFTC Rules. Consequently, according to the Order, the cash infusion should have been treated as a non-subordinated loan and should not have been counted towards Velocity’s adjusted net capital requirements

According to the Order, once Velocity properly accounted for these events, it failed to meet its minimum adjusted net capital requirement for 264 days, from June 16, 2011 to March 6, 2012.

The Order imposes a $300,000 civil monetary penalty and a cease and desist order on Velocity for these violations.

The CFTC appreciates the assistance of NFA.

CFTC Division of Enforcement staff responsible for this action are Tom Simek, Jeff Le Riche, Rick Glaser, and Richard Wagner. Tom Bloom, Kurt Harms, Jan Ripplinger, and Lauren Fulks of the CFTC’s Division of Swap Dealer and Intermediary Oversight also assisted in this matter.


Last Updated: August 26, 2013


http://www.cftc.gov/PressRoom/PressReleases/pr6674-13

 

There is no good reason to be with a clearing firm that appears to be that strapped for cash. As we have seen in the past even large firms have collapsed, but there is no reason to increase your chances.

 

According to the June 30, 2013 CFTC FCM report, Velocity had:

$60.2 million in customer assets in segregation
$1.256 million in adjusted net capital
$1.0 million net capital requirement
$256K in excess net capital

Maybe the owners have deep pockets to backstop the firm, but that $256K would make me worry. It's peanuts and out of a list of 100 firms it's the 3rd smallest. Or it might be the smallest since one firm with negative net capital is in the process of being acquired and the other firm with $14K in excess net capital - CX CAPITAL MARKETS LLC - doesn't seem to be active (they didn't report any customer assets).

 

Can someone tell me, in light of what we all know about the weakness of segregation, where the upside is in being with them?

 

Velocity is no more likely to steal funds than a firm 100x their size. However, the less money you have the greater the change 1 trader can blow up the entire firm. I would be more concerned about that. They probably have more funds somewhere but the fact the head guy had to go on a payment plan to pay off his fine may indicate their reserves a limited past what is publicly shown.

 

So, where is the upside?

 

I have never done business with them. If you are interested in opening an account I am sure Velocity would be happy to address your question.

On a related note... If you are looking for firms with the highest net capital I would advise you to move your money over to Goldman. However, JP Morgan Securities has a better adj net cap / net cap requirement ratio so you might want to check them out first if you are not clearing through them already.

 

Why would I open an account when no one (myself certainly included) sees zero upside. This is not the first time around with these guys. They put themselves and, as is always the case, their clients in significant danger with the Citadel mess five years (or so) ago.

Anyone know where the upside is? I asked essentially the same question about Penson a few years back.

 

If you have a $10m acct :eek:

 

+1. i remember that sentinel (not citadel) nonsense - thankfully not as a client. w/ that low cap cushion a single trader trading less than 10 cars by himself/herself could blow up the firm if there is a moderate size black swan (e.g. umm turning syria into glass?)