Does this protect traders?

M

mc312

I'm looking at a few prop firms right now, and they all appear to use the same contract with a few modifications. In this contract there is the following clause:

Liability of Members
No Member (as a Member) shall be liable as such for the liabilities of the Corporation. The failure of the Corporation to observe any formalities or requirements relating to the exercise of its powers or management of its business or affairs under this agreement or the Act shall not be grounds for imposing personal liability on the Members for liabilities of the Corporation.

Would this mean that if the prop firm went under my money couldn't be used to pay off the creditors? Perhaps it's open to interpretation or it depends on what state the contract is made in?

TIA
 
sounds like any money paid out to you is safe.

Look further into this though because some firms pay out quarterly. So if you're up big one month and the firms goek bkrpt then it could be an issue.
 
Sorry, it just means you will not be personally liable. The money you contribute to the LLC as a member of the prop is subject to being used to satisfy debts and obligations of the LLC. Your loss is just capped at the amount of your contribution.


Quote from mc312:

I'm looking at a few prop firms right now, and they all appear to use the same contract with a few modifications. In this contract there is the following clause:

Liability of Members
No Member (as a Member) shall be liable as such for the liabilities of the Corporation. The failure of the Corporation to observe any formalities or requirements relating to the exercise of its powers or management of its business or affairs under this agreement or the Act shall not be grounds for imposing personal liability on the Members for liabilities of the Corporation.

Would this mean that if the prop firm went under my money couldn't be used to pay off the creditors? Perhaps it's open to interpretation or it depends on what state the contract is made in?

TIA
More...
 
Quote from optioncoach:

Sorry, it just means you will not be personally liable. The money you contribute to the LLC as a member of the prop is subject to being used to satisfy debts and obligations of the LLC. Your loss is just capped at the amount of your contribution.
More...

That's what I thought since I would be an investor in this company. I spoke to one of the people at these prop firms on the phone and he said I would not be an investor, my money would be in a separate account. So either there is something else that protects me, or the company has just decided that it would not touch members' contributions to the company, or he was lying. Hmm....
 
Technically he is right, you are not an investor in the company. The investors are the people who put the initial capital stakes and are the Class A Members.

You are a Class B Member trading from the pooled money source. You are not contributing capital for the daily operations and debts of the company. You are in the trader pool, so to speak.
 
Quote from optioncoach:

You are a Class B Member trading from the pooled money source. You are not contributing capital for the daily operations and debts of the company. You are in the trader pool, so to speak.
More...

Actually I would be a Class C member. The firm in question is Trade Vision. They use a standard contract that other LLCs with Genesis use. Cy Group's contract is the same except for things like the firm's name and home state. It even has the same misprints. So my guess is that it's a standard form that Genesis provides for its LLCs.

The difference between a Class B member and a Class C member appears to be that Class B members are Member-Managers who get a cut of the company's profits. But in any case, any trader like myself would be a Class C member.

I still need to look into all of this some more.
 
(broken record yet once again). (perhaps one or two of you haven't seen this, LOL)...it is serious however.

Most firms use their traders money to qualify for the "net capital requirements" which means that if a trader "blows out" by a big amount, the other traders could be held liable (only to the amount of their account). You can usually tell if the firm doesn't allow you take out your money whenever you want to, or tells you it has to lock up your money for a year, etc. Our traders can have money twice a week if they want, and can withdraw at any point without any non-compete.

In addition, we put $10Million of our money with the traders money, and it shows up on the balance sheets. A trader would have to lose their entire account, $10mil of our money, before other traders could even fear being at risk (100 times SIPC). We, of course, wouldn't let that happen anyway, we wouldn't risk our business standing. T

hat is why you must see balance sheets to determine your overall risk.

I have offered to review financials for any of you in the past (quite a few took me up on it)...I'll be glad to do it again. This would have to be done via email to: don@stocktrading.com

(just trying to help, and give a perspective to consider).

Don
 
Ah, yes. Another infomercial from Don.

But as far as these prop firms I'm considering goes, I spoke to representatives from each of them on the phone today. They both allow you to withdraw money whenever you want. However, they only cut checks once a month. That means if you want to get money from them before it's time to write checks, you have to have it wired out or use ACH. At least one of them offers ACH. The other might offer it too. Neither of them have any sort of "lock up" clause in their contracts.

As far as financials go, they said that right now their policy is to not freely release financial statements. That does make me less confident in them than I would be if these documents were made public. However, I do believe that it is the policy of just about every prop firm that isn't a member of the NASD or an exchange to not freely provide this information. They could be doing this just so that their competitors don't get ahold of this information, in the way that many companies try to stop their competitors from getting information about them. I don't know, and I'll let people decide for themselves what to think.

But I am becoming more inclined to agree with the opinion of Bright that one of the people that I spoke to on the phone gave me. He stated that Bright's continuous harping on about financial statements was basically a marketing gimmick. He said that Bright has to provide this information because it is a member of the Chicago Stock Exchange, but it pretends that it's doing it to show how trustworthy it is and also to show off the wealth it accumulated during the market boom of the late 90's. This opinion itself could be more marketing B.S. Again, I'll let you all decide for yourself. I hope to have my own decision made within a couple days.

ADDENDUM: As far as the risk of someone blowing up his account goes, Cy Group told me that their software monitors people's accounts to help prevent this from happening. So if someone has say a $5K account, and loses say $2K , then the software would notice this and he would automatically lose margin privileges in order to prevent him from doing any bigger damage. I don't know if Trade Vision's software does this because I forgot to ask them about it.
 
Let's see what's going on here.

As far as financials go, they said that right now their policy is to not freely release financial statements. That does make me less confident in them than I would be if these documents were made public. However, I do believe that it is the policy of just about every prop firm that isn't a member of the NASD or an exchange to not freely provide this information.
The "isn't a member" - is the key phrase, along with "less confident"

and He stated that Bright's continuous harping on about financial statements was basically a marketing gimmick.
Well, to this, I can only say that when "full disclosure" and "due diligence" become something bad, the whole world has turned upside down.

By attempting to demonize me or BT, which is why half my posts are on here (correcting errors, etc.), seems to be a little bit ridiculous...there would much less "harping" if others would simply run their business, show full disclosure, join the appropriate agency's.

Conclusion: possibly find a firm that is subject to some regulatory agency's supervision, there are many, why not?

Have a good trading day everyone,

Don
 
Demonize? No, just pointing out a sales pitch when I see one. If you weren't repeatedly acting like a used boat salesman, you wouldn't get treated like one.

By the way, what about Bright's financial statements Don? Where are they? I looked on your Web site for them but I couldn't find them. Why don't you post them there for the whole world to see? Other companies do this. Assent, for example, has its financial statements right on its Web site.

Another thing, how realistic is it for anyone to ask any privately held company to release its financial statements? Don't most companies have very good reasons not to let their competitors obtain easy access to details of their inner workings? The companies that I do know of that release this information are required to by regulatory organizations.
 
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