Here's the bigger question? How did you end up in this position? Is this the result from the swiss Frank peg incident a few months ago? I have a feeling your llc isn't going to protect you as well as you think it will. You are at fault for your losses, they aren't your brokers losses as you say, they are yours. I sense zero accountability on your part. Your broker didn't click the button to put your trade on, you did.
Extreme FX loss
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I suspect it has to do with the market mess last monday, currency pairs moved wildly as well.
But Llc stands for Limited Liability Company, except if OP has signed documents adding personal guarantees, he won't be liable personaly.
Besides it is costly for anyone to go after a llc and if the broker thinks the best they can do is bankrupt the company but won't get a dime the broker might let it go.
Yet opening a llc for 50k capital sounds strange, if OP has other assets linked to this company he might not get off the hook that easily - and getting an active company in trouble for 25k one owes doesn't sound like a particulary smart move, plus OP should have some more legal fees to pay if he doesn't want to pay and the broker keeps the pressure on.
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This is correct. Loan forgiveness is a taxable event. So is "gifting" money to someone. The broker is "paying" him 25k by not collecting it. That 25k is taxable. Of course he can always pay the broker the 25k and report the full 75k loss if he chooses to do that.
Correct LLC and all its assets are under pressure in this situation. Brokers don't make you sign personal liability forms so I am personally not under any pressure but my LLC is under pressure. I am just a little fish for broker to bother with when they already know they will get nothing out of chasing me. But the loss to me personally is instead of writing off 50k in taxes I am writing off only 25k in the name of LLC.
I don't know about LLCs, but debt forgiveness isn't always taxable. For example, if you personally are insolvent (more debt than assets) when you get some debt forgiven, it isn't taxable.
http://www.irs.gov/taxtopics/tc431.html
http://www.irs.gov/taxtopics/tc431.html
Does anyone have experience with how it unfolds. Right now I am just waking up every day not knowing how my LLC gets sued and what kind of letter I will receive etc. My lawyer said not to worry as LLC is my protection but I still want to hear if someone has experienced it or know of someone who have gone through this.
I had a LLC (not in trading) that failed. The LLC left debts of about €60k. I consulted with lawyers. Only one out of four creditors bothered having their lawyer send me a letter; the others didn't even bother with that. In the absence of any personally guaranteed debts and given the absence of fraudulent intent or gross negligence on my part I was in the clear. The LLC of course ceased activity. If it is refinanced it would have to pay its debts. I let it go bankrupt.
Your company lost 50k and left a debt of 25k that was taken up by your broker. Absent as I understand that they are, personal guarantees, fraud, gross negligence, you are completely in the clear. The LLC of course is dead unless you choose to take up its and your broker's loss which seems pretty stupid.
As an additional consideration, if I understand correctly, the 25k loss was incurred in consequence of your broker's systems not being able to cope with extreme volatility and failing to execute a normal stop out of your account when it was still in the green. If so it is their fault really that led to the negative 25k balance! One could argue that weren't for the broker's failure to execute your margin call in a timely manner your LLC account would still be in the green which would suggest rather it is the LLC that could sue them. Of course verify this with your lawyer. It may not be possible in practice because in all likelihood the broker would have legally protected themselves against such an eventuality in the brokerage contract.
Don't lose any sleep over it. Let the LLC go bankrupt. Don't say or write anything to your broker without consulting with your lawyer. When my LLC was faced with the impossibility to do business I called up the creditors, illustrated to them the situation, the unfavorable prospects and the unrecoverability of their credits. You don't even need to do this since it is their fault.
I would suggest you make sure they refrain from taking any step which might bring prejudice to any future venture of yours. I would consult in order to part ways amicably with your broker... something along the lines of "unfortunate outcome... their technical systems didn't cope... you won't pursue the matter unless they do... personal finances don't allow to take up the LLC debt they created... no longer conditions to do business together... keep confidentiality about entire matter (in both parties interest)"
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…I was assuming your LLC had no other assets. If it does or if you want to keep it alive, you should definitely not put any fresh money on the account and refrain from doing any operation at all on the LLC until outstanding issues are agreed upon. Do not volunteer anything, say anything, do anything without having fully explored the implications (I consulted three lawyers before calling up my LLC creditors).
In any case what happened is something any broker should be and is prepared for. They certainly have insurances and edging systems in place and the 25k loss they claim to have taken “for you” likely isn't even real. If they really have taken it then they'd be negligent in the highest degree imaginable and they wouldn't want to give publicity to that. 25k is nothing to them. As a “major” broker they are in a position to exploit all sorts of advantages with their customers' order flow. If they sue I would see it as an attempt to take advantage of you. That is another reason for you not to talk with them lest they be mischieviously inclined and sense the kind of overconcern you are communicating here. Don't feel anything in relation to them or to yourself. Don't let anything transpire.
They will probably put it as though you are at fault, just to try and see if they can get away with it. Don't forget that they must have such incidents (real or not that they be) hundreds of times a year.
At the same time it's unlikely your LLC will get any money from them. I still envision 'moving on' without any monetary exchange, as the likely best outcome.
In any case what happened is something any broker should be and is prepared for. They certainly have insurances and edging systems in place and the 25k loss they claim to have taken “for you” likely isn't even real. If they really have taken it then they'd be negligent in the highest degree imaginable and they wouldn't want to give publicity to that. 25k is nothing to them. As a “major” broker they are in a position to exploit all sorts of advantages with their customers' order flow. If they sue I would see it as an attempt to take advantage of you. That is another reason for you not to talk with them lest they be mischieviously inclined and sense the kind of overconcern you are communicating here. Don't feel anything in relation to them or to yourself. Don't let anything transpire.
They will probably put it as though you are at fault, just to try and see if they can get away with it. Don't forget that they must have such incidents (real or not that they be) hundreds of times a year.
At the same time it's unlikely your LLC will get any money from them. I still envision 'moving on' without any monetary exchange, as the likely best outcome.
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