the article below from thursday makes it 100% clear that any llc providing over 4-1 leverage is at risk. i'm sure that llc's will close left and right to not take a chance the gov't will come after them
and look at there books and cause mass pain.BUT IT DOESN'T MAKE IT CLEAR THAT SERIES 7 DAY TRADERS ARE EXEMPT FROM BEING SHUT DOWN
SEC Freezes Assets of Day-Trading Firm By Matthew Dublin
March 27, 2008
A Federal judge in California has granted the SEC's request to halt a fraudulent day-trading scheme led by Douglas Frederick, 38, of San Diego, and his unregistered day-trading firm, Tuco Trading, LLC.
According to the SEC's complaint, Tuco provided securities day-trading services to over 250 traders with roughly $10.2 million invested at the firm. The Commission alleged that the TUCO violated NASD regulations by permitting the traders to day-trade without meeting the regulator's $25,000 minimum equity requirement for such trading activity.
Tuco s also charged with violating NASD and NYSE regulations by allowing the traders access to 10-to-1 up to 20-to-1 buying power. Both NASD and NYSE day-trading regulations stipulate that day-traders may only have 4-to-1 buying power.
In addition, Frederick failed to disclose to Tuco traders that as of December of 2007, $3.62 million of the traders' roughly $10.2 million total equity was diverted to pay for the firm's operating expenses and cover trader losses. By January 2008, the misallocation of trader equity had resulted in a $1.35 million shortfall, stated the complaint.
Without admitting or denying guilt the SEC's charges, Tuco and Frederick have consented to the court's permanent injunctions.
Tuco's assets have been frozen. The court has appointed a permanent receiver over Tuco and prohibited the destruction of any documents. Frederick and Tuco have also been ordered to pay disgorgement, plus prejudgment interest, and civil penalties in amounts yet to be determined.
On March 6, the SEC obtained an emergency court order against Tuco and Frederick after the regulator made a prima facie showing that the defendant had engaged in, and would continue to engage in, the fraudulent activity.
"Tuco's unregistered operations posed a substantial risk to both investors and the securities markets, and we will act to stop these operations," stated Rosalind R. Tyson, Acting Regional Director of the SEC's Los Angeles Regional Office.
Tuco allowed the firm's traders to trade in its brokerage accounts at registered broker-dealers via sub-accounts created at for each trader. Frederick would establish each trader's buying power based on their experience and the amount in the trader's sub-account. Tuco also received transaction-based payment for its members' trading. Commission rates for new traders usually started at $5 per 1,000 shares traded, stated the complaint. And a large amount of high-dollar day trades went through the firm's brokerage accounts. For example, one trade in December 2007 was worth $42.7 million, reported the complaint.
As the registered representative for the Tuco principal accounts, Frederick received significant commissions due to the high volume and value of the trades. From December 2006 through October 2007, Frederick received roughly $1.12 million from net commissions. In November 2007 alone, his commissions shot up to $2.14 million due to the addition of roughly 150 new traders.
Tuco paid for its operational costs through commission charges to traders, stated the complaint. The costs included the purchasing and operating the firm's trading and back office system software, as well as salaries, consulting fees, interest charges, travel, website maintenance and other office expenses
Frederick formed the Tuco in 2006 and has been affiliated with 13 broker-dealers since 1993, though he is not registered in any capacity, stated the complaint. At all times, he had sole authority over Tuco, monitoring daily trading activity and determining each trader's maximum buying power.
and look at there books and cause mass pain.BUT IT DOESN'T MAKE IT CLEAR THAT SERIES 7 DAY TRADERS ARE EXEMPT FROM BEING SHUT DOWN
SEC Freezes Assets of Day-Trading Firm By Matthew Dublin
March 27, 2008
A Federal judge in California has granted the SEC's request to halt a fraudulent day-trading scheme led by Douglas Frederick, 38, of San Diego, and his unregistered day-trading firm, Tuco Trading, LLC.
According to the SEC's complaint, Tuco provided securities day-trading services to over 250 traders with roughly $10.2 million invested at the firm. The Commission alleged that the TUCO violated NASD regulations by permitting the traders to day-trade without meeting the regulator's $25,000 minimum equity requirement for such trading activity.
Tuco s also charged with violating NASD and NYSE regulations by allowing the traders access to 10-to-1 up to 20-to-1 buying power. Both NASD and NYSE day-trading regulations stipulate that day-traders may only have 4-to-1 buying power.
In addition, Frederick failed to disclose to Tuco traders that as of December of 2007, $3.62 million of the traders' roughly $10.2 million total equity was diverted to pay for the firm's operating expenses and cover trader losses. By January 2008, the misallocation of trader equity had resulted in a $1.35 million shortfall, stated the complaint.
Without admitting or denying guilt the SEC's charges, Tuco and Frederick have consented to the court's permanent injunctions.
Tuco's assets have been frozen. The court has appointed a permanent receiver over Tuco and prohibited the destruction of any documents. Frederick and Tuco have also been ordered to pay disgorgement, plus prejudgment interest, and civil penalties in amounts yet to be determined.
On March 6, the SEC obtained an emergency court order against Tuco and Frederick after the regulator made a prima facie showing that the defendant had engaged in, and would continue to engage in, the fraudulent activity.
"Tuco's unregistered operations posed a substantial risk to both investors and the securities markets, and we will act to stop these operations," stated Rosalind R. Tyson, Acting Regional Director of the SEC's Los Angeles Regional Office.
Tuco allowed the firm's traders to trade in its brokerage accounts at registered broker-dealers via sub-accounts created at for each trader. Frederick would establish each trader's buying power based on their experience and the amount in the trader's sub-account. Tuco also received transaction-based payment for its members' trading. Commission rates for new traders usually started at $5 per 1,000 shares traded, stated the complaint. And a large amount of high-dollar day trades went through the firm's brokerage accounts. For example, one trade in December 2007 was worth $42.7 million, reported the complaint.
As the registered representative for the Tuco principal accounts, Frederick received significant commissions due to the high volume and value of the trades. From December 2006 through October 2007, Frederick received roughly $1.12 million from net commissions. In November 2007 alone, his commissions shot up to $2.14 million due to the addition of roughly 150 new traders.
Tuco paid for its operational costs through commission charges to traders, stated the complaint. The costs included the purchasing and operating the firm's trading and back office system software, as well as salaries, consulting fees, interest charges, travel, website maintenance and other office expenses
Frederick formed the Tuco in 2006 and has been affiliated with 13 broker-dealers since 1993, though he is not registered in any capacity, stated the complaint. At all times, he had sole authority over Tuco, monitoring daily trading activity and determining each trader's maximum buying power.