Wash trade caught by IB

2_nai · Jan 30, 2009

At the end of 2008 I traded some illiquid future contracts between my friend's account and my traditional IRA account. In doing so I transferred $28000 to my IRA account. I didn't know that it is illegal.

My account was frozen on the next day. An IB compliance officer called me a few days later and asked why I placed those cross trades. I said I was doing some testing.

Now I know that cross trades are illegal. What will happen to me? Has IB reported this to FBI? And what should I do?

Any suggestions will be greatly appreciated.

jeb9999 · Jan 31, 2009

The proper terminology is "pre-arranged trading". Pre-arranged trading is a violation of the Commodity Exchange Act, CFTC regulations and the regulations of every exchange.

IB is required to report your pre-arranged trades to the exchanges where the trades took place and to the CFTC.

Best advice is to find a good lawyer familiar with futures trading and CFTC regulations.

dave74 · Jan 31, 2009

This is horrible. Traders must be careful of so many things. I hope this works out for you.

nokomisjeff · Jan 31, 2009

You'll get your hand slapped and a fine. No problem as fines are part of the cost of doing business.

Jeff

kxvid · Jan 31, 2009

anybody know how IB caught the wash trade between his friend's acct? seems impossible to catch to me, unlessboth accounts were IB, or the OP did the trade wash more than once.

Trader666 · Jan 31, 2009

Why in the world would you NOT think that's illegal?

Quote from 2_nai:

At the end of 2008 I traded some illiquid future contracts between my friend's account and my traditional IRA account. In doing so I transferred $28000 to my IRA account. I didn't know that it is illegal.

mschey · Jan 31, 2009

You essentially created a trade where you passed your friends gains and tax liability into your non taxable IRA account, hope the
IRS doesn't get wind of this.

BlindLemonBoosh · Jan 31, 2009

Quote from 2_nai:

Any suggestions will be greatly appreciated.

1) Don't call it a 'wash trade'. That's not the issue here.

2) Try to get fitted with vertical stripes if you are overweight.

bidask · Jan 31, 2009

why isn't payment for order flow pre-arranged trading?

Quote from jeb9999:

The proper terminology is "pre-arranged trading". Pre-arranged trading is a violation of the Commodity Exchange Act, CFTC regulations and the regulations of every exchange.

IB is required to report your pre-arranged trades to the exchanges where the trades took place and to the CFTC.

Best advice is to find a good lawyer familiar with futures trading and CFTC regulations.

jeb9999 · Jan 31, 2009

Quote from bidask:

why isn't payment for order flow pre-arranged trading?

Please look up the definition of "pre-arranged trade".

Payment for order flow may give bad executions, but clearly the customer doesn't get to set the price by trading with himself.