[F]rom November 2017 to June 2020, Tradenet sold investors packages of materials that claimed to be for the purpose of educating investors about day trading but also paid investors a portion of net profits from simulated trades conducted in a funded trading account provided as part of the packages. As set forth in the order, Tradenet charged from $500 to $9,000 for the educational packages that included the simulated trading accounts. According to the order, investors whose portfolios increased in value received payouts equal to a percentage of the simulated net profits, but if the value of the portfolio decreased by a certain amount, the funded trading account was closed. The SEC's order finds that the contracts to provide funded trading accounts were security-based swaps under the U.S. federal securities laws. The SEC's order further finds that no registration statement had been filed for the swaps, and that the swaps were not sold through a national securities exchange.
I supported today's Commission action against Tradenet Capital Markets Ltd., though not without reservations. Tradenet provided its customers "Day Trader Education Packages" that included a simulated "funded account" in which they could "trade" securities. The participants received a portion of the upside, and their downside was capped as their accounts were closed if they fell below predetermined thresholds. Some purchasers of these packages appear to have voluntarily purchased successive packages, and participants appear to have transacted with Tradenet voluntarily and with clear information about the terms of the deal. While Tradenet's product offering had an educational component, it was primarily about the simulated "funded account," which could not have been offered to U.S. retail investors under our existing rules.I do believe that there is room in our regulatory framework for creative investor education programs that give investors the opportunity to simulate trading in various financial products and assembling an investment portfolio. Gamification of educational experiences can promote learning, and the use of awards or prizes-even cash prizes-can provide incentives to take the game seriously and thus increase the educational value of the experience. I do not view this order as closing the door to these types of educational experiences. Moreover, firms, schools, and entrepreneurs who are interested in offering genuine learning opportunities to investors through simulated trading experiences with financial incentives but are concerned that their design may raise issues under the securities laws should engage with the Commission to explore how they could offer it in a manner consistent with our rules
On October 26, 2016, Batansky forwarded his son JB, an LPL customer, an email concerning an investment opportunity in XYZ, a then privately held medical device company. Attached to the email was an investor overview, convertible note term sheet and a subscription agreement. That same day, using his personal email account, Batansky sent XYZ's placement agent his son's residential address and date of birth. Approximately an hour later, Batansky used his personal email account to inform the placement agent that JB "will do $50,000 of [XYZ]."The next day, Batansky asked his sales assistant to email the placement agent a scanned copy of JB's signed subscription agreement for his $50,000 investment, a completed investor profile and questionnaire, and a W-9 tax form. Batansky thereafter arranged through his branch office's operations department to wire $50,000 from JB's brokerage account to JB's personal bank account. Batansky prepared and emailed JB a draft letter of instruction to JB's bank to wire $50,000 from JB's his account to XYZ's bank account. In early November 2016, JB completed his $50,000 investment in XYZ. Batansky did not receive any compensation in connection with JB's investment. In April 2017, Batansky falsely attested in a compliance questionnaire that he had not participated in any private securities transactions during the prior year.. . .Between October 2016 and September 2018, Batansky used his personal email account to send a total of 32 securities-related emails that were not monitored or retained by LPL. Specifically, Batansky sent 26 emails to two long-time friends, who were also LPL customers, about research reports and marketing materials related to biotech companies that could present an investment opportunity for these firm customers; four emails to one of those customers about activity in his LPL account; and two emails to the XYZ placement agent in connection with JB's $50,000 investment. Between October 2016 and April 2018, Batansky attested in three compliance questionnaires that he understood that he must use LPL or approved DBA email addresses for all business-related communications with all clients and prospects. . . .
This matter was initiated based on a customer complaint against Cowden submitted by a married couple to FINRA's Senior Helpline regarding Cowden's unsuitablerecommendations, as described below. While FINRA was investigating that complaint,another customer called the Senior Helpline and made a similar suitability complaintagainst Cowden regarding another unsuitable recommendation . . .. . .The three senior customers who were the subject of Cowden's unsuitable recommendations during the Relevant Period included one married couple and one other customer, all of whom were California residents with little investment experience.The couple were retirees, had a combined net worth of approximately $1.0 million, a combined liquid net worth of $300,000, a combined annual income of $23,000 and a moderate risk tolerance. Their investment objective included a stable, balanced portfolio, as well as income and liquidity, because they were relying on the investment to supplement their income. During the Relevant Period, Cowden recommended two purchases for the couple, totaling $231,200, of NorthStar Real Estate Income Trust (NorthStar), an illiquid, high risk, non-traded REIT. The NorthStar investments were not suitable given the couple's investment objective, circumstances, and financial needs. In addition, the investments comprised over 20% of the couple's net worth, more than double NorthStar's 10% of net worth concentration limit for California investors. NorthStar's illiquidity and high risk level also far exceeded the couple's moderate risk tolerance.The third customer, who was still working, had a net worth of approximately $400,000, a liquid net worth of $300,000, an annual income of $60,000, and a low to moderate risk tolerance. The customer's investment objective included slow growth and a reasonable rate of return. The customer also wanted liquidity. During the Relevant Period, Cowden recommended that the customer purchase $250,000 of Priority Income Fund, Inc. (Priority), a speculative, high risk, illiquid, closed-ended mutual fund. The Priority investment was not suitable given the customer's investment objective, circumstances, and financial needs. In addition, the $250,000 investment in Priority comprised an unsuitable concentration of over 50% of the customer's net worth. Priority's illiquidity and high risk level also far exceeded the customer's low to moderate risk tolerance.. . .In February 2019, during her on-the-record testimony to FINRA, Cowden provided false testimony to FINRA. Specifically, Cowden falsely testified that the three customers' assets and income were far in excess of the actual amounts-financial information which made the customers appear qualified to invest in NorthStar and Priority.