The United States Securities and Exchange Commission (SEC) today charged Israeli company Tradenet Capital Markets Ltd. for offering and selling security-based swaps to over 5,000 retail investors without registration and for failing to transact its swaps on a registered national exchange.
From November 2017 until June 2020, Tradenet offered and sold security-based swaps to U.S. retail investors without an effective registration statement with the Commission and without effecting those transactions on a registered national securities exchange.
Tradenet is a private company headquartered in Israel that offered and sold a variety of “Day Trading Education Packages” to people throughout the world, including in the United States. Packages included a book, videos, and access to on-demand and live-streaming sessions with Tradenet representatives.
Each package also included access to a “funded trading account” on an affiliated web-based trading platform. The funded trading accounts allowed people to create a portfolio of securities and to receive possible payouts tied to the performance of the portfolio.
People paid Tradenet a fee for the education package that included the funded trading account, and the people selected securities, options, and other investments – many of which traded in the United States – to build a portfolio of assets in their funded trading account that they could change over time.
No securities were bought or sold in the funded trading accounts. Instead, the funded trading accounts were simulated, and the price movements of the securities were tracked in order to calculate the portfolio’s performance.
Payments were made to people whose portfolios increased in value, based on the price movements of the underlying securities. Specifically, people whose portfolios increased in value received a percentage of the simulated profits as a payout. If, at any point, the value of the portfolio decreased by a certain amount, the funded trading account was closed.
The agreements through which Tradenet provided the funded trading accounts were security-based swaps because they provided for the exchange of contingent payments based on the value of U.S. securities without conveying ownership in the underlying securities.
Tradenet violated Section 5(e) of the Securities Act by offering and selling those security-based swaps to U.S. persons who were not eligible contract participants without an effective registration statement. In addition, Tradenet violated Section 6(l) of the Exchange Act by effecting transactions with U.S. retail investors in security-based swaps that were not effected on a registered national securities exchange.
Without admitting or denying the findings in the order, Tradenet consented to a cease-and-desist order and agreed to pay a penalty of $130,000.