OneTRADEx clients told to expect a loss

Clients and creditors of discount broker OneTRADEx, which was put into provisional liquidation last week, heard they should expect to lose “less than 10%” of their trade account holdings at a liquidation meeting on Tuesday.

However, this estimate was only given in reference to a hypothetical consensual solution with minimised legal costs, in which everyone shared losses and costs equally.*

According to people who attended, the meeting turned “a bit unruly” at times as the broker’s clients were highly critical of the notion that they should be on the hook for any of the company’s debts.

The meeting was organised by the provisional liquidators Kenneth Krys and Angela Barkhouse of KRyS Global to address questions by OneTRADEx clients and creditors and to elect a creditors committee.

Several clients of the broker said they were told the controllership alone had amassed about US$700,000 in fees, including legal fees, with eight people working on the case. Krys said he is personally billing US$820 an hour but his fellow provisional liquidator and team members are charging lower rates. This would make the liquidators, who were previously the controllers, one of the largest creditors of the company.

Clients of the broker argue that as clients, rather than investors or creditors, their account holdings should be off-limits for the debts of the company, including those resulting from controllership and liquidation fees, because their funds were held in segregated accounts.

Most of the broker’s clients are retail investors. One OneTRADEx customer told the close to 100 people attending the meeting that he was holding his entire pension savings in his trading account at the broker.

A registered investment professional, who spoke on the condition of anonymity, told the Cayman Compass that there was a vital principle at stake. “If client assets at OneTRADEx are segregated and this principle is violated, then this is hugely dangerous for anyone with an account at any custodian or broker on island, including every large bank,” he said. The message would be that “your money isn’t safe in a segregated account in the Cayman Islands”.

“If that’s the outcome,” he said, “then investors need to very carefully think about the new risk this creates, and genuinely should actively consider moving their assets out of the Islands.”

Krys confirmed in an email to the Compass that the liquidators would make an application to the court for directions as to whether client accounts should be treated differently than creditors of the company.

However, he noted in a separate email that it was explained at the meeting that client assets, in fact, may not have been segregated, as client funds were commingled and, in some accounts, company monies and client monies were commingled.

In a client update on 4 Sept., the liquidators said “clients will be provided with the details of the applications being made and will have an opportunity to be heard at any hearing”.

OneTRADEx was taken over by the Cayman Islands Monetary Authority and put under controllership on 18 July. The controllers, who are now the liquidators, reported to the regulator “serious” breaches of the Securities Investment Business Law and related regulations by the broker. The main purpose of the provisional liquidation is to facilitate the sale of certain parts of the business that the company has through a white-label relationship with US-based Interactive Brokers.

The liquidators reported at the meeting that the prospective buyer is Tradeview, a Cayman Islands-registered broker-dealer. Clients would be able to have their trading accounts transferred to Tradeview, once the sale is agreed and approved by the regulator and the court.

*EDITOR’S NOTE: The article was amended to incorporate clarifications provided by the provisional liquidator Ken Krys that the statement regarding client losses of “less than 10%” was in reference to a hypothetical scenario and not an estimate of actual loss, nor was it intended to reflect what clients of OneTRADEx might expect to lose. A previous version of the article stated the provisional liquidators are billing an hourly rate of US$800. Krys’s personal rate is US$820, but lower rates apply to the other provisional liquidator and team members. A sentence was added to reflect that client monies may not in fact have been segregated.

3 COMMENTS

  1. This really calls in to question the role of the regulator and therefore possible ramifications throughout the Cayman Islands.
    The fact that this company amongst other things did not fill audited accounts for four years should have been a red flag. If that were to happen in the U.K. the company would have been suspended after missing one deadline let alone four. To expect the clients to now have to pick up the cost of the controllers is totally unfair and the regulator must be held responsible.

  2. This is an alarming situation that all customers of Cayman Islands investment brokers should pay close attention to.

    I attended the meeting on Tuesday where we were told by the Provisional Liquidator (Krys Global) that he may endeavor to hold OneTradeX clients, WHO HAVE SEGREGATED ACCOUNTS, responsible for not only the liquidation costs of the company but for losses of certain other clients who have different types of accounts. In my opinion and the opinion of everyone I talked to at the meeting, this action would be contrary to all precedence and to the law. Mr. Krys tried to claim that a segregated account isn’t really a segregated account, but this is absurd. The other type of account (pooled) is formally known as an omnibus account, and the documentation between OneTradeX and Interactive Brokers specifically indicates that these are NOT omnibus accounts.

    If this position by the liquidator is upheld by the court, which seems very unlikely, no person or entity having a broker account in the Cayman Islands will be safe from liquidators reaching into your investments. When asked, Mr. Krys was forced to admit he charges a whopping $800 per hour. This, to destroy a company that shouldn’t have been destroyed — indeed we’ve been told of no fraud that has been committed by OneTradeX, just tardy reporting and the like — and causing tremendous inconvenience for account holders, who are unable to access their money. One of Mr. Krys’s goals, according to his initial letter to account holders, was to maintain the viability of OneTradeX. Oh really? It didn’t work out that way, did it?

    Of note is the fact that the Cayman Islands Monetary Authority, which is responsible for supervising the financial services industry in the Cayman Islands has, to date, made no audits of OneTradeX. The company was behind in its reporting, and apparently CIMA let 4 years go by before doing something about it. The “something” they did about it was to hire an exorbitantly priced private company that specializes in liquidations (i.e., Krys Global) to review the accounts of OneTradeX and report back. In the process, Krys Global has essentially bankrupted OneTradeX by billing at least USD$700,000 since July 2019. This inevitably forced the liquidation of OneTradeX — even though no fraud has been revealed, just tardy reporting and miscellaneous other allegations that the owners of OneTradeX dispute, and that the owners of OneTradeX may well be correct about.

    The account holders must now look to the Cayman Islands Courts to protect them — FROM THE LIQUIDATOR. Hopefully, the Court will rule that segregation means segregation.

    If not, then word will quickly spread that the Cayman Islands is a risky place to bring one’s investment money, and the investment business in the Cayman Islands will go south VERY quickly.

  3. It is not unusual for CIMA to defer taking any actions. It is called negligence and has been going on for years.
    It would be proposterous for clients to fund either the controllership or the liquidation.
    As a seasoned Insolvency Practitioner I can tell you that the shortage of monies to fund either the controllership or liquidation should have been addressed by both CIMA and the Controllers from day one. I do trust this will be taken on board by the recently appointed liquidation committee.
    Situations like this give Cayman a bad name in the financial world.

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