OneTRADEx liquidators petition US bankruptcy court

Originally posted on Cayman Compass

The liquidators of Cayman discount broker OneTRADEx have petitioned a federal bankruptcy court in the Southern District of New York for the recognition of the liquidation in Cayman as a foreign main proceeding.

The liquidators are seeking the protection of the Chapter 15 provisions of the US Bankruptcy Code because most of the broker’s client accounts were held with the primary custodian, Interactive Brokers LLC, of Greenwich, Connecticut.

“Because of Debtor’s conduct, it is possible that clients of the Debtor may bring litigation against the Debtor in Cayman and/or in the U.S., where the vast majority of the client accounts are held,” the petition stated.

If granted, the recognition would, among other things, give the Cayman proceedings full effect in the US and provide for a stay of any action against the company.

In their petition, the liquidators, Kenneth Krys and Angela Barkhouse of Krys Global, said that the client assets held by OneTRADEx were exposed to potential losses or liability in excess of US$4 million.

The Cayman Islands Monetary Authority took control of the broker on 18 July by placing the company under controllership, after OneTRADEx triggered a series of regulatory concerns. The controllers, who are now the liquidators, then found that the company was in “serious breach” of the Securities Investment Business Law and related regulations.

According to the petition, in April 2019, CIMA received the company’s audited accounts for the period ending June 2015. These contained a qualified opinion. The auditors also advised that the broker was unable to issue audited accounts for the financial years 2016, 2017 and 2018 due to “inadequate internal book-keeping and record keeping”.

The petition reiterated some earlier findings, which the controllers had reported to CIMA, that the company had used client funds without the client’s knowledge or authority to fund several stock loan transactions. They also noted that certain assets were held in a way that could put client assets at risk.

The liquidators described the financial position of the company as precarious. “[I]ts current and projected assets are insufficient to pay the current and projected liabilities (including the fees and expenses of petitioners) of the Debtor.”

At a meeting with clients and creditors in September, the liquidators reported that they had identified Tradeview, a Cayman Islands-registered broker-dealer, as a potential buyer for certain parts of the business that the company has through a white-label relationship with US-based Interactive Brokers.

OneTRADEx provides Interactive Brokers’ trading platforms and systems under its own brand name to enable clients to carry out stock trades from Cayman without having to be registered in the US for tax and other regulatory purposes.

If the sale is agreed and approved by the regulator and the courts, clients would be able to have their trading accounts transferred to Tradeview.