EXANTE responds to SEC filings, seeks to unfreeze client assets

2015 sent shockwaves through the Maltese financial sector as locally listed brokerEXANTEsought to free client money from an asset freeze imposed by the US Securities and Exchange Commission (SEC). The freeze was the product of filings alleging the broker had acted as an investment fundwith involvement in a $100 million insider trading scandal. The SEC initially claimedEXANTE could have made over $24 million through the scam over five years, charges which relied on a misunderstanding of the broker’s business model. Though the SEC responded willingly to EXANTE’s efforts to assist and clear their name, the entire debacle was a challenging and troubling period for the rapidly growing financial firm.

The 2015 filings arrived as a complete surprise. Not having prior warning of the investigation or filings,EXANTEimmediately pointed out that the SEC’s understanding of its business model was incorrect. EXANTE is not a hedge fund, or any type of investment fund, and operates exclusively as an executing broker. Execution-only brokers provide direct market access to professional clients, without taking on their own positions. EXANTE offers clients a platform that aggregates global financial instruments in a single, multi-currency account, allowing for clients located anywhere in the world to access major global exchanges on a regulated platform. It is of course impossible for an execution broker to ‘profit’ from insider information, since their taking rely on a spread between their execution price and the client’s, something that does not change according to the profitability of the trade. EXANTEsent documents confirming that it does not make trades or offer advice, while assisting the SEC with the investigation into some of the clients using their platform. Unfortunately, due to the presence of some accused clients on EXANTE’s platform, all client money – belonging to over 400 different professional clients – was initially frozen. In order to ensure that clients remained loyal to the broker, staff needed to act fast.

The Times of Malta covered EXANTE’s response.First, a legal representative determined that only a few of its customers were involved in the alleged illicit trades;more than 99.9% of assets in frozen EXANTE accounts had no connection whatsoever to any of the complaint’s defendants. The company emphasised its commitment to transparency and full compliance with any investigations. EXANTE’s aims and responsibilities align with the SEC’s mission to protect investors from fraud, and EXANTE is regulated under four separate financial compliance regimes – Malta, Cyprus, Hong Kong, and the United Kingdom. These listings place onerous requirements for financial crime compliance and reporting onto participating firms, and EXANTE complies with some of the strictest standards in the industry. All of these features strengthen EXANTE’s case that they were unaware of any alleged illicit activity by their clients, many of whom will have used multiple different brokers in normal business operations.

Fortunately, US authorities responded positively to these efforts at clarification. The US District Court in Newark indicated its willingness to release assets in the frozen accounts on receivingevidence confirming that asset owners are not linked to the alleged scheme. EXANTE cooperated with the SEC and Malta Financial Services Authority (MFSA), providing thousands of documents and collaborating with local police investigating the claims. The company, which has worked hard to build its reputation in the financial community since 2011, acknowledged the impact of the allegations on its business and emphasized the importance of clearing its name.Due to EXANTE’s regulated status and swift response from their compliance department, the SEC soon withdraw the incorrect charges. Though the legal problems were over and client assets unfrozen, the impact on EXANTE’s market reputation continued as a point of concern.

One point of frustration for company insiders was that filings had not been shared with EXANTE, who were completely unaware of the investigationbefore publication. Had they been shared earlier, it would have been relatively simple to correct the mischaracterisations of EXANTE’s business model, hopefully preventing erroneous charges being listed. It is not immediately clear how the SEC made such a major oversight as categorising an executing broker as a hedge fund, but likely confusion emerged when dealing with international businesses and alternate registration systems. EXANTE graciously thanked the SEC for their work combating financial crime, but such a basic oversight by a major national agency is a blot on their reputation.

Throughout this crisis, EXANTE prioritised continuing operations, working to unfreeze client assets with the greatest speed possible and maintaining all trading positions and client money accounts.EXANTE directors expressed gratitude to loyal clients and partners and highlighted the significance of trust in building on their long-term successes. Fortunately, the years since the filing have been kinder to EXANTE, with remarkable growth pushing the broker to over $2 billion in client assets on accounts, with 600,000 global instruments available to trade. EXANTE continues to push for hassle-free cross border transactions with excellent customer service, all while maintaining the highest possible standards of customer service.

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