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Alexander Haraczka
Alexander Haraczka,
Category: Finance
Satisfied Customers: 23
Experience:  Supervisor at Cummings, Lamont & McNamee, PA
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I have been purchasing stock ina margin account few months

Customer Question

Hi i have been purchasing stock ina margin account for a few months and never has my balance been the smae daily
I would buy and sell 3-10 times a day
My cash balance represented on my online account would cary daily and weekly from 10 to 80 thousand
One morning i wome up and my balance in cash was negative 34000$
I immediately called in shock
They had no answer
It turns out that there system was representing false cash balances and additionally false margin
When i seen 70 thousand in cash plus 30000 in margin allowance i bought some securities
The next couple days they went doen by 30-50%
When they realized tbe cash balance was false and that i in reality only had a fraction of true cash balance they changed the numbers around and gave me a negative balance
In reality i was allowed to purchase 130 000 of securties with approx 10 000 $ of true cash
Therefore inevitably with such a large difference in ratios the slightest percentage gain or loss would of reflected a major impact. To my cash balance which it did
The couple days prior i also had placed my purchases via telephone and thefe own representatives didnt even identify a discreptency with my account so how could i have done so if they are the experts
Now they assume no responsability for their system error and are blaming me for the issue and are threatening legal action if i dont pay them
I am very upset because the equivilent is the same as someone saying here is 70 000 buy any security and in 3 days ( thats there margin call paying time frame or tbey sell the securities on your behalf) we will sell them and you either made money or you go in debt
Sonething that i would never do
On there website it even states the % of ylur cash balance that they lend depending on the specific securities volatilty
They did not follow that rule
Also i beleive there is laws they need to follow. For those percentages
In addittion my cash balance was false further itensifying the margin or credit to cash value ratio
Ifeel that their system is the cause of this and in addition they have very poor book keeping whitch still i cant understand what happened and were there error occured
What will result of this
Submitted: 1 year ago.
Category: Finance
Expert:  Alexander Haraczka replied 1 year ago.

Good morning, and thank you for posting your question. Before going any further, I need to clarify several points:

1. How much cash did you invest in the account?

2. What was the initial margin percentage you agreed to when you opened your account?

3. What was the maintenance percentage you agreed to when you opened your account?

4. Were any of the documents updated at any time?

Customer: replied 1 year ago.
I invest over 40000 in 2 or 3 deposits
The margin requirements were im not sure i beleive the need to follow regulation of not going over a certain percentage which is approx 70% loan of total cash at most depending on the security
The rules they need to follow from IIROC it is clear rules regarding margin trading
And i know for a fact that it was extremely higher as they were showing me a false cash balance that we both didnt identify until they did and adjusted resulting in a negative cash balance
I will dig up my paperwork and see il get back to you and no nothing changed
They blantely admitted there system showed false cash balances hence higher margin that would be allowed if my true cash balance was represented
But they insist i should of been able to identify the cash balance was wrong and that i am the one who placed the trade
Even if they were called and they looked at my account said im balancing your account and they placed a trade without themselves noticing discreptencies
Expert:  Alexander Haraczka replied 1 year ago.

With $40,000 invested, the Federal minimum initial margin of 50% would mean you'd be able to buy up to $60,000. The Federal minimum maintenance margin of 25% would mean you'd have to keep equity in the account of at least $15,000 ($60,000 * 25%). It sounds as though you were allowed to borrow 70%, which should still only work out to $68,000; however, earlier I believe you said you'd purchased as much as $130,000 (more than 300% of your invested cash). Is that correct?

In the end, it may end up being a case of a flawed online system that did not keep up with your activity; your plan documents may address such instances, and the correct course of action. If you are unable to come to terms with the investment firm, I would recommend contacting an attorney to ensure your rights are protected.

Customer: replied 1 year ago.
11. Margin Agreement
To: ***** ***** (“The Broker”), A Division Of BBS Securities Inc.
In consideration of The Broker agreeing to operate, open or maintain one or more accounts (collectively the “Accounts”), for the purchase or sale of, or otherwise dealing in Securities (as defined below), for the customer executing this Agreement (the “Customer”), the Customer represents, warrants, covenants and agrees with The Broker as follows: 1. Applicable By-Laws, Customs, etc. - All transactions executed for the Accounts shall be subject to the constitution, articles, by-laws, regulations, rules, rulings, policies, customs and usages (in force now or in the future) of the Investment Industry Regulatory Organization of Canada, and of any applicable exchanges or markets and of their clearing houses, if any (collectively the “Rules”). These transactions shall also be subject to all applicable federal, provincial or territorial laws or regulations and to the regulations of any applicable governmental or regulatory authorities (now in force or in the future), including securities commissions and any other similar authority. The Customer further recognizes that the Rules constitute a minimum standard in the securities brokerage industry and that The Broker may subject any transaction to more restrictive standards. 2. Settlement, Commissions and Interest - Full and timely settlement shall be made of each transaction. The Customer agrees to pay for all securities purchased by the day of settlement. The Customer undertakes to pay to The Broker commissions and other charges in respect of each transaction (including any transaction made pursuant to section 8), and any other services charges, and interest, calculated daily and compounded monthly, on the outstanding Indebtedness (as defined below). Such commissions and other charges will be computed at the rate or amount as set out by The Broker from time to time. The Customer acknowledges that every debit balance appearing form time to time in the Accounts shall bear interest at the rate set out by The Broker which may be modified from time to time without prior notice to the Customer. 3. Operation Of The Account - (a) The Broker will credit to the Accounts any interest, dividends or other monies received in respect of Securities held in the Accounts and any monies received as proceeds from the sale or other disposition of Securities from the Accounts (net of all applicable commissions and fees) and will debit from the Accounts any amounts, including interest, owed by the Customer to The Broker pursuant to this Agreement. (b) For the purposes of this Agreement “Indebtedness” means, at any time, all indebtedness of the Customer owing to The Broker represented by the debit balance, if any, in the Accounts at that time and includes interest on any credit extended to the Customer and the reasonable costs of collection of payment owed to The Broker, together with legal fees associated therewith. 4. Payment Of Indebtedness - The Customer will promptly pay Indebtedness when due except to the extent covered by a margin facility, and will maintain adequate margin and security in the Accounts. Notwithstanding the
V I R T U A L B R O K E R S™ (A Division Of BBS Securities Inc.)***** Suite 415, Toronto, ON M2P 2B5 CANADA Tel:(###) ###-####Fax:(###) ###-####VB-Disclosures and Customer Agreements (2015-V2)---ORDER EXECUTION ONLY ACCOUNT Page 7 of 19
foregoing, the Customer agrees to pay to The Broker, on demand in The Broker’s discretion, the total amount of the Indebtedness.
5. Margin - The Broker will open or maintain the Accounts and grant a margin facility to the Customer provided that The Broker may, in its entire discretion, without notice, at any time and from time to time: (a) reduce or cancel any margin facility made available to the Customer or refuse to grant any additional margin facility to the Customer; or (b) require the Customer to provide margin in addition to the margin required by the Regulatory Authorities (as defined below). The Customer will provide The Broker with any margin requested by The Broker and will promptly pay any Indebtedness due as a result of any reduction or cancellation of any margin facility. 6. Collateral - As long as the Customer is indebted to The Broker, all Securities, property and monies, which may now or hereafter be held by The Broker or its agents for or on account of the Customer (including any Securities in which the Customer has an interest and which are shown on the records of any clearing or similar agency in the name of The Broker) (collectively the “Collateral”) shall be and are hereby hypothecated, pledged and shall constitute a continuing collateral security in favor of The Broker, and the Customer acknowledges that The Broker has a general stockbroker’s lien on the Collateral to insure payment of all Indebtedness, whether or not such Indebtedness relates to such Securities, property or monies. Whether the Custome
Customer: replied 1 year ago.
this is what I signed , and yes it is a system error , my portfolio would fluctuate dramatically from day to day , from 80 thousage to 20 thousand was the norm , and when in fact my cash balance was around 10 000 it represented a cash balance of close to 100 thousand , with its allowed margin accompanied to it , which totaled above 130 thousand , when the stock went down in the slightest it deteriorated my true cash balance in an instant , I sold my securities that day with a 20 percente loss , still had a positive cash balance of approx. 60-70 thousand the next morning I woke up and my cash balance was -30 thounsand instantely
Expert:  Alexander Haraczka replied 1 year ago.

Based on your reply, the broker (in section 3) was responsible for recording the transactions in your account (credits and debits); however, there is no mention as to how often they were to update your account balances. The agreement goes on to say that the customer is to pay margin balances (section 5) "on demand" and that assets in the account (section 6) will be held as collateral until the indebtedness is resolved.

With that being said, my advice is to consult with an attorney licensed to practice in Toronto: ***** ***** not to be a finance/tax issue, but one that may become a legal issue.

Thank you, ***** ***** let me know whether I can be of further assistance.

Customer: replied 1 year ago.
How much will it cost to retain legal advice for this
Customer: replied 1 year ago.
But it does also state that if they are negligent they could be held responsible
Expert:  Alexander Haraczka replied 1 year ago.

I agree on your reading of the documents, and an attorney licensed to practice in Toronto would be able to assist you with the next steps. I suggest posting your issue in the legal section of JustAnswer and specifying your need for an attorney licensed to practice in Toronto. Unfortunately, I would not be able to provide you with an accurate estimate of the cost to retain legal counsel: there are too many variables (geography, size of firm, specialist/generalist).

Customer: replied 1 year ago.
ok , so how do I redirect my question over to a lawyer in the Toronto areaThanks
Expert:  Alexander Haraczka replied 1 year ago.

You would close this question (hopefully I've provided a level of service you feel is satisfactory) and re-post it, using the "legal" category instead of the "finance / tax" categories. If you copy the text of this conversation, you can use it to refine your original question and avoid some back and forth with the attorney.

Thank you,

Customer: replied 1 year ago.
but I never submitted it into the tax category , just answer put it there , il have to call them and redirirct it to the appropriate people , I will talk to a representative first
Expert:  Alexander Haraczka replied 1 year ago.

You're welcome; if I can be of further assistance, please let me know.