ILQ renegade James Pieron prosecuted, faces 5 years jail

During its relatively long tenure as a well known FX business, ILQ was once a famous name among all sectors of the electronic trading business.

ILQ, an acronym for Institutional Liquidity, rose to prominence for many reasons, some due to its position as a North American liquidity provider to brokerages which had garnered a degree of popularity internationally, and others due to the dubious character of its leadership.

The latter cause of notoriety was ILQ’s eventual downfall, the firm having been forced to exit the United States in mid 2014, the National Futures Association (NFA) having had quite enough of its non-conformist commercial antics.

Today, however, the firm is back in the limelight, as one of its principles, a shameless and brusque James Pieron, faces up to five years in jail for tax evasion after having filtered very large sums of money into the United States from his unusual and equally questionable ventures in no-questions-asked Switzerland.

Grand Rapids, a very middle class, medium sized town in the state of Michigan, had once been home to ILQ, and is a region whose highly educated populace has contributed to its diversified local economy, not least a disproportionately high contribution to leadership in the FX industry.

Among the otherwise very good quality firms and leaders which emanate from Grand Rapids, including GFT and the companies that former GFT employees have founded and taken to success, was ILQ, that particular firm and its executives being the fly in the otherwise very good quality ointment.

Mr Pieron finds himself back in Michigan, however this time inside a court room rather than a boardroom, and was found guilty on Thursday last week of evading federal taxes in 2008 and 2009 during his hearing in federal court.

Mr Pieron was found guilty after a seven-day trial on one count of tax evasion in the courtroom of U.S. District Court Judge Thomas J. Ludington in Bay City, just a few miles east of Grand Rapids. This is a serious felony which carries a maximum penalty of five years in prison and up to twice the amount of the illicit gains or losses.

The court stated that Mr Pieron operated his currency exchange business in Zurich, Switzerland, before he moved back to Mt. Pleasant (Michigan) in 2009. He earned capital gains from a stock sale while living in Switzerland and wired millions of dollars from Swiss bank accounts to bank accounts of his corporate interests in Mt. Pleasant. Pieron reported those capital gains but didn’t pay taxes on them.

That particular entity was called JDFX, and was a separate entity to ILQ that Mr Pieron had operated since 2004.

He kept that money in his business accounts rather than pay taxes on it, and used it to buy things for himself. Those things include a $139,500 Mercedes SUV, a $38,000 Steinway piano and a $18,900 custom motorcycle.

A term at the expense of the US penitentiary service and a large fine will represent the latest in a few brushes with the authorities experienced by Mr Pieron, the first significant one being when the NFA began to investigate ILQ’s operations, resulting in a public complaint being issued by the NFA in January 2014, with the regulator having serious concerns over how the business was structured.

At that time, the NFA claimed that it had observed ILQ’s primary business until the end of 2013, which had been acting as the counterparty to FX customer transactions, and that since 2011, ILQ had routinely suffered net losses virtually every month. The NFA had concerns relating to the management structure of ILQ, and that it failed to co-operate promptly and fully with the NFA during an investigation by the regulator.

The operational structure had come into question by the NFA, along with scrutiny relating to the business activities of a number of the company’s key figures, including the assertion that at the time that the NFA’s investigation began in March 2013, ILQ had approximately 1,300 customer accounts and over $13 million in total customer liabilities.

Since 2011 until January 2014, ILQ had relied extensively on Harrison Associates to support the company’s operations and meet minimum net capital requirements. The NFA further asserts that Harrison Associates was by January 2014 owed over $38 million through subordinated loans agreements (SLAs) granted to ILQ.

The NFA shared its concerns about ILQ’s financial situation in an August 15, 2012 letter addressed to Mr. Krier, a Chief Compliance Officer, and asked the firm to submit daily net capital computations until further notice so NFA could ensure the firm remained in compliance with NFA Financial Requirements.

With the NFA’s penchant for customer protection in mind, and the concerns over capital adequacy, the method by which ILQ provides hedging to its clients came under scrutiny. In early 2014, it was entirely possible to allow ILQ’s MetaTrader 4 platform to show simultaneous buy/short positions, thus avoiding the US ruling on hedging.

ILQ swiftly put an end to hedging, however this distrust by the NFA led to further investigations, and Mr Pieron and his colleagues, along with ILQ itself were subsequently prohibited from operating their business in the US, when ILQ voluntarily exited from the market and was hit with a $225,000 fine and a ban from operating in the US ever again.

Effectively, although ILQ exited voluntarily, the NFA made sure that its executives would never return to the industry on US soil by banning them and ILQ post-exit.

Mr Pieron, along with colleagues Mark Krier and Jason Tanner were at the time ordered to pay a fine of $225,000 to NFA, with the NFA accepting a further agreement of ILQ and its directors to pay restitution in the amount of $123,152.32 to ILQ customers.

Clearly, that was not the extent of the total damage, and the fingers were far deeper in the till than that, and the court has now put an end to what can only be described of several years of arrogance.