As I continue to update the dead forex firms walking list I'm amazed how many people think fraud and undercapitalization are completely separate issues. Often times they are not. The reason is quite simple: firms that are committing fraud are not known for having legible books. And Vice versa. Firms that have a hard time maintaining their capital requirements will often cut corners and commit fraud to keep their firms from going under. Finally, smaller firms simply don't have the money to maintain the kind of large legal and compliance staffs necessary to keep up with the battery of regulations being issued by the NFA and CFTC. And of course some firms are just plain incompetent. All these factors have come to a head with Forex Dealer Dead Pool Member One World Capital, who is now in serious trouble with regulators.

To see the full report on One World's misdeeds you can click on the NFA's report yourself: http://www.nfa.futures.org/BasicNet/...px?seqnum=1190

I have highlighted some of the worst allegations below. After reading through them I think you'll understand why One World is on the dead firm's walking list and why that should be serious cause for concern for anyone who has an account with them or any firm like them.

"One World lacked an understanding of, or was inattentive to, regulatory requirements and was ill prepared to accept customer business as either an FDM or an FCM. The firm had not established adequate systems to enable it to handle customer funds or comply with customer reporting requirements."

"The firm was unable to properly account for its liabilities to its forex customers." (Insert appropriate jaw dropping sound. This is the text book definition of a firm destined to go bankrupt.)

"In addition, NFA's audit found that One World and Walsh [Principal] provided false and misleading information to NFA auditors concerning an individual names Charles Martin and his role at One World. Walsh said Martin had no involvement in the firm. However, NFA subsequently learned that Walsh's claim was untrue and that Martin was, in fact, heavily involved in the operations of One World and solicited customers on its behalf." (Who is Charles Martin you ask? The NFA states Martin was turned down to be a principal before because of a "felony drug conviction and a misdemeanor theft conviction.")

It goes on and on, misleading promotional materials, outright lies to regulators, failure to report capital and maintain any semblance of book keeping standards. In short, One World is a classic Dead Forex Firm walking. Firms like One World are the reason the NFA is going to raise capital requirements. And when they do, does anyone honestly believe the One World's of the world will survive?

Another day, another small forex broker dealer shuttered. But before we start throwing dirt on the coffin of forward forex let's take a peak inside and perform an autopsy on the cadaver. For some its old news but for those concerned about the fragile state of the forex industry I think a proper examination is in order. For starters, why and how did this firm get shut down by regulators?

Forward Forex was granted a NFA license in January of 2006.
BASIC Details

On June 18, 2007, the NFA began its examination of Forward Forex and met its CEO, Onelio Manuel Murias. Murias stuck around for an hour after the NFA arrived and then apparently slipped out the back door. He has not been seen since. That's right. As soon as the regulators showed up at his door to look at his books the CEO of the company fled! It's like an episode of "To Catch a Predator" where Chris Hansen breaks out the cameras and the perps go running. So the NFA goes over and speaks with another AP/Principal of the firm, Marshall David Wertheim. Wertheim then tells the NFA that he didn't even know he was an Associated Person and just entered trades in the dealing room. And this guy was legally listed as an AP of the firm?! The rest of the audit consists of the NFA desperately trying to get basic book keeping information only to be told by clueless employees that "we know nothing." Finally Murias' lawyer followed up with the NFA and after a round of Monty Pythonesque negotiating conclude that Murias will not be responding to queries. Hard to believe right? See it all for yourself:
http://www.nfa.futures.org/BasicNet/...px?seqnum=1269

This goes right to the heart of what I have been saying these past few weeks. The National Futures Association has been inundated with this kind of activity amongst smaller, undercapitalized broker dealers (for the record Forward Forex had only $1.8 million according to the latest CFTC report.) When you don't have any capital you skimp on things like, oh, well, accountants, compliance staff, Associated Persons... This company was a complete farce. But if you are an ordinary trader how can you really tell? Before this scandal broke they were registered with the NFA and were meeting their minimum capital requirements. I'm sure they had some smooth talking salesmen spinning stories about how well regulated they were. So from the outside it looked ok, right?

Wrong. This is why the NFA is dramatically raising capital requirements. They are tired of dealing with these flimsy, undercapitalized firms. The very fact that the NFA is raising capital requirements should tell you that they have very little confidence in firms with net capital below $5 million. This isn't my opinion. This is the NFA's own opinion. And if a regulator thinks that then the average trader needs to think long and hard before putting their hard earned money in the bank accounts of any of the dead forex firms walking.

One last point. It has been said by some that after the NFA decides to raise capital requirements that there will be an orderly process for unwinding the smaller brokers who can't make the cut. Really? What's to stop the Murias' of the world from bolting with the company's funds and fleeing the state or country once they know the jig is up? The NFA couldn't even get the CEO of forward forex to answer some simple auditing questions and they're going to be able to keep some of these bucket shops out there from fleeing with customer assets? This whole Capitalization issue has the potential to be a real train wreck. So do yourself a favor and keep a sharp eye out on the dead forex firms walking.

P.S. To those firms on the dead forex firms walking list just put up the money now. Why put your customers through the agony of not knowing whether or not your firm is going to make the cut?

So, after all this shake in forex world with US brokers.

The best choice seems to move the money to Canada and trade with a company secured by Canadian Investor Protection Fund: Choose our English or French website

If the company goes broke, Canadian Government will cover the funds as they did with REFCO customers.

Canadian Refco customers have retrieved their funds a few weeks after bankrupt.

It´s even better than check CFTC/NFA reports every day/week/month.

Don't you think?

Btw: they also have another program: CCPFSI - Canadian Consumer Protection for Financial Services Insolvencies

Really Cool.

__________________

Elite Manual Trading | Portfolio | Calendar | Suggestions to improve the forum | My Blog

Remember: Signatures must have three lines as maximum

Having put myself in a good mood chuckling over the antics of Forward Forex I have decided to exhume some other FX broker dealer corpses, all for the benefit of the general trading public of course. The point? To emphasize why regulators are so concerned about firms that are undercapitalized.

The term "Maggot Mile" (Forbes.com - Magazine Article) refers to a stretch of land running from Boca Raton to Miami, Florida. Within these geographic boundaries lies one of the greatest concentrations of wealth in the world (held by American retirees.) And preying on these often naive denizens are thousands upon thousands of crooks, criminals, crackpots and con-men. Forex happens to be the financial instrument of choice at the moment for these petty thieves in suits. Back in the 1980's these same hucksters were peddling "oil lease scams" and in the 1990's during the big stock boom they peddled bogus internet stocks. The actual financial instrument being sold is of little consequence to these crooks out on the hustings since the instruments can be interchanged with whatever the latest marketplace fad happens to be. The main point is that regardless of whatever the huckster happens to be selling it is guaranteed to make the victim millions of dollars. It's the oldest sales pitch in the book.

Which brings us to our first slimy customer: Worldwide Commodity Corp in Ft. Lauderdale.
BASIC Details

The owner of Worldwide was one Steven Labell. A quick look at Labell's resume should have sent the average investor screaming in terror. Labell has worked for one crooked operation after another. The firms Labell has been associated with showcase a rogue's gallery of compliance outlaws:
BASIC Details

JCC INC (License Revoked in 1994 after massive commodities Fraud)
FSG International Inc (License forfeited in 2003 after being sanctioned for Fraud)
Financial Services Group Inc (License revoked in 1987 after massive commodities Fraud)
South Coast Commodities Inc (License revoked in 2007 after massive commodities Fraud)
Concorde Trading Group Inc (License revoked in 2002 after massive commodities Fraud)

While Labell was not guilty of every trespass at these firms clearly the apple didn't fall far from the tree in this instance. Nor, surprisingly, did it stop Worldwide from getting their license which they got on November 24, 2003. Fresh with a license what did Steven Labell do as a newly minted master of the universe? Why he went around selling Forex options promising would be suckers that they couldn't lose money betting on the war in Iraq… Add war profiteer to Labell's dubious list of lifetime accomplishments. By June of 2004 the CFTC had hauled Labell and his cronies into court to answer for the fact that over 200 customers had lost nearly $1.8 million betting away their life savings.
CFTC Press Release 4944-04

So what was the court’s verdict? “The order holds Labell and WWF (Worldwide Forex) jointly and severally liable to pay WWF's customers restitution in the following amounts: WWF $3.1 million and Labell $1.5 million. The order also imposes civil monetary penalties of $126,000 against Labell and $3.1 million against WWF. Finally, the order permanently prohibits defendants from engaging, directly or indirectly, in any commodity-related activity.”
CFTC Press Release, May 30, 2007

End of story right? Not in the U.S. domestic retail forex industry where the shysters rise from the grave like the flesh eating zombies from 28 days later. Nope, what really makes this story juicy is the fact that refugees from Worldwide apparently migrated over to another firm, a dead forex firm walking, by the name of Nations Investments LLC. ($1,699,000 in net capital).
BASIC Details

In fact, Nations even has the same address as did Worldwide!

1700 NW 64TH ST. SUITE 100
FT. LAUDERDALE, FL 33309

Anyone want to make odds on how long it will be before Nations gets shuttered? Perhaps the folks over at Intrade can add a dead forex firms expiration date contract to their prediction market. If so, I’m going long on Nations going under. And I ain’t worried about a margin call…

Helloooooo, is there anybody in home?

So, after all this shake in forex world with US brokers.

The best choice seems to move the money to Canada and trade with a company secured by Canadian Investor Protection Fund: Choose our English or French website

If the company goes broke, Canadian Government will cover the funds as they did with REFCO customers.

Canadian Refco customers have retrieved their funds a few weeks after bankrupt.

It´s even better than check CFTC/NFA reports every day/week/month.

Don't you think?

Btw: they also have another program: CCPFSI - Canadian Consumer Protection for Financial Services Insolvencies

Really Cool.

PD: do you know read my dear?

__________________

Elite Manual Trading | Portfolio | Calendar | Suggestions to improve the forum | My Blog

Remember: Signatures must have three lines as maximum

forexsavior,

You would make a much better tabloid writer or newsletter provider than a trader. Now you've found your true calling.

I just want to make 2 comments...

1) Not many if any of the firms you first posted as "Dead Firm Walking" have shown up in your obituaries.

2) There *may* be a high CORRELATION between undercapitalization and fraud, but there is no logical link of certainty as you seem to think. Just because a firm is small doesn't mean it commits fraud, and just because a firm is big doesn't mean it is honest. I say *may* because anecdotal evidence is not sufficent to prove anything. A study would need to be done. This is just as true in our choice of trading partner as it is in our backtesting.

If traders learned anything from the whole Refco debacle, it should be that a large firm does not guarantee safety of funds.



Personally, I'm with LinuxUser on this one. If the NFA really wanted to make a difference they would find a way so that client accounts would be excluded from bankruptcy, or at least given seniority over all other creditors. I believe that if client accounts were kept in a segregated bank trustee account, that would accomplish that end. Also, I think I'll check out the whole Canada angle myself as he is correct about that, from what I recall hearing/reading about the Refco event. (I'll have to check out the link later.)

Finally, we should all make our own decisions about who to trade with; and such decisions should be made after a *RATIONAL* sifting of the information available to us. Keep in mind that your information will always be complete. So certainty is probably not possible , but rationality certainly is (think hard about that).

The fundamental condition of human beings is trust, not suspicion. Be wise as serpents and innocent as doves. If you can keep the tension between these two statements, then you'd be a pretty decent decision maker. I'm a full-time trader, and that approach has worked just fine for me.

BW

To fairly disclose:

1) I'm a private retail trader
2) I want to see other people make rational decisions, because there is too much craziness in the world
3) I work with two other traders, and would like to influence them to be rational (they might read this), and
4) I hate sensationalism...if I wanted that I'd watch what passes for 'News' on TV...which I don't

My point is...everyone has an agenda. That's mine. What's yours?

BW

Just by this statement I can tell the poster has never been involved in a class action lawsuit.

goldensight is correct, the firm would have to loose all of their assets first. BUT, the individual customers will loose out. The equity raised by the sale of the firms assets will go to OTHER COMPANIES that the firm owes money to. The individual investor is the one left holding the bag.

I've seen it before and hopefully I'll never see it again.

If you don't feel your money is safe and you loose it, its no ones fault but your own.

BW you remind me of one those old ladies who is constantly complaining about "the tabliods" but as soon as the National Enquirer comes out can be seen sprinting down to the newstand to gobble it up. If you don't like sensationalism the best thing to do is to ignore it. As for me, I gobble up the Enquirer- with no shame at all

anyone on their list offer MT4?