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With the Dark Knight breaking box office records around the world it looks like the CFTC is trying to cash in on the caped crusader’s popularity. In a recent press release announcing the formation of a “forex fraud” taskforce the CFTC stated, “This announcement sends a clear signal that the CFTC is on the beat, and that our continued and increased cooperation with law enforcement authorities will help put these forex dealers where they belong – in jail.”
Ya I know many of you are chuckling to yourselves, in classic Joker style, “ha, ha, ha, and I thought my jokes were bad.” Forex fraud has been rampant the last couple years and like the hapless gang at the Gotham police department the regulators can never seem to get the bad guys who remain safely tucked away like “Lau” from the Dark Knight hiding out in his Hong Kong skyscraper. Only in the retail forex world the villains sip margaritas on the Turks and Caicos Islands or are busy forging $35 million ABN-Amro bonds in Switzerland.
But maybe there is finally hope here in Gotham. Perhaps the Dark Regulator can save us from the scammers and con-men who are a blight on our wonderful forex world. Let’s hope the CFTC’s new task force scheme works out and that they are able to drive these agents of chaos out of the retail forex market once and for all. But then again the Jokers of the retail forex world have never been intimidated by schemes have they?
Joker: Do I really look like a guy with a plan? You know what I am? I'm a dog chasing cars. I wouldn't know what to do with one if I caught it! You know, I just, do things. The mob has plans, the cops have plans, Gordon's got plans. You know, they're schemers. Schemers trying to control their worlds. I'm not a schemer. I try to show the schemers how, pathetic, their attempts to control things really are.
So to the folks at CFTC, please, make sure this latest scheme doesn’t draw the kind of ridicule the Joker loves to heap on law enforcement…
Last Friday I Trade FX’s response to the NFA regarding the complaint lodged against them was posted on the NFA’s website. Below are the details: BASIC Case Summary
The Nine Lonely Whales
Right off the bat I Trade comes out swinging in their response, denying that they had only 9 accounts with balances of $50,000 or more and insisting they had “substantially more” such accounts. They did not, however, deny the NFA’s statement that they had only 3,000 active customer accounts in total. The number of large accounts is of course an important part of this case. If I Trade only had 9 large accounts than surely they would notice any large transactions taking place amongst any of them. The NFA’s entire case rests upon the charge that I Trade did not take any action to report the suspicious transactions that were happening with the Olint accounts, among others.
The Vetting of David Smith
I Trade FX then sticks in the knife with a great line in response to the NFA’s repeated references to David Smith acting as a Principal in the firm. “Respondents admit that David Smith was listed as a principle of I-Trade starting on March 27, 2007, but only after the NFA took six months to conduct its due diligence investigation of Smith prior to approving Smith as a principal of I-Trade…”
Ka-POW! I Trade is basically telling the NFA, “hey if this guy was so bad why the hell did you approve him to be a principal in the first place?” Gotta admire the moxie of I Trade as that takes some brass cajones to get up in NFA’s face like that.
However, I could not find any response from I Trade FX in regards to the NFA’s charge that David Smith funded I Trade FX with almost all its operating capital in 2007. So it appears that I Trade is conceding that their company was basically bankrolled by David Smith during his tenure as principal. That in my opinion is the real sin for I Trade FX, that their company was using an alleged con man’s money to inflate their net cap numbers throughout 2007.
David Smith’s Secret Bank Records
As you’ll recall in an interview conducted by Jamaican Radio David Smith claimed that he would have given NFA his bank records had he had the time to do so before changing his story and stating he couldn’t turn them over for “legal reasons.” I Trade FX states for the record that they simply did not have the legal authority to compel David Smith to provide NFA with the documents when they asked about them. So the question for David Smith remains “why would you not turn over your bank records? What legal authority was preventing you from doing this?”
The Guts of the Complaint
The main charge NFA is lodging in this complaint is that I Trade FX failed to notify authorities about suspicious activity going on in David Smith’s accounts, among others. Here is I Trade’s response regarding the Olint account activity:
Quote:
“Respondents lack knowledge or information sufficient to form a belief as to the truth of the allegations contained in Paragraph No. 8. Respondents’ deny that I-Trade failed to file any Suspicious Activity Reports that should have been filed.”
Deny, deny, deny. In plain English it seems I Trade FX is telling NFA “we aren’t going to admit these transactions were suspicious and we don’t believe we failed to file any Suspicious Activity Reports.”
In another clever bit legal jujitsu I Trade FX bats down the charge that they didn’t respond to certain “Red Flags” with this answer:
Quote:
Respondents admit that NFA’s 2002 Interpretative Notice identifies the items listed in Paragraph No. 11 above as “Red Flags” and state in the affirmative that NFA’s 2002 Interpretative Notice provides that those “red flags” may alert employees to suspicious activity … that could cause further investigation….” (Emphasis added).
Translation: this rule you passed was vague and doesn’t require a firm to do jack squat.
That may be the case but doesn’t common sense tell you to report this stuff? Ah but common sense has no place in an American courtroom! Gotta love lawyers…
The next several pages delve into the specific accounts in question with I Trade admitting some things, denying other things and refusing to comment on the rest. But I’m skipping over this because it appears to me most of this legalese is “he said, she said” type stuff that can’t be proven until this case goes to trial. Also, it hurts my head. There is a reason I chose not to go to law school…
But this caught my eye at the end:
Quote:
Paragraph No. 28. Despite the highly suspicious activity in the Olint and TCI accounts and the Harris account, as alleged above, at no time did I-Trade file a SAR for any of these accounts contrary to the requirements of NFA Compliance Rule 2-9, the Notice, and I-Trade’s own AML Program.
ANSWER: Respondents are barred by federal regulations from disclosing to the subject of a SAR that a SAR had been filed against the customer, and because this Answer will be publicly disclosed by the NFA on its website, the Respondents respectfully decline to admit or deny the allegation in Paragraph 28, and are prevented from asserting affirmative statements in their defense, and respectfully suggest that NFA’s publication of its Complaint in this matter may have been in violation of the confidentially (sic) provisions of the applicable federal law.
Brilliant! I Trade FX is accusing NFA of possibly violating federal law! Again, I’m not a lawyer and I have no way of judging whether or not this is a legitimate line of defense, but once again I Trade is really taking it to NFA and from that perspective it does make for good entertainment. Could this be the reason NFA delayed posting I Trade FX’s answer? Well, if it is it appears their legal counsel rubbished this line of defense in the end by brazenly publishing the ANSWER last week.
So now what? Well, I think this case will probably be decided by events on the ground. There are still far too many questions surrounding Olint and David Smith. If the Feds can’t prove any financial wrong doing my guess is I Trade FX and NFA will settle the matter a few months from now. But if the Feds find some really nasty stuff on David Smith I can’t imagine NFA will give I Trade FX a slap on the wrist.
Lucky for I Trade FX they are not a public company or else their stock would be in the toilet. In the meantime, I am cautioning traders to take a wait and see attitude towards this besieged and embattled firm.
The CFTC has released its latest Adjusted Net Capital report. With less than two months to go before the NFA raises capital requirements to $10 million the Capital issue is once again front and center in retail forex. How does you firm stack up? Financial Data for FCMs
The following firms have net capital below $10 million
No change in capital for Bacera and Money Garden (although Advanced Markets saw a small uptick while Forex Club saw a small downtick.) Also, ACM is still reporting net capital below 10 million. One suspects they had no idea cap requirements were going up and it could very well be they have completely mistimed their entry into the U.S. market. ACM appears to have brought a knife to a gun fight… Typical of a Swiss firm isn’t it?
The following firms have net capital below $20 million
ODL $10,500,000
GFS Forex $11,296,000
MB Trading $12,201,000
Alpari $12,810,000
IFX $14,941,000
I Trade FX $16,214,000
CMS Forex $17,996,000
FX Solutions $18,887,000
The following firms have net capital above $20 million
PFG $21,695,000
Interbank FX $33,341,000
Gain Capital $67,077,000
GFT Forex $69,497,000
FXCM $78,503,000
Oanda $164,523,000
As always conduct your due diligence and make sure the firm you are trading with will be able to comply with the new law going into effect in less than two months.
Lot of news in retail forex the past few weeks. In the U.S. both CMC and Bacera are closing their doors. And in Europe mega forex broker Saxo Bank has run into some serious trouble.
Saxo is one of the largest firms in the currency trading world. Over the summer they spent millions of dollars sponsoring the eventual winner of the Tour De France. It now appears in hindsight that this money was woefully squandered. News reports out of Denmark are saying that Saxo has had to make hundreds of employees redundant amidst the global financial meltdown. Saxo has not come forward with details but it appears the situation is quite serious: Saxo Bank foran stor fyringsrunde
To make matters worse they have had to suspend a senior manager who was the prior head of Swiss broker Synthesis Bank.
Saxo suspend boss | Denmark's fastest growing bank and sponsor of Bjarne Riis' cycling team, on Thursday suspended one of its top executives Charles-Henri Sabet, head of global trading and member of senior executive management. The bank would not say specify the reason for the suspension, but it is currently launching an internal investigation in connection with the Swiss financial authorities, reports DR. Last year the financial institution bought the Swiss Synthesis Bank, founded and owned by Sabet, as part of its global expansion for online investments. (kr)
Oh boy, yet another Swiss broker finds itself under government scrutiny. How many times must I tell the trading public (and retail brokers themselves) do not conduct any business with Swiss forex brokers!
This news following on top of the news that CMC closed its U.S. office and itself has had to make employees redundant around the world would seem to indicate that firms that are involved in the CFD business are really catching a lot of fallout from the financial panic of 08’. Developing…
Last week Bacera officially closed their U.S. office and are no longer servicing U.S. customers. It was always a long shot that they would be able to meet the increased capital requirement to $20 million so this closure comes as no surprise.
But they still plan on doing business outside the NFA’s purview and are accepting customers from outside the United States. Bacera has several offices in China and most of their customers are Chinese. Will this become a trend with firms that can’t meet the upcoming adjusted net capital increase?
Here are the remaining firms that are still reporting Adjusted Net Capital below $10 million. If these firms are unable to increase their adjusted net capital to $10 million by the end of the month they too will have to close up shop in the U.S. Most of them should be able to do so as some, like HotSpot, have huge parent companies with ample financial reserves. But others like MG and Forex Club are in a very tough position.
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