Bad News for the folks over at Easy Forex. Not only are they below the $5 million capital requirement about to go into effect but now they are being sued by an angry customer who lost their shirt.
Of course, lawsuits from failed traders against forex brokers are a dime a dozen. But this case does not appear to be your ordinary frivolous lawsuit filed by some crank on a vendetta. Here are the details as reported in a major Israeli newspaper:
Globes Online – Israel business news – Israel economy – Israel banks – Tel Aviv Stock Exchange – Israel stocks - Shekel – Israel technology – Israel real estate – Israel defense companies - Globes [online] - Suit alleges Easy Forex rewards brokers fo
Quote:
Suit alleges Easy Forex rewards brokers for client losses
Easy Forex: The plaintiff is a client who lost heavily; we don't want to judge him harshly.
Globes correspondent 19 Nov 07 09:55
A lawsuit has been filed against online foreign currency brokerage Easy Forex by one of its customers, alleging that the company paid its brokers incentives when investors lost money and fined them if they made a profit.
Easy Forex said in response that the customer had lost heavily, and it did not want to judge him harshly. It added that as part of its compliance with international standards, it warns customers, both orally and in its literature, of the risks inherent in foreign currency trading.
"All the allegations will be clarified in court," it said.
The claim followed a report on Channel 10 in which an Easy Forex broker was heard saying, "I had this evil grin on my face one day, when a client lost $35,000 in a quarter of an hour. A guy gets wiped out - I get my commission. A guy comes up a winner and turns a profit - I pay."
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What jumps out is the line from the Easy Forex broker who brags on television to a news reporter that "a guy gets wiped out - I get my commission. A guy comes up a winner and turns a profit - I pay." I have heard of market makers running amok and giving customers bad order execution for their own benefit but I have never heard of an introducing broker getting compensated only when their customers lose.
So I did some digging to try and find this video. Here it is in all its glory:
נענע 10 - חדשות - כתב תביעה חמור נגד חברת ההשקעות "איזי פורקס"
Unfortunately, you need to speak Hebrew, which most of us don't. But a friend translated for me and the gist of the interview is that Easy Forex actually compensates these brokers everytime their customers LOSE money. Talk about being underhanded. Aren't introducing brokers usually compensated with a portion of the spread? Not here. Apparently these brokers would go into the religious community where the regulatory oversight is scant and get these guys to open accounts knowing they would get creamed.
Looks like all those critics of market makers have some new ammunition to fire away with in the great ECN vs. Market Maker debate.
By the way, beware forex brokers with evil grins...