Are Your Funds Safe? NFA to Shut down small forex fcms

[forex savior]

None of the firms listed in the "dead firms walking" have larger parent companies. These firms are all undercapitalized taking into consideration the coming $5 million capital requirement. That is a fact. Traders need to know the risks of trading with these firms, as most of them don't have much of a future ahead of them. The fact is, if these firms had the money they would have already listed it in their capital reports. But they don't have the money.

For those traders who aren't bothered by this fact so be it. But I think it important they at least know the incredible risks they take in opening an account with any of these firms.

[willsucceed]

I appreciate the post FS. When i choose a broker for real i will be reviewing this list.

[forex savior]

As of August 2, 2007, this is where we stand in regards to the NFA proposal to raise capital requirements to $5 million:

FX Week states, "Following redrafting to include industry feedback, the proposals will be presented to the NFA board in August and then to the CFTC, and are not expected to be effective until the end of the year, the NFA explained."
http://www.fxweek.com/public/showPa....age %3D459830

So if the proposal passes all the firms in the forex dealer dead pool, which from all appearances are currently meeting their capital requirement, will have several months to meet the new one. The big question is should this pass which will meet it and which ones won't? And for those that cannot meet the new requirement what will happen to the firms, and more importantly the customers of these firms? You could have a situation where one of the proprietors of these firms runs off with customer funds in the last hours. You could also see a situation where the NFA goes in to close a firm only to discover they have no money left and the firm then gets forced into bankruptcy.

Now, the likelihood of this happening to firms with $3 or $4 million in capital is a lot less than with firms with only $1.5 million in capital. But the whole point of this thread is to point these dangers out to the trading public and then let them draw their own conclusions.

[forex savior]

One of the more interesting comments made about the proposed capital requirement was made by Todd Crosland of Interbank FX who said, "The NFA has proposed to raise the minimum net capital requirement to $5 million. If you offer greater than 100:1 leverage, you would have to maintain two times that amount, or $10 million." It's a point I have not stressed enough.

The minimum initial capital requirement is not the only capital requirement that firms have to make. There are other requirements as well and when they are added together they can quickly total $10 million. Let's do the math:

Should the proposal pass the following requirements will have to be met:

1) Minimum Initial Capital Requirement: $5 million

2) Requirement that firms offering 100:1 leverage set aside 10% of customer assets in additional capital. Assuming a firm has $30 million in customer assets: $3 million

3) CFTC concentration charges on outstanding open positions which can range from 6 to 20% of total net exposure. Assume a firm has $50 million in net exposure then 6% of 50 million would be: $3 million

As you can see when you add up all the various capital requirements most firms will need in excess of $10 million to be compliant. These cold, hard numbers are staring many of the poorly capitalized squarely in the face and no amount of spin can make them go away.

[forex savior]

FX Street has put together a very comprehensive review of the NFA Capital Requirement Proposal providing a number of links to magazine articles, current net capital numbers and other tidbits. Worth a look here:

The Brokers (re) Evolution: NFA New Regulation

[forex savior]

What really burns me up about this Aleccoh guy at the Forex TSD thread is his out and out lies about how his firm was supposedly regulated. A customer asked him specifically in December of 2007 if his company was regulated and asked him if he had a registration number. Mr. Aleccoh stated, “Aleccohfx SA is regulated and run according to the Swiss law under OAR-G Swiss Regulation Official Body Funded by GSCGI.” As I have demonstrated on this thread numerous times OAR-G, ARIF, etc does not mean jack squat in terms of forex regulation. Those are mere certifications stating the firm will abide by Swiss money laundering laws. That’s it! It is not legit “regulation” and traditionally there has been no regulatory agency checking in on these brokers (hence the reason these brokers all now have to get a bank license or close.) These Swiss brokers know that but they continue to lie to the public and claim they are regulated WHEN THEY CLEARLY ARE NOT.

When another trader calls him out on this “Aleccoh” claims, no OAR-G is just like the NFA. He also went on to say that Aleccoh FX would be applying for a banking license. Then shortly after that claimed he didn’t need to get a banking license since the new law in Switzerland only applied to “liquidity providers” and not retail brokers.

Then it all hits the fan and he states, “I am not in charge anymore of aleccohfx because of the fact that the new Swiss regulations forbid me to be in charge or any of my team since we are traders and that it is forbidden to be traders and brokers.” He then claimed to be applying for registration with the NFA in the United States …

Reading through this thread is maddening. You simply can’t trust a single word that comes out of the mouths of these Swiss Forex Dealers. And don’t think this is an aberration. Every Swiss broker has been lying to the public about their regulatory status. DukasCopy, MIG, ACM have all been bamboozling traders about their regulatory status claiming their membership in limp wristed organizations like “ARIF” were somehow the equivalent of being regulated by regulatory agencies like the FSA and NFA.

But the fact is as it stands today none of these firms have real registrations with a real regulatory body. Not ACM. Not DukasCopy. Not MIG. Until they actually GET a banking license don’t put money on deposit with them. They have not been straight with the public and as the Aleccoh FX scam proves a broker’s words don’t mean squat unless they are backed up by the rule of law.

[king]

Hi everyone and especially to you forex savior,

I was in the process of going to ask help in choosing a broker, then thought to read through the thread to see if my question hadn't been asked and answered prior to this time. alas, i 've had a eye full(?), just finished going through the entire thread.

Firstly, thank you to forex savior whatever anyone might think about your motive, i think it compels the prospective trader at least to become more aware by doing his own research. Now, this is my understanding about the issue of regulation of FDMs as it yet stands today, please, correct me if you believe i am wrong. NFA is at best a Self-Regulatory Organisation (more probably a designated self-regulatory organisation) for FCMs in the United States. CFTC functions are defined in their site as highlighted below:

About the CFTC
An Important Mission in the Ever-Changing World of Finance.

Congress created the Commodity Futures Trading Commission (CFTC) in 1974 as an independent agency with the mandate to regulate commodity futures and option markets in the United States. The agency's mandate has been renewed and expanded several times since then, most recently by the Commodity Futures Modernization Act of 2000.

In 1974 the majority of futures trading took place in the agricultural sector. The CFTC's history demonstrates, among other things, how the futures industry has become increasingly varied over time and today encompasses a vast array of highly complex financial futures contracts.

Today, the CFTC assures the economic utility of the futures markets by encouraging their competitiveness and efficiency, protecting market participants against fraud, manipulation, and abusive trading practices, and by ensuring the financial integrity of the clearing process. Through effective oversight, the CFTC enables the futures markets to serve the important function of providing a means for price discovery and offsetting price risk.

The CFTC's mission is to protect market users and the public from fraud, manipulation, and abusive practices related to the sale of commodity and financial futures and options, and to foster open, competitive, and financially sound futures and option markets.

In their site, FCMs are the closest type of businesses entities the CFTC has oversight functions for, FDMs does not seem to be included! Could this be because the fx trade is relatively in it's infancy? In performing their oversight function, CFTC indicates on their site for example that they require FCMs & IBs to be members of NFA. I couldn't find any mention of FDMs.

Question: If CFTC's remit include legally the regulation of FDMs, why would they foot-drag in ensuring complaince with registration/regulation by the designated bodies as NFA in this instance? Is it not more appropriate to ensure the proper operation of such firms to prevent the tales of woe as experienced by failed FDMs?

Forex Savior, refer to your thread #122 dated 17/9/2007 titiled FOREX DEALER DEAD POOL (version 4.0) where you indicated the following:
Unregulated Firms (Buyer Beware)
FXDD (?)
GCI (?)
WestCapFX (?)
ACM (?)
MIG (?)
DukasCopy (?)
GFX Group (Forex.CH) (?)
Crown Forex (?)
Krusty's Currency Trading (?)
Tradex Swiss AG (Shutdown!)
NorthFinance (?)

Ignore for the moment the SWISS FIRMS in the above, why/how could they operate at all without appropraiate registration/regulation if they ought to according to the law as it stands presently? I read the quote from an ealier thread of FXDD which i have also copied and pasted (highlighted below) from the FAQ section on their site.

Q: How is FXDD regulated?
A: FXDD began as a subsidiary of Tradition North America within the Tradition Group of companies. (www.tradtiongroup.com). FXDD’s management, operation, compliance, customer relations and its financial policies and procedures were structured to meet the Tradition Group’s oversight and those policies and procedures remain firmly in place. Our managers have deep experience in the foreign exchange markets and we conduct our business as highly qualified professionals. As yet, the OTC spot forex market in the United States is not subject to regulation by the SEC or the CFTC. FXDD is not a member of any private self regulatory organization such as the FINRA or the NFA and is not registered with either the CFTC or the SEC. Congress may, in the future, enact legislation requiring registration with a federal and/or private regulatory agency. As the regulatory environment for spot foreign exchange matures in the United States, FXDD will keep its options open and, if the regulatory environment becomes consistent and well defined, FXDD will register with the designated oversight agencies. Having said that, FXDD manages its business in conformity with well established dealing protocols and the customs and practices of the foreign exchange dealing community. FXDD has thousands of clients who have chosen us as their dealing firm because of the manner in which we conduct our business and because of our historic association with the Tradition Group. We maintain extensive dealing lines with the top global banks and have never had any issues relating to the protection of customer assets or the manner in which we handle our client accounts.

Note the underlined in the above(emphasis mine).

I like to state that I am NO advocate for non-regulation. Far from it, I believe firmly in regulation of entities otherwise societies would be reduced to jungle style existence. I just think it should be well defined/structured but do not think that the issue of registration/regulation of FDMs is so right now in the United States. I believe too, that this will change because the retail fx trade is set to grow, the awareness is only just begun.

As I indicated at the begining, my views are not set in concrete, I stand to continue to be educated.

Lastly, I want to say thank you to the providers of this forum, what I have learnt here in less than one year is more than what some get out of a college degree programme and to all the contributors, more grease to your elbow; eh, more pips to your accounts.

[forex savior]

Originally Posted by king

Hi everyone and especially to you forex savior,

I was in the process of going to ask help in choosing a broker, then thought to read through the thread to see if my question hadn't been asked and answered prior to this time. alas, i 've had a eye full(?), just finished going through the entire thread.

Firstly, thank you to forex savior whatever anyone might think about your motive, i think it compels the prospective trader at least to become more aware by doing his own research. Now, this is my understanding about the issue of regulation of FDMs as it yet stands today, please, correct me if you believe i am wrong. NFA is at best a Self-Regulatory Organisation (more probably a designated self-regulatory organisation) for FCMs in the United States. CFTC functions are defined in their site as highlighted below:

About the CFTC
An Important Mission in the Ever-Changing World of Finance.

Congress created the Commodity Futures Trading Commission (CFTC) in 1974 as an independent agency with the mandate to regulate commodity futures and option markets in the United States. The agency's mandate has been renewed and expanded several times since then, most recently by the Commodity Futures Modernization Act of 2000.

In 1974 the majority of futures trading took place in the agricultural sector. The CFTC's history demonstrates, among other things, how the futures industry has become increasingly varied over time and today encompasses a vast array of highly complex financial futures contracts.

Today, the CFTC assures the economic utility of the futures markets by encouraging their competitiveness and efficiency, protecting market participants against fraud, manipulation, and abusive trading practices, and by ensuring the financial integrity of the clearing process. Through effective oversight, the CFTC enables the futures markets to serve the important function of providing a means for price discovery and offsetting price risk.

The CFTC's mission is to protect market users and the public from fraud, manipulation, and abusive practices related to the sale of commodity and financial futures and options, and to foster open, competitive, and financially sound futures and option markets.

In their site, FCMs are the closest type of businesses entities the CFTC has oversight functions for, FDMs does not seem to be included! Could this be because the fx trade is relatively in it's infancy? In performing their oversight function, CFTC indicates on their site for example that they require FCMs & IBs to be members of NFA. I couldn't find any mention of FDMs.

Question: If CFTC's remit include legally the regulation of FDMs, why would they foot-drag in ensuring complaince with registration/regulation by the designated bodies as NFA in this instance? Is it not more appropriate to ensure the proper operation of such firms to prevent the tales of woe as experienced by failed FDMs?

Forex Savior, refer to your thread #122 dated 17/9/2007 titiled FOREX DEALER DEAD POOL (version 4.0) where you indicated the following:
Unregulated Firms (Buyer Beware)
FXDD (?)
GCI (?)
WestCapFX (?)
ACM (?)
MIG (?)
DukasCopy (?)
GFX Group (Forex.CH) (?)
Crown Forex (?)
Krusty's Currency Trading (?)
Tradex Swiss AG (Shutdown!)
NorthFinance (?)

Ignore for the moment the SWISS FIRMS in the above, why/how could they operate at all without appropraiate registration/regulation if they ought to according to the law as it stands presently? I read the quote from an ealier thread of FXDD which i have also copied and pasted (highlighted below) from the FAQ section on their site.

Q: How is FXDD regulated?
A: FXDD began as a subsidiary of Tradition North America within the Tradition Group of companies. (www.tradtiongroup.com). FXDD’s management, operation, compliance, customer relations and its financial policies and procedures were structured to meet the Tradition Group’s oversight and those policies and procedures remain firmly in place. Our managers have deep experience in the foreign exchange markets and we conduct our business as highly qualified professionals. As yet, the OTC spot forex market in the United States is not subject to regulation by the SEC or the CFTC. FXDD is not a member of any private self regulatory organization such as the FINRA or the NFA and is not registered with either the CFTC or the SEC. Congress may, in the future, enact legislation requiring registration with a federal and/or private regulatory agency. As the regulatory environment for spot foreign exchange matures in the United States, FXDD will keep its options open and, if the regulatory environment becomes consistent and well defined, FXDD will register with the designated oversight agencies. Having said that, FXDD manages its business in conformity with well established dealing protocols and the customs and practices of the foreign exchange dealing community. FXDD has thousands of clients who have chosen us as their dealing firm because of the manner in which we conduct our business and because of our historic association with the Tradition Group. We maintain extensive dealing lines with the top global banks and have never had any issues relating to the protection of customer assets or the manner in which we handle our client accounts.

Note the underlined in the above(emphasis mine).

I like to state that I am NO advocate for non-regulation. Far from it, I believe firmly in regulation of entities otherwise societies would be reduced to jungle style existence. I just think it should be well defined/structured but do not think that the issue of registration/regulation of FDMs is so right now in the United States. I believe too, that this will change because the retail fx trade is set to grow, the awareness is only just begun.

As I indicated at the begining, my views are not set in concrete, I stand to continue to be educated.

Lastly, I want to say thank you to the providers of this forum, what I have learnt here in less than one year is more than what some get out of a college degree programme and to all the contributors, more grease to your elbow; eh, more pips to your accounts.

Great post King. In regards to FXDD. The CFTC is claiming jursidiction over retail FX. However, the CFTC lost a court case against a forex broker who claimed the CFTC didn't have any legal claim to regulate forex trading. It appears FXDD is using that case as their basis for claiming they don't need to be registered with the CFTC. However, they are the only firm I know of in the U.S. claiming this. It is a gutsy and very risky decision by FXDD. FXDD is really out on a limb here and customers should be very wary of them.

[forex savior]

As I have illustrated on this thread there is no shortage of colorful con artists in the forex business. Yet there is one criminal mastermind in particular who always seems to skate away from his on ice thuggery with more dexterity than one of the Hanson Brothers. His name is Robert Gray. And when he wields the high stick more than just a few teeth go flying into the blood splattered night...

So who is this guy? How has he been able to cut such a swath through the forex industry for all these years? And how was he able to con, not just ordinary traders, but top U.S. Regulatory Agencies themselves? Well, he was able to do it using that old American adage that "Practice makes Perfect."

The Rob Gray story starts back in the go go 80's on that notorious stretch of highway running from Boca Raton to Miami known to the Feds as "Maggot Mile." It was December 11, 1986, when our goodfella to be got started in the futures industry by applying to be an associate member of the NFA with the firm Multivest Options Inc and International Precious Metals Corp Inc in Fort Lauderdale.
BASIC Details

But Gray's career with these two firms would be short lived and by the summer of 1987 he was no longer licensed by the NFA and had apparently left these brokerages. Multivest itself would eventually be closed down for gross fraud within a few years.

Let's role the tape and see how Gray got his start as a forex huckster:

Multivest Options Inc was one of the many futures industry orifices oozing with criminality during the decade of greed. The firm all by itself had over 120 Reparations Cases with the CFTC.
BASIC Details

In 1988 the NFA settled a case with Multivest in which numerous salesmen were cited for fraud and high pressure sales tactics.
BASIC Case Summary

And then in 1990 the CFTC shut them down for good stating:
BASIC Case Summary

"from June 1987 through October 1989, MultiVest, while soliciting almost 15,000 customers to invest in commodity options, misrepresented the likelihood of profit in trading commodity options, MultiVest's success rate, the risks in trading commodity options, the expertise and experience of MultiVest's sales people, and the extent and quality of MultiVest's market research. MultiVest was also charged with failing to supervise the handling of commodity options accounts by its salespeople."

So this is the firm that gave birth to Robert Gray, a fraudulent futures firm that sold bogus options to the gullible Senior Citizens of Seizure World, USA.

The trail goes cold in the 1990's although rumor has it he gravitated over to the stock market (I can't imagine Gray missed out on the greatest con off them all, the Internet Stock Bubble...) But his grand debut in the forex world appears to be in 2000 at FXCM of all places. According to a hilarious story I picked up at the New York Traders Expo a couple months ago Gray was the head of sales at FXCM and in a feat of treachery worthy of an Italian Opera he bolted the company with all FXCM's clients on a floppy disk and went to work at FX Solutions! Well done Rob, Lord Vader from MultiVest trained you well...

But it appears FX Solutions was not all the grateful as he lasted all of three months in their employ according to the NFA's Registration Records.
BASIC Details

Where to next for this Son of the Sith? Well, how about Director of Global Forex Operations for GFS Forex & Futures. Good Lord, how on earth did Robert Gray land this gig? Doesn't ANYONE do background checks anymore? Apparently not. Check out this article from 2003 which discusses the growing popularity of mini trading in FX:
The road to mini-success. (Online Trading). | Software Services & Applications (301) from AllBusiness.com

GFS Securities & Futures got on board a few months ago in March. "It was very much a client-driven decision," says Robert Gray, director of global forex operations for GFS. "The regulatory environment that the markets exist in now is really fueling forex in general."

Ok for Robert Gray of all people to speak glowingly about the "regulatory environment" for forex is to redefine the meaning of "Chutzpah." Call it "Grayzpah." And how about this for Grayzpah. In this lawsuit filed by the State of Colorado in 2004 Robert Gray is listed as a "Compliance Officer" with GFS. What on earth does Robert Gray know about compliance?That's the equivalent of having Michael Jackson as your babysitter.
http://www.dora.state.co.us/securiti...int%20rpt.pdf.

Another interesting note from this lawsuit is the admission that GFS cleared all its trades through Interbank FX. Which brings us to Part II of Dirty Rotten Scoundrel, stay tuned...

[king]

Thanks for your reply Forex Savior.
That CFTC lost that case goes to show somehow the indefinitiveness of forex trade regulation presently. I am willing to go long on a security (2 standard lots) that the whole arena of forex trade regulation will become more definitive in a little while. I think of the beauty of this kind of forum, one is the awareness that it provides, at least in the interim, people become more careful. The Robert Gray issue should make an interesting topic for students of psychology with particular emphasis on trait theory seriously, imagine what it would be like if there were never any form of checks/regulation in the system, innocent people would be eaten alive.

keep up the good work.