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

Broker Discussion Forex Brokers
110

Meanwhile…

The rest of the industry is moving on to address the capital requirement issue. It’s been commented on in the media, it’s been commented on by numerous firms, it has spurred two mergers already. This issue is not going away and I’m glad to see a lot of the major FX firms going on the record as supporting this proposal. And this statement by FXCM is the strongest of any firm to date: NFA Proposal - FXCM Comment

[b]Dear Client,

The Forex industry could be in for a major structural change � soon.

This change has the potential to benefit Forex Capital Markets, LLC (�FXCM�); however, we believe many forex brokers may not survive.

Our industry�s regulating agency, the National Futures Association (�NFA�), has proposed new financial requirements for every Forex Dealer Member (�FDM�). Spelled out in their �Request for Comments on Forex Proposals,� dated June 19, 2007, the NFA�s proposed requirements call for the following:

� All FDMs must maintain at all times a net worth of $5 million;

� Larger FDMs, particularly those that have a dealing desk, could potentially face net excess capital requirements significantly higher than the minimum under the proposed new rules;

� Where appropriate, the NFA may require an FDM�s annual financial statement to be certified by an independent public accountant.
FXCM�s current financial situation well exceeds NFA�s proposed requirements.

As of June 30, 2007, FXCM has over $44 million in adjusted net capital, and for the last six years we have had our financial statements audited by an independent, certified public accounting firm.

We believe the NFA is proposing these requirements because of the troubling number of insolvencies and near-insolvencies that have recently plagued the forex industry. According to the NFA:

� In 2003, a Forex Dealer Member misappropriated almost $2 million in customer funds, driving the company into bankruptcy. (The CFTC is currently attempting to salvage some of the customers’ funds.)

� Since March of this year, eight different FDMs have fallen under the �early warning� requirement of $1.5 million.

� More recently, NFA took a Member Responsibility Action (“MRA”) against an FDM whose liabilities exceeded its assets by over $1 million.

Industry-wide, there is now concern that some Forex Dealer Members may be unable to meet their financial obligations to customers in the event the increased capital requirements take effect. A review of the current net capital positions of the 43 Forex Dealer Members available on the following CFTC web page clearly demonstrates that this concern is justified. View CFTC Web Page

As you can see from the financial data compiled by the CFTC, FXCM reports an adjusted net capital of over $44 million�far greater than the proposed financial requirement. Based on the most current available CFTC financial data, at least 22 FDMs would not be able to meet the new $5 million minimum net capital requirement. These firms are currently reporting net capital levels below $5 million. If the new capital level is imposed, these firms will either have to obtain more capital or close down. Because larger brokers may also face higher capital requirements, FXCM believes that several of these larger firms may also be unable to meet the new requirements, even though they presently have in excess of $5 million in adjusted net capital.

In the event that some of these firms close down�or worse, are shut down by the NFA�we are concerned that customer funds, or at least their timely and orderly repayment, could be jeopardized.

We realize that many forex traders have accounts with multiple forex brokers. That is why we advise you to make sure all your trading accounts are held at firms that are adequately capitalized.

If you have an account with a possibly endangered firm, we believe, depending on when the NFA proposal takes effect, that the time may be fast approaching to consider moving those funds while the opportunity still exists.

Our industry is changing, and the new proposed regulations are intended to put every FDM, and the industry itself, on a more secure financial footing. We welcome the NFA�s proposed changes because the effect will ultimately lead to clients trading through regulated brokers that are better capitalized or have access to greater financial resources.

Please contact us if you have any questions regarding these changes.

We look forward to serving you.

Best regards,
Sales & Client Services
Forex Capital Markets, LLC
Financial Square
32 Old Slip, 10th Floor
New York , NY 10005
1-888-50-FOREX (36739)
<[email protected]>
Forex | currency trading | forex trading | forex broker[/b]

111

As I posted below, FXCM has had, and has some pretty serious regulatory actions bought against them by the NFA. I personally wouldnt go near any Forex Dealer Merchant that had been subject to regulatory action, let alone bought to book for violation of Rule C.R.2-36(b)(1). I’ve done a check and found the following 3 firms have not been subject of any regulatory action, and are the best capitalised.

GLOBAL FUTURES & FOREX LTD (Forex Trading: Online Currency Trading from Global Forex Trading)
NFA Registration details and history

OANDA ( http://fxtrade.oanda.com/ )
NFA Registration details and history

FX SOLUTIONS LLC (FX Solutions - Simplified Forex Trading with Premier Forex Trading System)
NFA Registration details and history


COMPANY      | Net capital| Required  | Excess     | Multiple
GFT          | 49,664,118 | 6,904,864 | 42,759,254 | 7.19x
OANDA        | 49,222,317 | 9,172,410 | 40,049,907 | 5.37
FX Solutions | 17,295,130 | 2,064,386 | 15,230,744 | 8.38

Does anyone else knows of any FDM’s with no regulatory problems and are well capitalised ?

112

My name is David Waring and I am the Managing Director in charge of Business Development here at FXCM. I came across this post and would like to address the community with a response to make sure that both sides of the story are properly represented.

On December 8th, the National Futures Association (“NFA”) filed a complaint against FXCM. The NFA complaint alleges that certain promotional material used by FXCM and some of its Introducing Brokers was deficient. The NFA also cited FXCM for a single alleged deficiency in its anti-money laundering (“AML”) compliance program.

FXCM maintains comprehensive compliance and AML programs and has long since addressed all of the issues identified by the NFA in the complaint. We believe our firm has more staff and resources dedicated to compliance than all other Forex Dealer Members and most other Futures Commission Merchants. We have terminated hundreds of Introducing Brokers and turned away millions of dollars of potential business due to compliance related concerns. In light of our significant investment in compliance infrastructure and training, FXCM is troubled by the NFA’s decision to bring this current complaint. Accordingly, FXCM will be exploring all options presently available to it, including litigation, to bring this matter to conclusion in a manner that gives proper acknowledgment to FXCM’s integrity and the strength of our compliance program.

The NFA complaint comes more than six months after the conclusion of a routine NFA on-site examination of FXCM, which itself lasted almost six months. During this examination, FXCM provided NFA with unrestricted access to thousands of documents, including complete records of all promotional material used by FXCM. These records of promotional material included access to websites and copies of all forms of advertising used by the firm such as web banner ads, web click ads, e-mails and print media.

The NFA complaint identifies five instances where it alleges FXCM used deficient and misleading promotional material. Two of the examples cited by NFA are as follows:

  1. “Whichever web site you use - FXCM or FXCM TR - you will be able to experience the same excellent order execution, price certainty and 24-hour support.”

  2. “Benefits of Forex Trading . . . Leverage up to 200 to 1” and “Benefits of Foreign Exchange Trading . . . Leverage up to 100 to 1.”

FXCM believes the statement in Example 1 above is true and not misleading. The statement suggests that regardless of which website a client chooses to use, FXCM’s award winning trading platform will be the principal client interface providing pricing. FXCM also believes that the statements contained in Example 2 above are not deficient or misleading. The statements in Example 2 with respect to leverage appeared in an FXCM Trading Seminar PowerPoint presentation which contained a full page risk disclosure slide at the outset dedicated to the issue of leverage risk. The risk disclosure stated in part: “Leveraged foreign exchange and options trading carries a significant level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you.” FXCM believes that the NFA’s published interpretive guidance on leverage risk disclosure does not require repeated risk disclosures each and every time the availability of leverage as an account feature is mentioned in a single piece of promotional material.

The NFA complaint also alleges marketing deficiencies on the websites of a small number of Introducing Brokers. As part of its compliance program, FXCM regularly monitors the websites and promotional material used by FXCM’s hundreds of Introducing Brokers. Each week FXCM’s compliance staff reviews hundreds of webpages and, while the process is not infallible, various types of deficiencies are routinely identified and then communicated to the Introducing Broker so that they can be corrected promptly. Several of the examples of alleged promotional material deficiencies identified by the NFA in its complaint had already been identified by FXCM’s compliance staff through routine surveillance and were either in the process of being remedied or had been remedied prior to the conclusion of NFA’s on-site examination.

The NFA complaint also alleges that FXCM failed to establish and implement an adequate AML program. This allegation is especially unfortunate as the fact is that FXCM maintains a vigorous and comprehensive AML program. Under a provision of the USA Patriot Act and applicable federal regulations, FXCM submits its AML program to an independent, outside audit each year and has never been cited for any deficiencies in its AML program.

The allegation contained in the NFA complaint with respect to the FXCM’s AML program centers on the NFA’s claim that FXCM failed to identify a small number of accounts from Nigeria as “high risk accounts.” During the NFA’s on-site examination of FXCM, we explained to the NFA managers that because FXCM already had in place a comprehensive, individual account review program, FXCM did not believe that its Nigerian accounts needed to be subject to additional due diligence as discussed in the Interpretive Notice to NFA Compliance Rule 2-9. We explained further that the Interpretive Notice to NFA Compliance Rule 2-9 clearly states that with respect to “high-risk” accounts the decision as to what “if any, additional monitoring of account activity is appropriate” is left up to the discretion of the individual firm. At no time has the NFA suggested or alleged that any money laundering took place at FXCM. The NFA has also not suggested or alleged that FXCM was required to perform any additional due diligence with respect to activity in these accounts. Rather, the NFA’s sole allegation with respect to AML appears to be with respect to the how these accounts were designated or “coded” internally. We do not believe that a dispute over this single issue amounts to a failure by FXCM to “establish and implement” an adequate AML program.

FXCM is committed to being the forex industry leader in compliance and adheres to the highest standards in carrying out all of its regulatory obligations. Please do not hesitate to contact us at <[email protected]> if you have any further questions or concerns about this matter.

Sincerely,

David Waring
Managing Director
FX Business Development
Forex Capital Markets LLC
32 Old Slip, 10th Floor
New York, NY 10005
Tel (212) 897-7660
Fax (212) 897-7669
Email: <[email protected]>

113

Whipsaw has been attacking your firm at a number of other forums as well…

114

That is the title of an article by John Jagerson over at PFXglobal:
Profiting with Forex (PFX) - Watch Forex Professionals Currency Trade

[b]The retail forex business is young and relatively unregulated but that won’t last. I was surprised that the regulators have not moved faster in the U.S. when the Refco disaster occurred a few years ago but we are starting to see some action. What’s coming down the pipeline might affect your dealer so do your homework and check them out.

Because many forex dealers are headquartered in the U.S. they are subject to the NFA and the CFTC. Although registration requirements for FCMs (Futures Commission Merchants) have been loose in the past, they are tightening fast. There are two big changes coming down the pipe. The one I think retail traders should be aware of is the change to the net capitalization requirement. There is a minimum amount of cash (outside of customer accounts) that an FCM has to have to stay in business. That minimum used to be $250,000 then was recently raised to $1,000,000 and it is now going to be raised to $5,000,000 in the very near term. Did you know that if you are working with a dealer in the U.S. you can find out how much net capital they have? Just go the the CFTC’s website and look up their financial data for FCMs. In fact, if you google “CFTC” it will give you a link right to the spreadsheet you want to look at. There is a bunch of other interesting goodies in that spreadsheet as well.

The bottom line is that you should know whether your dealer can meet those requirements because if they can’t your account could be tied up while they shut down their operations or raise capital. I realize most of us are working with large dealers but smaller boutique firms have a certain appeal and service levels that attracts a lot of traders. Just make sure you are not working with someone that is too small.[/b]

Couldn’t have said it better myself…

115

Many forum users have been asking for a specific link to the National Futures Association website so that they can read the proposal for themselves and hear it from the regulators themselves. Well, here it is:

National Futures Association | News Center

As you can see the National Futures Association has spelled out clearly why they wish to raise the minimum capital requirement to $5 million. They apparently mailed out the formal proposal to the CFTC by Federal Express on August 17, 2007. So it looks like the NFA has fully signed off on the proposal. Now all that is required is the CFTC’s approval.

I would strongly encourage everyone to read through the NFA’s reasoning for increasing the minimum capital requirement at this link here:
National Futures Association | News Center

Everyone will have their own quotes they will highlight. Here are the ones I found most interesting:

[b]“NFA received sixteen comments regarding the proposal. Eight commenters supported the increased capital requirement and eight opposed it.”

“The comment letters that opposed the proposal noted that it will likely eliminate a number of the smaller FDMs. These smaller FDMs will be, obviously, those with less capital. The comment letters in opposition also noted that more capital does not necessarily mean that an FDM is better able to support and properly operate its forex activities. While more capital does not necessarily correlate to “better” FDMs, more capital does mean that they will have, at a minimum, a greater financial stake in running their forex businesses.”

“One comment letter also noted that an FDM’s risk-management and operational internal controls are more important than the amount of capital an FDM has. NFA agrees that an FDM’s internal controls are important and, under separate cover, NFA is submitting for Commission approval a new rule to ensure that FDMs have proper internal controls.”

“Several FDMs pointed to the recent MRAs and receivership proceedings as evidence that the current regulations are working. Regulating solely by enforcement proceedings is not the best way to protect customers, however. One of these FDMs claims that staff was unfair in its characterization of the problem with FDMs and forex. Specifically, this FDM pointed out that the number of bankruptcies involving traditional FCMs and FDMs is the same, with two of each.5 What this FDM does not recognize, however, is that the two traditional FCM bankruptcies occurred over a seventeen-year history of regulation, while those for FDMs has occurred in only a little more than seven years. Moreover, the traditional FCM population has average around 250 while the FDM population has averaged around 40.”[/b]

All those critics who’ve been saying how “alarmist and irresponsible” my postings are now owe me an apology. The NFA itself is saying that the smaller firms opposed to the measure were telling the NFA the proposal could possibly eliminate themselves! That’s right, some of the smaller firms in the Dead Pool we’re telling regulators “you know this proposal could put us out of business.” Yet when I say the same thing to the trading public the call goes out I’m “scare mongering.” I’d love to know which firms opposed the rule and why they did. Wouldn’t it be amusing to know which firms are right now telling their customers “nothing to worry about this rule won’t have any effect on us” while they are pleading with regulators “please don’t pass this or we could be forced to go out of business!”

In any case the NFA has apparently brushed aside the dissenters. They have officially put the rule on the table and all it will now take is the CFTC’s signature. Apologies will be accepted in the order they are received :slight_smile:

117

Apologies will be accepted in the order they are received

So forex savior (savior of what?) would like someone to lick his boot!

I have the answer - please open the attached thumbnail… :stuck_out_tongue: :stuck_out_tongue: :stuck_out_tongue: :stuck_out_tongue:


118

With the NFA officially hiking the minimum capital requirement to $5 million (Page Not Found | NFA…?ArticleID=1942) all eyes are now on the CFTC. Look for two things:

  1. Some kind of formal statement by either the CFTC or the NFA in which CFTC signs off on the NFA proposal (or the unlikely prospect of the CFTC rejecting it.)
  2. The new updated CFTC Adjusted Net Capital Report which will be published here: Financial Data for FCMs

The next updated adjusted net capital report will be particularly revealing. All the firms on this report will have had several months since the proposal was issued to start increasing their reported net capital. While no firm is required to hike their capital yet it will be very telling to see which firms have begun to prepare for the inevitable and which firms continue to hold their cards close to their vest. At this point any firm that isn�t ponying up the dough to capitalize themselves on these reports is really begging the question: is this firm destined to be strapped into the forex dealer electric chair? Or will they get a stay of execution?

My advice to the firms in the Dead Pool is simple: put up the money now and save everyone the trouble of guessing whether or not you will be here a few months from now. If your company capital is tied up and not available at the moment, well, tell the public what it is tied up in and specifically why you are not reporting it. Customers who open accounts with forex brokers are required to detail their own private financial holdings. In light of the seriousness of the capitalization issue, I think forex brokers should be held to the same standard.

119

In the last few weeks I have reported on two poorly capitalized/unregulated forex broker dealers who are currently holding customer funds hostage. Well, both firms appear to be in complete chaos judging from what�s going around on various bulletin boards.

We�ll start with NFA regulated One World Capital. Their troubles started earlier this year when the NFA inspected their books and discovered they were not meeting their financial requirements. The NFA said at the time, �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."
http://www.nfa.futures.org/basicnet/...17&contrib=NFA

Since then One World has been losing staff and appears to be experiencing a severe cash crunch which has resulted in the halting of customer withdrawals, as detailed here:
http://www.goldenmoneytree.com/foru...r=asc&start=100

At the same time that my Inbox has been piling up with messages from distraught One World Capital customers now a report has come out at Forex Factory that One World is revoking a whole series of rollover interest payments on GBP/JPY trades as well:
http://www.forexfactory.com/showthr...700#post1576700

[b]It came to my attention that 1World has resorted to dirty tactics in withholding profits/money from clients.

Sometime ago, 1World gave $40 or so per day in Swaps for LONG GBPJPY. Traders who made money on this have their profits and money withheld (indefinitely?). I also noticed about 6 weeks ago that swap rate for GBPCHF was zero for both long and short. This was already reported at StrategyBuilderFX forum. Was these swap rate an error or a deliberate Trap? After reading the horror stories, I suspect its a trap meant to screw traders.

How does this become a dirty ploy?

Assume you traded GBPJPY, made money in the process with 1World. Later they come to you saying, “Hey Mr Trader, you made money from a wrong swap rates and we are disqualifying them all”. This includes the swaps you collected as well as the PIPS you made and to include ALL OTHER TRADES made after these trades; if these GBPJPY trades were not made, you wont have money to make further trades.". Remember, GBPJPY was soaring in June/July and these traders made money from it by going Long GBPJPY…

There are two possibilities being played here:

  1. 1World did not hedge your trades with an upper tier broker (1World traded vs you); you made money and they now rescind those trades.
  2. 1World hedged your trades with an upper tier broker. However, 1world now claims YOUR profits.
    You dont earn swaps. you dont earn Pips. End of Story.
    The trap is for traders to make positions on those pairs; if you did and after further trading (even with other pairs) made money, they will go to your account and “cancel” your profits claiming, these could not take place so there is no profit made.[/b]

Meanwhile, in Switzerland�

Tradex Swiss Ag is still at war with itself apparently. The SFBC is fighting with the Tradex office in Boston over who has the right to talk to the customers of Tradex Swiss AG. Meanwhile the customers, who just want their money back, have no choice but to watch this farce from the sidelines. I have posted the two dueling press releases below. UN-BELIEVALBLE:

[b]From: Craig Karlis
Service address: 100 Franklin Street
Boston
Massachusetts
02110

To: All clients of Tradex Swiss AG

Date: 29 August 2007

Dear Clients

Re: “Hostile take-over” of Tradex Swiss AG (Boston office)

As most of you may be aware by now, Tradex Swiss AG is currently being investigated by the Swiss Federal Banking Commission (SFBC). This is not a criminal investigation but was ordered to determine whether Tradex Swiss AG needs a banking license in Switzerland to operate their business and structured products (please see the attached documents from the investigating trustees from Switzerland).

As a precautionary measure, your funds in the Bank of America account of Tradex were frozen on 3 July 2007, by the Swiss authorities in an effort to protect your interests. If protecting your money constitutes a “hostile take-over” as described in the e-mail from the Swiss Management, headed by Mr Nic M Jansen van Rensburg before the Swiss authorities took control of the company, then we are guilty. Since the “freeze” of your money the former management of the Boston office has initiated a suit in a Massachusetts court and obtained an injunction to protect your money - resulting in an injunction that prevents your funds being moved to Switzerland, as well as preventing Bank of America from dispensing any funds without the knowledge of all the parties involved. All legal expenses are solely financed by the previous management of the Boston office while the management in Switzerland has not paid its employees or other operating expenses (infra-structure) of the Boston office since June.

There was no “hostile take-over” by anyone in Boston and there are absolutely no direct or indirect relationship between Tradex Swiss AG and Boston Trading and Research LLC. The Swiss trustees were the ones who originally froze the account. I and the rest of the Boston management took the actions in court solely because they refused to inform any one in Boston as to the status of the accounts, and in fact would not communicate with us in any way. We have taken steps at our expense, to protect your interests and resolve your inconvenience, by getting your funds released and wired to you without delay.

To satisfy yourself about the true facts of the situation, you may consider obtaining concrete evidence/proof of the following from the Swiss Management:
� their efforts since 5 July 2007 to secure and get your money released,
� their response to your withdrawal request;
� the identity of their traders participating in their “capital guaranteed program”;
� the opinion of the Swiss Federal Banking Commissions and other regulatory bodies about any guarantee of client funds, especially if it pertains to spot forex transactions (part of why the investigation was sanctioned);
� payroll details for the Boston office employees for July and August;

From myself and the former management of the Boston office of Tradex we can assure you of one thing only: We are doing everything within our power and the law to secure your funds in Bank of America and make sure it gets wired directly to you in terms of the Anti-money laundering regulations as soon as unfortunate matter is resolved. We have the “disadvantage” that we all live in Boston and have to make a living here.

From the attached documents it is clear that the Swiss trustees, appointed by the SFBC, are currently in control of Tradex Swiss AG for the duration of their investigation. If you have any queries feel free to contact any of the Swiss trustees at Lutz Rechtsanw�lte: contact or call them at Tel +41 44 560 8080 or Fax +41 44 560 8090 or e-mail to Peter Lutz <[email protected]> ; Romeo Da Rugna <[email protected]> ; Michael Bopp <[email protected]> .

Please accept our most sincere apology for the inconvenience cau sed by the continued transgressions of the SFBC prescriptions by the Swiss Management. In our opinion the best course of action would be to let the legal process, set in motion by myself and the Boston management, continue uninterrupted. I undertake to keep you up to date of any new developments or progress concerning our legal process against the Bank of America and Tradex Swiss AG.
Yours Sincerely
Craig Karlis[/b]

The SFBC responded in kind:

[b]Memorandum

Mandate: SFBC / Tradex and Swiss Garant
Subject: Further information to clients of Tradex Swiss AG
to: Clients of Tradex Swiss AG / file
from: Dr Peter Lutz and Romeo Da Rugna
Date: 3 September 2007

Dear Madam, dear Sir,
we have informed earlier that the Swiss Federal Banking Commission (SFBC) has opened an investigation on Tradex Swiss AG (“Tradex”). The purpose of such investigation is to verify, whether the company has been conducting financial activities without the necessary homecountry licence. The SFBC terminated the signatory power of the former signatories of Tradex and appointed the undersigned Dr Peter Lutz and Romeo Da Rugna to carry out the investigation on behalf of the SFBC. The SFBC granted Dr Peter Lutz and Romeo Da Rugna the exclusive authority, with sole signatory power, to represent and act on behalf of Tradex.

Further to our former information we can give you the following update about the pending investigation: We are at the moment not in a position to complete our investigation since part of the management of Tradex refuses to cooperate with the undersigned and do not deliver requested information and documents in a complete and timely manner.

A part of the management of Tradex even filed a complaint against Tradex in Boston USA. Tradex therefore had to employ US counsel in order to defend this complaint which is seriously obstructing and delaying the pending investigation.

Without the complete information and documentation about all assets and liabilities of Tradex, we are not able to determine which clients and/or creditors have legitimate claims towards Tradex. Therefore, lacking this information and documentation, we can not find out, and we consequently can not exclude, whether there is any risk of preferential treatment of
creditors if now payments are made to individual clients and/or creditors.

Until we do not have a complete overview on all of Tradex’ assets and liabilities, we are therefore not in a position to make any transfer to clients and/or creditors of Tradex.

We finally would like to inform that none of the messages which have been sent since 3 July 2007 by the management of Tradex have been authorised by the undersigned. Such messages and information therefore do not reflect the opinion of the undersigned. As soon as the investigation will be completed, you will receive further information.

Yours sincerely
DR PETER LUTZ AND ROMEO DA RUGNA
Investigators appointed by the Swiss Federal Banking Commission [/b]

If it is any consolation to the traders stuck in these two firms both the NFA and SFBC are making big changes to try and keep these kinds of things from happening again (NFA by raising capital requirements and SFBC by regulating forex in CHF.) As for everyone else, please conduct your due diligence and avoid poorly capitalized and/or unregulated firms for this is what can happen if you don�t.

120

In July I put out an alert to the FX Community about Dead Pool Member Nations Investments, LLC. Well, shortly there after the NFA went in and closed them down. Now it appears the CFTC has stepped in to collect their pound of flesh. Nations was hauled into court by the scruff of their neck by the Feds and a court receiver has now taken over the defunct firm. Have customers lost money? I’ll keep everyone informed.
U.S. Commodity Futures Trading Commission Files Action Against Futures Commission Merchant Nations Investments, LLC, for Failure to Maintain the Minimum Amount of Net Capital Required by Federal Law

U.S. Commodity Futures Trading Commission Files Action Against Futures Commission Merchant Nations Investments, LLC, for Failure to Maintain the Minimum Amount of Net Capital Required by Federal Law

Washington, DC � The U.S. Commodity Futures Trading Commission (CFTC) announced today the filing of a complaint in the U.S. District Court for the Southern District of Florida against Nations Investments, LLC (Nations) of Fort Lauderdale, Florida, a futures commission merchant (FCM) registered with the CFTC.

The complaint alleges violations of the minimum net capital requirements of the Commodity Exchange Act and Commission regulations. More specifically, according to the CFTC complaint, as of July 21, 2007, and perhaps earlier, Nations� net capitalization was below the adjusted net capital required by the Act and a Commission regulation. As of July 20, 2007, the complaint charges, Nations� adjusted net capitalization remained below the required adjusted net capital with Nations� total liabilities equaling $5 million while its assets were less than $2 million.

On July 30, 2007, the Honorable Marcia G. Cooke, U.S. District Court Judge, issued a restraining order freezing the assets of Nations and prohibiting the defendant from destroying documents or denying CFTC staff access to books and records. The Court also froze the assets of relief defendants Sulaiman �Sal� Husain, a Director, Chief Financial Officer, and principal of Nations, and Sammy Joe Goldman, an owner and former principal of Nations. Husain and Goldman allegedly contributed to the undercapitalization�which ultimately rose to approximately $4.5 million�by withdrawing a total of $1 million from Nations� accounts.

On August 7, 2007, the court approved the appointing a receiver to marshal the assets of Nations. In the ongoing action, the CFTC seeks an order of permanent injunction against the defendant, monetary penalties, and other relief.

121

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

122

I came across this excellent post about the lack of regulation in Switzerland, as confirmed by Swiss Regulators themselves. Be very wary of doing business with a broker in Switzerland until the market gets regulated over there.

Originally Posted by minter
I requested info regarding a FX Brokerage firm in SWITZERLAND.

The first reply is from SBFC (Swiss Federal Banking Commission) and the second reply is from MLCA (Money Laundering Controlling Authority) .I personally do not feel the SWISS regulators are not as proactive as the US side .What about UK 's FSA ? I will try to find out .

Dear Sir ,

For the time being, financial intermediaries providing foreign exchange trading are not subject to licensing by the SFBC, provided that they exclusively deal in foreign exchange on the spot market. It is however intended to amend the law to the effect that foreign exchange trading becomes a privilege of authorised banks.

Foreign Exchange dealers fall under the scope of the Anti-Money Laundering Act (AMLA). As such, they may be subject - unless they are a member of a recognised self regulatory body - to direct supervision by the AML Control Authority (Anti-Money Laundering Control Authority AMLCA) at the Swiss Federal Finance Administration, Christoffelgasse 5, 3003 Berne, phone +41 31 323 39 94, fax +41 31 323 52 61, www.gwg.admin.ch/e/index.htm. You may check this authority concerning forex brokers in Switzerland.

We hope that we were able to help you further.

Yours sincerely

Secretariat of the
SWISS FEDERAL BANKING COMMISSION

sig. Christina B�rgi sig. Simone Flach
Communication&Media Communication&Media

Schwanengasse 12
P.O. Box
CH-3001 Berne
Phone +41 31 322 60 69
Fax +41 31 322 69 26
mailto:[email protected]
Unbenanntes Dokument

CH-3003 Bern, FFA, AMLCA, bdu
By email

<[email protected]>

Sir ,
Our reference: 10-9/VER2007/wj

Bern, 31 August 2007

Re: List of regulated forex brokers in Switzerland

Dear Sir,

We acknowledge receipt of your inquiry of 30 August 2007 and have to inform you that we cannot supply you with the requested list. Forex companies are not under prudential supervision. No security for deposited funds is therefore given and no supervision of the quality of the services provided takes place.

Yours faithfully,

Anti-Money Laundering Control Authority
Brigitte Dumont Judith Wyss
Adm. Assistant Adm. assistant

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While I’m on the subject of unregulated foreign firms I think it important that traders be aware of a firm called NorthFinance, which is not in any way regulated. And judging by the embarrassing grammatical errors prominently displayed on their website I’m guessing this is one rinky dink operation: About NorthFinance

We have been trading on the foreign currency exchange market since 2001, going from strength to strength. North Finance is registered in Belize. Its operate within the financial market in accordance with The Memorandum of Association and Articles of Association, which was given to the company by Belize International Business Companies Act. Our success is attributed to the value we place in our customers and the trust they place in us in return. Foreign currency trading with us is simple, safe and open to every trader and investor. Opening an account is fast and ready to activate within ten minutes from any continent. Open a FOREX account with us today to enjoy the benefits so many have already experienced.

Northfinance is apparently registered in Belize and does its operations out of Cyprus? This bizarre choice of geographic jurisdictions alone should dissuade anyone from seriously considering opening an account with these guys. But if you need something more here are two statements from two government bodies from the two respective jurisdictions Northfinance calls home:

Statement One: From the International Financial Services Commission of Belize
NEWS - International Financial Services Commission
International Financial Services Commission,
New Administration Building,
Belmopan,
Belize, C.A.
4 August 2006
WARNING NOTICE
NORTH FINANCE COMPANY LTD
It is notified for general information that NORTH FINANCE COMPANY LTD is not licensed by any competent authority in Belize to engage in foreign exchange transactions, or to engage in any other international financial services.
All persons are asked to take note and exercise caution.

GIAN C. GANDHI
DIRECTOR GENERAL
International Financial Services Commission

Statement Two: from SEC of Cyprus
� N����������� : E.K. K�����: ������������� ��� �� North Finance Company - 31/8/2007 11:06:00 ��
Forex Factory - View Single Post - S.E.C. of Cyprus Warning for North Finance Ltd (taken from article) (Translation of Greek News Story)

With an announcement today, the SEC of Cyprus informed the investing public that North Finance Ltd:

-Has no License from the committee to provide investing services.

-Is not a bank registered in Cyprus, with a license from the Central Bank of Cyprus, permitting to provide investment or similar services.

-Is not established in Cyprus or provide services according to the Articles 24-30 of the law for Investment services companies."

When a government agency warns the trading public �to take note and exercise caution� about a firm it has singled out for being unregulated the trading public should indeed “take note and exercise caution.” And while you’re at it you should probably double check your neighborhood to see if NorthFinance has opened a new branch office in a van down by the river (YouTube - Matt Foley - Chris Farley - Saturday Night Live) now that the firm has been called out in Belize, Cyprus and who knows where next…

124

The CFTC has just released the latest Adjusted Net Capital Numbers.
http://www.cftc.gov/marketreports/fi...fcms/index.htm

Now that the NFA has officially raised the minimum capital requirement to $5 million (http://www.nfa.futures.org/news/news...ticleID=194 2) these numbers are more important than ever so pay close attention everyone.

Poorly Capitalized Firms
Advanced Markets ($1,042,000)
American National Trading Corp (Merged with PFG)
Bacera Corporation (Shutdown!)
Cal Financial Corporation (Shutdown!)
Direct Forex ($1,117,000)
Easy Forex ($4,731,000)
E FX Options ($3,342,000)
Forex Club ($3,715,000)
FiniFX (Not Accepting New Customers)
Forward Forex (Shutdown!)
FX Option1 Inc (Shutdown!)
GFS Futures & Forex ($3,259,000)
Hamilton Williams ($1,004,000)
MB Trading ($2,393,000)
Nations Investments (Shutdown!)
One World Capital ($1,078,000)
Performance Capital International (Vanished)
Royal Forex Trading (Merged with IKON)
SNC Investments ($1,130,000)
Solid Gold Financial ($1,955,000)
Spencer Financial (Shutdown!)
Trend Commodities (Shutdown!)
United Global Markets (Shutdown!)
Worldwide Clearing (Shutdown!)
Wall Street Derivatives ($1,220,000)

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 (?)

We have just about reached the time for choosing. The brokers in the Dead Pool have known about the NFA�s plans to increase capital requirements for some time now. And yet most have not made much of an effort to increase their reported adjusted net capital (with the exception of Money Garden who just raised the reported capital to $5 million. As a result they have been removed from the pool.)

That�s a major red flag in my book. As such I will continue my dispatches on the Dead Pool and warn traders to avoid these firms until they show they can meet the new capital requirement passed by the NFA and awaiting approval by the CFTC.

One final note, I have included Swiss brokers in the �Unregulated Firms Buyer Beware� list. I have two words for anyone considering opening an account with an unregulated Swiss broker �Tradex Swiss.� Don�t make the same mistake the poor traders at Tradex Swiss AG made and trade with an unlicensed broker that is unaccountable to anyone because should the firm get into trouble NO ONE is going to help you get your money back.

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I hate to say I told you so, but, I told you so. Nations LLC has posted on their website that they are officially bankrupt and that �it does not appear likely that there will be sufficient funds to pay all claims of creditors and customers in full.� This is precisely what I have been warning about. When you trade with a poorly capitalized firm you are at much greater risk of losing your money because in the forex industry poorly capitalized firms have a terrible track record (this year alone over a dozen have gone out of business.) This is precisely why the NFA has raised capital requirements to $5 million. And as with One World Capital I put out a warning on Nations well before they started taking customer funds hostage.

Here is what I said on July 19, 2007:

�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.�

http://www.cftc.gov/opa/enf07/opa5341-07.htm

End of story right? Not in the 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�

Then on July 24, 2007 the NFA closed Nations:

So what happened at Nations? Why was the NFA forced to take an “emergency Action” and shut them down? Well, because it was basically one of the industry’s worst nightmares come true. An undercapitalized firm suffered massive losses and was forced to cover them with customer funds. Here is what the emergency action states:

“On Saturday, July 21, 2007, Nations sent to NFA, via e-mail, notice that it had fallen under the minimum required adjusted net capital.”

On Monday, July 23, 2007, NFA sent a letter to Nations notifying the firm that as it was unable to demonstrate compliance with the minimum requirements Nations was to cease doing business. That same day, NFA received another notice from Nations representing that the firm had fallen under the required minimum “due to losses in the forex markets.” This letter also indicated that Nations was attempting to raise $5 million “to make customers whole.” (YIKES! “make customers whole?!” Who on Earth is going to give Nations $5 million?! While nations has been successful at making a fool of their customers they certainly won’t be making them whole.)

Nations also provided NFA with a Form 1-FR as of July 20, 2007, which indicates that Nations owes customers trading in on-exchange futures more than $3 million and customers trading Forex more than $5 million. (Wow. What an implosion. They are $8 million in the hole? What the hell were they doing over there going to Vegas and playing craps with customer funds?)

This looks like another messy court case. With financials like this I expect the creditors will be coming out of the woodwork laying claim to what’s left of Nations. If they’re lucky they might be able to seize a fax machine or two, but as for customer funds, well, looks like some stripper in Vegas got her hands on that money first…

On September 6, 2007 the CFTC then Dropped the Hammer on Nations:

In July I put out an alert to the FX Community about Dead Pool Member Nations Investments, LLC. Well, shortly there after the NFA went in and closed them down. Now it appears the CFTC has stepped in to collect their pound of flesh. Nations was hauled into court by the scruff of their neck by the Feds and a court receiver has now taken over the defunct firm. Have customers lost money? I’ll keep everyone informed.

U.S. Commodity Futures Trading Commission Files Action Against Futures Commission Merchant Nations Investments, LLC, for Failure to Maintain the Minimum Amount of Net Capital Required by Federal Law

U.S. Commodity Futures Trading Commission Files Action Against Futures Commission Merchant Nations Investments, LLC, for Failure to Maintain the Minimum Amount of Net Capital Required by Federal Law

Washington, DC � The U.S. Commodity Futures Trading Commission (CFTC) announced today the filing of a complaint in the U.S. District Court for the Southern District of Florida against Nations Investments, LLC (Nations) of Fort Lauderdale, Florida, a futures commission merchant (FCM) registered with the CFTC.

The complaint alleges violations of the minimum net capital requirements of the Commodity Exchange Act and Commission regulations. More specifically, according to the CFTC complaint, as of July 21, 2007, and perhaps earlier, Nations� net capitalization was below the adjusted net capital required by the Act and a Commission regulation. As of July 20, 2007, the complaint charges, Nations� adjusted net capitalization remained below the required adjusted net capital with Nations� total liabilities equaling $5 million while its assets were less than $2 million.

This week this statement appeared on Nations Website
Nations Investments

Notice to Customers and Creditors of Nations Investments, LLC

On July 24, 2007, the National Futures Association (‘NFA’) issued a Member Responsibility Action against Nations Investments, LLC (‘Nations’ or the ‘Company’), which among other things, directed the Company to close all open positions of forex account customers by July 25, 2007 at 5:00 p.m. (EDT). At the same time, the NFA authorized the bulk transfer by the Company of all the accounts of its on-exchange customers to Open E Cry, LLC, another Futures Commission Merchant. Accordingly, this Notice (and the administration of the receivership) is primarily for the benefit of the former Nations forex customers. (Former Nations on-exchange commodities account customers may contact Emily Stephens concerning their account at Open E Cry, LLC, telephone: (800) 920-5808.)

On July 30, 2007, the Commodity Futures Trading Commission (‘CFTC’) filed a Complaint against Nations in the United States District Court for the Southern District of Florida (the ‘Court’). On August 7, 2007, the Court entered an Order pursuant to which the Court appointed Bruce H. Matson as Receiver for the Company and its assets. A copy of the Order can be viewed on this website.

The Receiver currently is attempting to determine the extent of the customer account balances and the other liabilities of the Company. He has taken possession and control of the assets and records of the Company. The Receiver also is attempting to identify what additional assets may be available to make payment to customers and creditors. The goal of this process is to (i) identify accurately all of the unpaid account balances of the Company’s customers as of July 25, 2007, (ii) identify all other creditor claims, (iii) identify and collect any and all assets of the Company (including the possibility of asset recovery actions against third parties), (iv) distribute monies recovered pro rata to customers and creditors; and (v) provide the Court with a final accounting of the Receiver’s activities. The Receiver is making every effort to seek cost efficient avenues to recover assets for the receivership and complete the claims process. The claims process, however, requires the identification of customers (and other creditors) and a determination of the validity and amount of their claims. This process is likely to take a number of months. If appropriate the Receiver will consider making an interim distribution to customers and other creditors. Customers also should be advised that, at the present time, it does not appear likely that there will be sufficient funds to pay all claims of creditors and customers in full. The CFTC complaint states that there are in excess of $5 million of customer liabilities and less than $2 million of cash assets remaining. Although it is much too early to predict, the recovery for customers may well be less than fifty percent (50%) of account balances as of July 25, 2007.

The Court directed the Receiver to file a report sixty (60) days from entry of the Order, the first to be filed by October 8, 2007. At that time, the Receiver will provide access to that report on this website. Finally, customers and creditors should refer back to this website from time to time for any updates.

Specific inquiries should be directed to the Receiver, Bruce H. Matson at LeClair Ryan at (804) 343-4090 or to Katherine M. Mueller at (804) 916-7117.

Real people have lost real money, not because they took trading losses but because they invested their money in a firm that was poorly capitalized. Don�t make the same mistake they did. Don�t trade with a poorly capitalized firm.

126

hi guys ,

u missed out MFglobal which is a leading company in the fx markets

127

The National Futures Association appears to be chucking a couple final spears into the bloated carcasses of two former dead pool brokers (Trend Commodities Limited Partnership and the Bacera Corporation.)

Trend Commodities has been permanently shut down and banned from NFA membership (BASIC Case Summary) while the Bacera Corporation was fined $50,000.

Of interest in the Bacera case was this statement, “The Committee found that Bacera failed to maintain required adjusted net capital, failed to give required notice of being below its minimum net capital requirement, and failed to take required capital charges and maintain accurate records.” (National Futures Association | News Center)

Again, it’s all about capitalization. Firms that have adequate capital don’t run into these kinds of problems. Firms that are poorly capitalized continually run into these kinds of problems and often times go out of business, in some cases taking customers down to the bottom of the ocean with them. It’s that simple.

128

At last the customers of RefcoFX are getting their money back. Reports coming in over the wires indicate that customers are getting back roughly 40 cents on the dollar of their original investment. While that’s still a very heavy loss to take at least the customers are getting something after two years of watching creditors loot their accounts. Phil Bennett and the rest of the board at Refco should know that there are some rather toasty seats in hell waiting for them upon their arrival.

The end of the RefcoFX nightmare brings with it a clear lesson to always trade with a regulated firm. If a firm isn’t licensed, then stay away from it. Far, far away from it. And also be sure the firm you are trading with is well capitalized. The case of Nations, which was an undercapitalized broker on the dead pool is further evidence of that. And sadly enough, now Nations begins the journey that RefcoFX just ended.

129

Well, Tradex Swiss AG isn’t the only Swiss Broker out there swindling customers of their money. The CFTC just busted another Swiss firm by the name of INH-Interholding SA and its principal Joerg Heierle. The Story is below. As a reminder the following Swiss firms ARE NOT REGULATED and should be avoided:

Unregulated Swiss Brokers
WestCapFX
ACM
MIG
DukasCopy
GFX Group (Forex.CH)
Crown Forex

[b]Florida Federal Court Issues Order Freezing Assets of Miami Beach Resident Joerg Heierle and Swiss Corporation INH-Interholding SA

CFTC Charges Heierle and INH with Fraudulent Solicitation of at Least $4.4 Million to Trade Commodity Futures and Options and Concealment of Trading Losses[/b]

Washington, DC � The U.S. Commodity Futures Trading Commission (CFTC) announced today that a federal court in Miami entered an order freezing assets under the control of, and prohibiting the destruction of documents by, defendants Joerg Heierle, of Miami Beach, Florida, and INH-Interholding SA (INH), of Switzerland and Miami Beach, Florida.

The order arises out a complaint filed by the CFTC on September 12, 2007, in the United States District Court for the Southern District of Florida, charging defendants with fraudulently soliciting at least $4.4 million in a commodity futures and options pool fraud scheme. The complaint also charges Heierle and INH with concealing trading losses by issuing false statements to pool participants regarding the profitability of their INH investments. The CFTC also names Futures Trading Academy, Inc., of Bay Harbour, Florida, as a relief defendant due to its alleged receipt of pool participants� funds.

According to the complaint, Heierle disappeared in April 2007, and pool participants have not been able to access their funds since that time.

The CFTC complaint specifically alleges that, since at least October 2001 through April 2007, Heierle and INH solicited pool participants located throughout the United States and abroad to invest in an INH commodity futures and options pool that Heierle would operate and manage on their behalf. In their solicitations, defendants falsely represented that the INH commodity pools were historically profitable and that Heierle was a successful trader. For example, the INH website (www.interholding.net) claimed that the three INH pools realized returns of 12.1 percent, 17.3 percent and 30.2 percent in 2005.

However, as alleged, there are no trading accounts in the name of INH, and the known trading accounts controlled by Heierle sustained losses during that time period totaling $80,000. Moreover, during the relevant time period, the known trading accounts controlled by Heierle allegedly sustained overall net trading losses of approximately $1,000,000.

The complaint also alleges that defendants issued false account statements to pool participants reflecting that defendants were profitably trading on their behalf. For example, for the period between July 2006 and April 2007, despite having sustained net trading losses of approximately $1.2 million, pool participants� account summaries reflected returns of up to 10 percent.

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NFA Drops $20 Million Bombshell

The President of the National Futures Association, Dan Roth, dropped a 50 megaton bomb on the forex industry yesterday. In testimony before the Congress the NFA CEO requested that the Government increase capital requirements to TWENTY MILLION DOLLARS.

Here is what he is said in his testimony:
National Futures Association | News Center

The second trait that marks the problem firms in retail forex is that most, though not all, have been thinly capitalized. Congress long ago recognized that acting as a dealer involves greater risk than acting as an agent in futures trading, the way a traditional FCM does. That is why Congress in 1978 imposed a $5 million net worth requirement for firms granting dealer options and why the CFTC created a $2.5 million capital requirement for leverage transaction merchants in 1984. Congress should amend Section 2© of the Act to require FCMs acting as counterparties to retail forex transactions to maintain minimum capital of at least $20 million. NFA has raised the capital requirements for forex dealers several times but this congressional action could ensure that firms can meet their obligations to their customers and have a significant financial stake in their business.

Wow. If you thought it would be hard for poorly capitalized firms to raise a couple million dollars just wait until they have to raise $20 million. There is simply no way most of these little firms are going to be able to do that. In fact, medium sized firms are going to be hard pressed to do that.

It is starting to become crystal clear that the only firms that are going to survive the coming NFA purge are the biggest, most well capitalized firms in the business. That is why Oanda went out and got $100 million in funding and Interbank got $30 million. The serious industry players know what’s going on. So should the trading public. If ever there were a time to beware investing in poorly capitalized firms now is the time.

After all, if the NFA has no confidence in the stability of “thinly capitalized” firms why should the trading public?