Capital FX LLC Violates NFA Compliance Rules, Permanently Banned from NFA Membership
Capital FX LLC Charged with Providing False and Misleading Information and Failing to Comply with NFA Investigation
In a February 5 press release, the NFA announced a settlement with Capital FX LLC (CFX) and its sole principal and employee Robert W. Pecord that will permanently bar the commodity trading advisor (CTA) from future NFA membership.
CFX and Pecord were charged on four counts for violating NFA Compliance Rules. The following Rules were violated:
- NFA Compliance Rule 2-2(f): Providing false or misleading information to NFA;
- NFA Compliance Rule 2-5: Failure to cooperate in an NFA investigation;
- NFA Compliance Rule 2-41(b)(3): Use of inaccurate or incomplete Disclosure Document; and
- NFA Compliance Rule 2-31(b)(1): Cheating, defrauding, or deceiving another person to attempting to do so.
On count 1, Pecord/CFX provided false or misleading information regarding the number of accounts he was involved with and the track record if his accounts.
Our recommendations: Always tell the truth from the very beginning. If you have made misrepresentations in the past, they will come back to haunt you. You will only be delaying the inevitable (i.e. an NFA investigation) if you try to hide or obfuscate the truth.
On count 2, Pecord/CFX failed to comply with the NFA investigation by failing to provide the NFA with bank statements for one of his accounts.
Our recommendations: As noted above, the consequences of withholding information from the NFA will catch up to you. You will only be delaying the inevitable, and, likely, increasing your attorney’s fees.
On count 3, Pecord/CFX used an inaccurate and incomplete Disclosure Document by failing to explain prior material actions against him and his prior trading history, and failing to include all required past performance data.
Our recommendations: Always include every piece of material information in the Disclosure Document. At a minimum, this includes all of the information required by the NFA. Because the Disclosure Document will be scrutinized closely during any examination, we recommend that all Disclosure Documents be drafted by an attorney with CFTC/NFA experience. Please remember that all statements in the Disclosure Document must be true, accurate, and not misleading.
On count 4, Pecord/CFX made deceptive statements to his customers, such as misleading customers about his litigation history, falsely claiming that neither CFX nor Pecord had previously directed any accounts, and omitting the unprofitable past performance of accounts that he had managed in the past. The focus on this count was the manager’s website, on which he discussed risk management and volatility of returns. The problem was that his actual track record was not consistent with the representations made on the website.
Our recommendations: You should always have a forex attorney review your forex website prior to publishing the website to the internet. Additionally, managers can ask the NFA to review their website, which is also a viable option.
Conclusion
The penalties for violating NFA’s Rules are steep, as noted in the case of Pecord/CFX and other cases which we have written about on Forex Law Blog in the past. Failure to comply with these rules can result in forced withdrawal from the NFA, either for a certain amount of time, or, worse–permanently.
The full text of the NFA press release is reprinted below and can also be found here.
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For Immediate Release
February 05, 2010
For more information contact:
Larry Dyekman (312) 781-1372, ldyekman@nfa.futures.org
Karen Wuertz (312) 781-1335, kwuertz@nfa.futures.org
NFA bars NY firm Capital FX LLC and its principal
February 5, Chicago - National Futures Association (NFA) has accepted Capital FX LLC’s (CFX) settlement offer to permanently withdraw from NFA membership. CFX is a Commodity Trading Advisor located in Elizaville, New York. Additionally, NFA orderedRobert W. Pecord, its sole principal and employee, to permanently withdraw from NFA membership. The Decision, issued by NFA’s Business Conduct Committee, is based on an NFA Complaint filed in December 2009 and a settlement offer submitted by CFX and Pecord.
The Complaint charged that CFX and Pecord provided false and misleading information to NFA and failed to cooperate with NFA in its investigation of the firm. The Complaint also charged CFX with using an inaccurate disclosure document.
The complete text of the Complaint and Decision can be found on NFA’s website (www.nfa.futures.org).
NFA is the premier independent provider of innovative and efficient regulatory programs that safeguard the integrity of the futures markets.
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Other related forex law articles include:
- Failure to Comply with NFA Rules Could Result in NFA Membership Suspension of Expulsion and/or Fines
- NFA Interpretive Notice Re: Past or Projected Performance
- Forex Dealer Member Barred From Industry
- Federal Court Freezes Assets of Moroccan Resident Richmond Hamilton, Jr., and the Chicago Commodity Pool He Manages in a $1 Million Pool Anti-Fraud Case Brought by the CFTC
- Pennsylvania Resident Joseph Forte Admits to Operating a Multi-Million Dollar Ponzi Scheme in CFTC Enforcement Action
- CFTC Charges a Couple in North Carolina and Their Companies in a $22.5 Million Ponzi Scheme
- Retail Forex Registration Regulations Proposed
- Series 34 Exam
Bart Mallon, Esq. of Mallon P.C. runs the Forex Law Blog and provides forex registration service through forexregistration.com. Mr. Mallon also runs the Hedge Fund Law Blog. He can be reached directly at 415-868-5345.
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