Forex Law Blog

CFTC Stops Another Forex Ponzi Scheme

admin — Mon, 08 Mar 2010 17:16:53 +0000

CFTC Charges VA Resident Ronald W. Smith, Jr. with Fraudulent Solicitation and Misappropriation of $800,000+ in Customer Funds

Overview

CFTC charges Smith with providing false account statements to his customers and using at least $800,000 of his customers’ investment money to pay for personal expenses. CFTC claims that Smith traded hardly any of the funds in his customers’ accounts. Additionally, Smith is charged with luring customers in to his trading scam by promising too-good-to-be-true returns on investments, as well as using online media websites like YouTube.com to promote his corrupt trading program. The Court ordered a freeze of assets held or controlled by Smith and relief defendants Angela A. Duty Smith and Tigre Systems, Inc.

Major Takeaways

Hallmarks of a forex scam are ridiculous returns and blatantly false information about trading
Prominence given to internet activity including YouTube videos (for more information, see NFA’s new social media policies)
Ultimately, the big count was under 4b(a)(2)(A)-(C) of the Commodity Exchange Act for fraudulent solicitation, misappropriation, and false statements

To view the Order, click here.

To view the Complaint, click here.

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CFTC Charges Virginia Resident Ronald W. Smith, Jr., Doing Business as Safeguard 3030 Investment Club, in Forex Fraud Scheme

Smith allegedly misappropriated approximately $800,000; court orders defendants’ assets frozen.

Washington, DC - The U.S. Commodity Futures Trading Commission (CFTC) today charged Ronald W. Smith, Jr., of Vansant, Va., doing business as Safeguard 3030 Investment Club, with operating a Ponzi scheme involving the fraudulent solicitation of at least $800,000 from at least 34 customers in connection with off-exchange foreign currency (forex) trading. The CFTC complaint also charges the defendant with misappropriating approximately $800,000 of customer funds for personal use and to pay out purported profits and with issuing false customer statements to conceal the fraudulent misuse of funds.

Two relief defendants, including Smith’s wife, named in the federal lawsuit

The Honorable James P. Jones of the U.S. District Court for the Western District of Virginia, on February 23, 2010, the same day the complaint was filed, entered an order freezing assets held or controlled by Smith and relief defendants Angela A. Duty Smith andTigre Systems, Inc. (Tigre) and prohibiting document destruction. The order also requires Smith and the relief defendants to account for assets. The CFTC complaint names Angela Smith and Tigre as relief defendants because they allegedly received customer funds to which they had no entitlement. Relief defendant Duty Smith, the treasurer of Tigre, is defendant Smith’s wife.

Defendant Smith allegedly used a video posting on www.youtube.com to lure and solicit customers

Specifically, the CFTC complaint charges that, since at least January, 2009, defendant Smith fraudulently operated a forex trading scam, luring customers to trade managed forex accounts or pooled forex investments by claiming forex trading success and offering promises of quick and large returns, such as 30 percent in 30 days. Smith allegedly claimed that 95 percent of his trades are winning trades. Smith also used a website and a video posting on www.youtube.com to solicit customers, according to the complaint.

In reality, however, Smith used little, if any, of the funds to trade forex. Instead, he used customer funds for personal expenses, such as for pool services, carpeting and furniture, according to the complaint. Customer funds also were allegedly used for purported profit payouts and for business expenses.

Relief defendants Tigre and Duty Smith opened and maintained the bank account into which defendant Smith directed customers to deposit their funds. As further alleged, no funds from this bank account appeared to be directed to any trading; instead the account was used as a personal checking account of the Smiths.

Judge schedules preliminary injunction hearing on March 5

Judge Jones ordered defendant Smith to appear in court on March 5, 2010, at 10:00 a.m. for a preliminary injunction hearing. The CFTC, in its continuing litigation, seeks restitution, disgorgement of ill-gotten gains, civil monetary penalties and a permanent injunction against further violations of the federal commodities laws.

The following CFTC Division of Enforcement staff are responsible of this case: August A. Imholtz III, James A. Garcia, Kassra Goudarzi, Michelle Bougas, Kara Mucha, Michael Solinsky, Gretchen L. Lowe and Phyllis J. Cela.

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Recent Issues with NFA Annual Questionnaire | Forex Law Blog

nkim — Tue, 02 Mar 2010 05:30:42 +0000

As we discussed in an earlier post on NFA Annual Questionnaire, NFA Member Firms are required to complete the questionnaire on an annual basis. The information helps the NFA in a variety of ways and the NFA encourages members to update their questionnaire on a regular basis, although firms are only required to complete it, at a minimum, on the anniversary of their NFA Membership date.

Number of Half-turn Trades Issue

One issue that we are seeing clients deal with is the last question which applies to commodity trading advisors (CTAs) and commodity pool operators (CPOs). The question is as follows:

For CTAs and CPOs only: Provide the following information for accounts held by CTAs and/or CPOs: How many total domestic futures and options trades (half-turns) did your firm place directly with an FCM in the last 12 months? Please include trades for customer, commodity pool (both regulated pools and pools exempt pursuant to CFTC Part 4 Regulations) and proprietary accounts, but do not include trades that were actually placed by another money manager on behalf of any of these accounts.

The issue is that the question asks for the total amount of half-turn trades were completed over the last 12 months. This could be an absolutely huge number and it would be onerous for a CTA or a CPO to go back and actually count each trade (unless the broker/clearing firm was keeping track for the CTA or CPO). Accordingly, I have now talked with the NFA twice about this issue and they have confirmed that an approximate or estimated number is sufficient for the purposes of the questionnaire. While such informal guidance is not binding, it seems like the NFA wants to have a general idea of the trading volumes and is not going to “ding” a manager if the exact number is not determined.

Issues for Forex CTAs and Forex CPOs

Even before the forex registration regulations were proposed, many forex-only managers registered with the CFTC as either forex CTAs or CPOs. I asked the NFA compliance department how such managers should answer the above question as would not make sense in the spot forex context. The NFA said that such managers should answer the above question by placing a 0 (zero) in the appropriate box (assuming there was only spot forex trading).

If you have other questions or issues when you are completing the annual questionnaire, you can either call the NFA or your compliance professional. Also, please let us know what your issues are so we can update this article accordingly.

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Other related NFA compliance articles include:

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NFA Talks with CFTC about Proposed Forex Leverage Reduction

nkim — Mon, 01 Mar 2010 17:40:05 +0000

President of NFA Dan Roth and CFTC Commissioner Jill Sommers Discuss Leverage Proposal

On Friday, Dan Roth, the president and CEO of the National Futures Association met with CFTC Commissioner Jill Sommers regarding the proposed forex regulations. According to the text of the CFTC comment file regarding the meeting, the discussion primarily centered around the reduction in leverage from 100:1 to 10:1 which has created a backlash from the retail spot forex industry.

Many groups within the industry suspect that the CFTC was trying to force retail investors into the currency futures markets, but industry comments have revealed that if leverage is reduced in such a manner, U.S. retail traders are likely to move to overseas brokers who will offer greater leverage. This meeting may be a sign that the regulators are taking the comments of the industry to heart. We will keep reporting on this issue.

The full text of the comment file is reprinted below and can also be found here.

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MEMORANDUM

TO: Comment File

FROM: Commissioner Jill Sommers

DATE: February 26, 2010

SUBJECT: Proposal to Regulate Off-Exchange Retail Foreign Exchange Transactions and Intermediaries

On February 25, 2010, Commissioner Sommers met with Dan Roth of the National Futures Association. The Commission’s proposed rulemaking regarding the regulation of retail foreign exchange transactions and intermediaries was discussed, primarily with respect to the proposal to restrict leverage in customer accounts to a 10-to-1 limit. Marcia Blase and Andrew Morton of commissioner Sommers’ staff were also present at the meeting.

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New Forex Regulations: Overview of Public Comments

admin — Wed, 24 Feb 2010 10:03:12 +0000

Leverage, Inaccessibility for Smaller Traders, and Offshore Threat are Focus of Public Comments

As we’ve discussed in related posts, the CFTC has proposed rules regulating the off-exchange spot forex industry (see Retail FOREX Registration Regulations Proposed). The CFTC has requested comments from the public and there are currently about 100 public comments on CFTC’s website written in response to the new rule. The comments mainly focus on:

Leverage reduction rule (approx. 75/100 comments)
Forex industry becoming inaccessible to smaller traders (approx. 35/100 comments)
Threat of investors moving their money to offshore firms (approx. 25/100 comments)
Opposition to government interference/regulation (approx. 20/100 comments)

[Note: over the weekend the CFTC published some of the backlog of comments it received. Much of this article was written prior to review of these extra comments (which total approximately 3,663). We will provide an update on such comments in the future.]

To view all of the comments, click here.

The following is our summary of the comments which have been made thus far.

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Leverage Reduction

Approximately 75 of the 100 comments mention a strong or very strong opposition to the new leverage proposal of 10:1. The issue with a reduction of leverage to 10:1 is that investors will have to invest much more money in order to trade what they can currently trade with less capital. Comments regarding leverage include phrases like “strongly object”, “terrible idea”, “unintelligent”, and “strongly oppose”. The majority opinion is that people should have the freedom and the choice to trade with a higher amount of leverage, and that the federal government’s attempts to lower leverage to 10:1 are “unnecessary” and “intrusive”. John Yeatman Jr. writes,

Please DO NOT reduce leverage in US Forex trading to 10:1…THIS WOULD HAVE A MAJOR IMPACT ON TENS OF THOUSANDS OF TRADERS AND THEIR FAMILIES WHO RELY ON 100:1 LEVERAGE AVAILABILITY TO SUPPORT THEIR FAMILY AND THIS ECONOMY. Please do your part in helping to keep this country great and it’s [sic] freedoms true BY NOT ALLOWING ANYTHING LESS THAN 100:1.

Other comments regarding the leverage proposal include:

… strongly objects to new leverage of 10:1
… proposed reduction not consistent with futures, which allow a significantly higher leverage
… virtually no flexibility trading at 10:1 leverage unless trader has gigantic account balance
…reduction in leverage not fair to public…bad for America
… new leverage line “out of line with general idea of protecting consumers”
…limiting leverage to 10:1 is “a bad idea”
…current leverage limit is “more than enough”
… CFTC is “unintelligent” to change leverage to 10:1
… terrible idea to lower leverage
… leverage change is “perversion of the free markets”
…leverage restriction “grave injustice” for many who work to secure the American dream of prosperity for themselves and families
…leverage limits would delay achievement of financial independence
…leverage not dangerous; misuse is
…leverage decrease will kill forex business and worsen economic situation in states and worldwide
…amount of leverage needs to be at discretion of investors

Smaller Traders

Another argument is that lower leverage will making trading inaccessible for smaller traders but leave the door wide open for larger institutions, since lower leverage requires higher margin (meaning that more money needed to be invested in order to trade). Comments regarding this proposed rules potential affect on smaller traders include:

…will stamp out small-time investor
…drive smaller guys out of market or offshore
…anything lower would be insane for small-time traders
…gets rid of investors with small capital so rich can stay rich and poor can stay poor
…pushes out small-time investor
…denies small trader opportunity
…disparate and unintended impact on small traders with lower capital
…leave the small, independent traders alone
…small businesses are heart of US economy
…all small-scale actors will be stifled
…10:1 leverage will have unintended consequence of locking out hundreds or thousands of small traders
…quit treating the small guy like an idiot
…are you trying to allow only rich to trade forex?

Government Interference/Regulation

Many of the comments suggest anger with the government for interfering too much with the forex industry. Michael Thomas writes,

I do not live here in this “free” society to have someone from the government babysitting me. The message that your proposed rules send is that 1) we are not free to make our own choices. 2) The federal government believes that we the general public are too stupid to make decisions for ourselves….I don’t need you, or do I want you getting in the way of my being able to trade as I wish in the United States of America.

Other comments regarding an opposition to increased government interference include:

…don’t add more government
…not intention of our ancestors to create government which controlled/regulated all aspects of citizens’ lives
…the government has no right to control my ability to make profit
…unnecessary for Federal government to regulate against individual’s ability to take risks
…don’t need government protection; we’re adult traders
…not responsibility of government to take away choice from consumers
…”big brother” attempt to protect people from “evil” traders and forex hedge funds
…stay out of trying to run my personal life

In terms of the new regulation proposal as a whole, some people support more industry regulation while others are against the idea entirely. Bradford Smith writes,

I feel that regulation of firms is needed…regulation is needed to help people understand the risks such as risk disclosure. [Regulating] the retail forex market in a similar fashion to how commodities and futures are regulated is a good idea. Stopping companies from trading against their clients is a high priority issue that needs to be stopped.

John M. Bland, on the other hand, who views the proposal as “unfair”, writes,

…the CFTC has done a lot in recent years to correct many of the problems in the industry…this decision is unfair and anti-competitive.

Other comments regarding opposition to the proposal and/or government interference include:

…new rules will destroy US financial firms business and lead to loss of thousands of jobs during the worst economy in decades
…regulation should be aimed at encouraging economic growth and innovation vs. restricting it
…against proposal
…how did forex regulation get in the Farm Bill?
…whoever initiated proposal has no knowledge of forex…this rule is utter nonsense…rules for forex in the USA are already quite strict
…you are busybody bureaucrats with intrusive minds…you are interested in only one thing: bureaucratic power and complete control of every microscopic aspect of life…you are monsters
…rules will harm people who make an honest living trading currency
…important to educate and inform, not regulate and ban
…proposal is a disaster-in-warning for traders
…if it ain’t broke, don’t fix it
…proposal is lunacy-communist-legislation
…I do not support the proposal…proposal closes doors for forex investors and will make forex market accessible to financial institutions only
…vehemently against new, narrow-sighted legislation

Offshore Threat

In at least 25 of the comments, the public is arguing that the new rules, specifically lower leverage, will drive traders offshore to overseas brokers who may or may not be regulated. Further, a major argument is that the forex industry in the United States will essentially cease altogether as a result of traders moving their forex activities offshore. Comments regarding this offshore threat include:

…will send business to London and unregulated offshore markets
…consumers will take accounts offshore
…will drive smaller guys out of markets entirely or to offshore, unregulated brokers
…when traders move accounts offshore, CFTC and NFA will have no control of clients’ trading
…I’ve already moved my account offshore
…people will do business with offshore brokers

Agreement/Disagreement with Proposal

Many of the comments discuss that education about forex and trading risk is the best solution. On a similar note, many traders expressed the fact that anyone who trades in the forex market is aware of the inherent risks, so people who decide to trade are willing to take these risks. There is a general consensus that it is the individual’s, and not the government’s, responsibility to evaluate the level of risk that s/he is willing to take. Remember, higher leverage will be reflected in both your profits and your losses. Thus, if you have high leverage and profit, you will profit a lot more than if your trading had not been leveraged. But the same goes for losses; if you lose, you will lose a lot more based on the higher leverage.

Conclusions Thus Far

The biggest concern thus far is the proposed reduction in leverage to 10:1. Almost every comment mentioned a strong opposition to this rule. Furthermore, most people seem to be concerned that the new regulations will significantly decrease forex activity in the US—if not kill it off—and drive most investors overseas to offshore firms. We will continue to monitor comments received until the March 22 due date. Please leave us a comment below with your feedback. Should you feel inclined, you may submit your own comment to the CFTC through the methods listed below.

To view CFTC’s proposed rules, click here.

How to Comment

Comments must be received by March 22, 2010 and can be submitted the following ways:

Through the Federal eRulemaking Portal: http://www.regulations.gov/search/index.jsp. Follow the instructions for submitting comments.
By e-mail: secretary@cftc.gov. Include “Regulation of Retail Forex” in the subject line of the message.
By fax: (202) 418-5521.
By mail: Send to David Stawick, Secretary, Commodity Futures Trading Commission, 1155 21st Street, NW., Washington, DC 20581.
Courier: Same as Mail above.

(Note that all comments received will be posted without change to http://www.cftc.gov, including any personal information provided.)

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Other related forex law articles include:

Colorado CTA CFS Charged with Misusing Customer Funds, Submitting False Material to NFA, Failing to Supervise, Among Other Allegations

nkim — Fri, 12 Feb 2010 10:50:00 +0000

CFS Capital Management LLC and Principals Violate NFA Compliance Rules, Forced to Withdraw from NFA Membership

On June 30, 2009, NFA filed a formal Complaint against Colorado commodity trading advisor (CTA) CFS Capital Management LLC (CFS) and two of its principals, Andrew G. Elrod and Brian G. Elrod. In the Complaint, NFA alleged that CFS and the Elrods violated several NFA compliance rules, including the misuse of customer funds, submitting false and misleading material to NFA, and failure to supervise the firm’s futures and forex operations. In a settlement with the NFA, Andrew G. Elrod agreed to permanently withdraw from NFA membership, and Brian G. Elrod agreed to be barred from NFA membership for 5 years and must pay a fine of $30,000 in the event that he reapplies in 5 years. The following outlines the different charges followed by our recommendations on how you and your firm can avoid these issues.

Count I: Violation of NFA Compliance Rules 2-36(b)(1), (b)(6), and (c): Misuse of Customer Funds

CFS was charged with arbitrarily transferring $350,000 of customer funds to customers accounts to conceal the fact that it lost money for some of its customers. NFA alleged that CFS deceived its customers by telling them that the transfer was due to a clearing fund error.

Our recommendations: NFA is very clear about the illegality of misusing customers’ funds. Your customers are trusting you with large sums of their money. Bottom line: do not try to conceal your wrongdoings. If you are losing money, do something about it. Properly notify your customers and do your best to remedy the situation.

Count II: Violation of NFA Compliance Rules 2-2(a) and 2-26(b)(1): Failing to Follow the Terms of the Disclosure Document and Management Agreement

CFS’s Disclosure Document stated that no management fee would be charged for funds allocated to the Capital Preservation and Growth trading program, one of CFG’s trading programs. However, in June 2008, customers were charged $584 in management fees. Also, the management agreement stated that customers would be charged a 10% monthly incentive fee and that CFS could raise this to 20% as long as it gives customers a 7-day notice. In June 2008, CFS began charging its customers the 20% without give them notice, creating over $11,000 of overcharges. Customers were not reimbursed until a year after the overcharges took place.

Our recommendations: Disclosure Documents are taken very seriously by NFA. Do not make promises in them which you do not plan on keeping. If you state that you will not charge your customers a particular fee, do not charge them that fee! If you promise advanced notice, it is to your advantage to actually give it.

Count III: Violation of NFA Compliance Rules 2-29(b)(1), (b)(2), (b)(3), (b)(5)(i), 2-36(b)(1), and 2-22: Using Fraudulent and Misleading Promotional Material

Portions of CFS’ promotional materials downplayed the risks of loss and made claims of profitability that were not consistent with CFS’ actual results. Also, examples in the pamphlets for the CPG program omitted the effect of the 10%-15% fee that CFS stated it would charge on the amount of funds allocated to purchase government securities that were a part of CFS’ trading program. However, instead of charging this fee on only these funds, CFS applied the fee percentage to the customers’ entire invested funds. CFS also made claims that the NFA approved its trading programs, which the NFA does not do.

Our recommendations: NFA makes it very clear that with any statement of potential profit, there must be an equally prominent statement of potential loss. This is very important when putting your promotional materials, such as your website, together. Also, do not charge your customers a fee based on a different amount than initially promised. Remember, your customers are investing their money and their trust in you. The truth will always come out.

Count IV: Violation of NFA Compliance Rules 2-2(f) and 2-36(b)(5): Willfully Submitting False or Misleading Information to NFA.

The Elrods told the NFA that they never charged their customers incentive fees, when in fact they did.

Our recommendation: Do not lie to NFA. NFA repeatedly turns to this compliance rule, which is found in a number of Complaints. It’s just not worth it.

Count V: Violation of NFA Compliance Rules 2-9(a) and 2-36(e): Failing to Diligently Supervise

Andrew G. Elrod represented himself as the “face” of CFS and Brian G. Elrod was the president of CFS and represented himself as being in a supervisory role. According to the above compliance rules, the Elrods had the duty to supervise and ensure the compliance of their firm. Due to the Counts listed above, they did not properly supervise their firm.

Our recommendations: NFA’s compliance rules are important and exist for a reason. Don’t take on a supervisory role if you are unable to comply with NFA’s procedures.

The full text of the NFA press release in reprinted below and can also be found here.

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NFA permanently bars Colorado firm CFS Capital Management LLC and sanctions its principals

February 8, Chicago - National Futures Association (NFA) has accepted CFS Capital Management LLC’s (CFS) settlement offer to permanently withdraw from NFA membership. CFS is a Commodity Trading Advisor located in Lakewood, Colorado. Andrew G. Elrod, a principal of CFS, was also ordered to permanently withdraw from NFA membership with no findings that he committed the allegations as charged in an NFA Complaint. Brian G. Elrod, president of CFS and a listed principal, was barred from NFA membership for a period of five years. The Decision, issued by an NFA Hearing Panel, is based on the Complaint filed in June 2009 and a settlement offer submitted by CFS, Andrew Elrod and Brian Elrod.

The Panel found that CFS and Brian Elrod misused customer funds, submitted false and misleading material to NFA and failed to supervise the firm’s futures and foreign currency exchange (forex) operations. Additionally, the Panel found that CFS and Brian Elrod used fraudulent and misleading promotional material and that CFS failed to follow the terms of the firm’s disclosure document and management agreement.

Brian Elrod must also pay a fine of $30,000 in the event he reapplies for NFA membership after the five-year bar.

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:

Mallon P.C. Creates NFA Self-Exam Checklists for Forex CTAs, CPOs, and IBs

nkim — Wed, 10 Feb 2010 11:53:40 +0000

Forex CTAs, CPOs, and IBs Will Benefit From Mallon P.C.’s User-Friendly Self-Examination Checklists

The information in the following press release from hedge fund law firm Mallon P.C. applies equally to forex commodity trading advisors (CTAs), commodity pool operators (CPOs), and introducing brokers (IBs).

The full text of the Mallon P.C press release is reprinted below and can also be found here.

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Mallon P.C. Announces Creation of Easy-to-Use NFA Self-Exam Checklists

Hedge Fund Law Firm creates NFA required self-examination checklists to assist all types of CFTC registered managers. The checklists can be downloaded online at http://www.hedgefundlawblog.com/

San Francisco, CA (PRWEB) February 9, 2010 — In an effort to better serve firms registered with the Commodity Futures Trading Commission (“CFTC”), Mallon P.C. has developed a set of easy-to-use checklists to help investment managers follow proper National Futures Association (“NFA”) compliance procedures.

All NFA Member Firms must complete a self-examination of their compliance procedures on a yearly basis and Mallon P.C. aims to make the process more accessible and efficient to such firms. The checklists created by Mallon P.C. include a general checklist for all NFA Member Firms as well as specific checklists for the following CFTC registration categories: Commodity Pool Operators, Commodity Trading Advisors, Futures Commission Merchants, and Introducing Brokers. Mallon P.C. has also created a way for managers to make notes on potential compliance issues and to “attest” that they have completed the annual requirement. The goal of the checklists and supporting materials is to provide managers with an easy solution to keeping compliance orderly and up-to-date.

“Compliance has become an increasingly important area for investment managers. Many firms simply do not know what to do to remain in compliance because of hard to understand rules and regulations,” said Bart Mallon, Esq. of Mallon P.C. “We have aimed to create free, easy-to-use resources for NFA Member Firms to remain in compliance. I think this is especially important as the CFTC proposes new regulations requiring forex managers to register as CPOs, CTAs, and IBs.”

Mallon P.C. provides comprehensive support to hedge funds and investment managers throughout the United States. Mallon P.C. also provides legal, registration, and compliance support to futures and forex managers. If you have questions about registration (investment adviser, CPO, CTA) or questions regarding your firm’s compliance program, please contact Bart Mallon.

The contents of this press release may be considered attorney advertising in some jurisdictions. Prior results do not guarantee a similar outcome.

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Capital FX LLC Violates NFA Compliance Rules, Permanently Banned from NFA Membership

nkim — Tue, 09 Feb 2010 10:48:20 +0000

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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Updates to BSA E-Filing System for FinCEN Suspicious Activity Reports

nkim — Mon, 08 Feb 2010 20:10:41 +0000

FCMs and IBs Can Use BSA E-Filing System To File Several FinCEN Forms, Namely Suspicious Activity Reports

FinCEN (Financial Crimes Enforcement Network) recently improved its online BSA (Bank Secrecy Act) e-filing system. The security-enhanced site can be used for free and allows users (such as FCMs and IBs) to submit FinCEN forms more efficiently. Your firm’s filing organization will need to appoint a specific person to act as the initial BSA E-filing System Supervisory User. Click here to view the steps required to enroll.

The full text of the NFA press release is reprinted below and can also be found here.

The BSA e-filing system is located here.

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Notice I-10-08

February 03, 2010

FinCEN Adds Enhancements to its BSA E-Filing System

FinCEN recently requested that NFA provide NFA Member FCMs and IBs with notice of recent enhancements made to its BSA E-Filing System. FCMs and IBs may file SAR-SFs via the E-Filing System.

In September 2009, FinCEN implemented Phase I of the BSA E-Filing SAR Acknowledgements and Validation Process. Phase I provides BSA E-Filers with a receipt acknowledging their filing of a Suspicious Activity Report. In December 2009, FinCEN implemented Phase II of the project, which applies data quality checks and provides filers with information on the quality of their submission for electronically filed SARs of all types, including SAR-SFs.

The BSA E-Filing system allows FCMs and IBs to self-enroll to receive SAR acknowledgements and validation error codes. FinCEN strongly encourages filers to enroll to receive this critical feedback.

If you have any questions regarding this process, please contact the BSA E-Filing Help Desk at 1-888-827-2778 (option 6) or via email at BSAEFilingHelp@notes.tcs.treas.gov. FinCEN has also prepared a Q&A Manual on the process, including how to enroll, which you may access at http://bsaefiling.fincen.treas.gov under “Hot Topics”.

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Forex Events February 2010

admin — Sat, 06 Feb 2010 16:15:26 +0000

The following are various forex events happening this month. Please email us if you would like us to add your event to this list.

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February 6

Sponsor: Knowledge to Action Ltd.
Event: Forex Secrets Seminar Workshop
Location: Cambridge, UK

February 6

Sponsor: FX Week and China Forex magazine
Event: FX Week China 2010 Conference
Location: The Westin Beijing, Beijing Shi, Beijing, China

February 9

Sponsor: AFA Trading (afatrading.co.uk)
Event: Free Seminar
Location: London, UK

February 14

Sponsor: FXDD
Event: FXDD Teams Up With The New York Rangers
Location: Madison Square Garden, New York, NY

February 14-17

Sponsor: Fidelity Investments
Event: International Traders EXPO
Location: Marriott Marquis Hotel, New York, NY

February 17

Sponsor: IBTimesFX and ForexTV.com
Event: Global Forex Traders Conference
Location: The Embassy Suites New York Hotel, New York, NY

February 17

Sponsor: Knowledge to Action Ltd.
Event: Forex Secrets Seminar Workshop
Location: Belfast, UK

February 23

Sponsor: AFA Trading (afatrading.co.uk)
Event: Free Seminar
Location: London, UK

February 24-25

Sponsor: National Association of Active Investment Managers (NAAIM)
Event: Marketing CRAM Session
Location: Houston Airport Marriott at George Bush Intercontinental, Houston, TX

February 24-26

Sponsor: Trade PMR
Event: Synergy 2010: Registered Investment Advisor Conference
Location: Walt Disney Swan Resort, Orlando, FL

February 26

Sponsor: FOREX.com
Event: Getting Started in Forex Workshop
Location: Doubletree Anaheim Orange County, Orange, CA

February 27

Sponsor: FOREX.com
Event: Getting Started in Forex Workshop
Location: Sheraton Pasadena, Pasadena, CA

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Bart Mallon, Esq. runs the Hedge Fund Law Blog and provides hedge fund information and manager registration services through Mallon P.C. He can be reached directly at 415-868-5345.

Forex Fraudster Jailed For Violating Court Orders in CFTC Anti-Fraud Action

admin — Wed, 03 Feb 2010 10:01:02 +0000

Minnesota Federal Judge Throws Trevor G. Cook in Jail For Dissipating Funds and Failing to Surrender $35 Million+ in Assets

In November 2009, the U.S. Commodity Futures Trading Commission (CFTC) ordered an emergency freeze of assets belonging to Minnesota residents Trevor G. Cook and Patrick Kiley and their trading companies. Cook and Kiley, who were charged with fraud and the misappropriation of customers’ funds, are accused of running a “massive forex scheme that defrauded hundreds of customers of more than $190 million”. In addition to providing their customers with falsified account statements, the CFTC’s complaint accuses the defendants of “misappropriating customers funds to purchase property, develop a hotel and casino in Panama, buy seven luxury cars, a house boat and a submarine and find their frequent gambling”.

The details of this case further justify the new registration requirements under the new CFTC forex proposal released in January. These requirements have been put in place to combat the issue of fraud with respect to off-exchange foreign currency trading (forex) by allowing more regulatory oversight of the forex industry. Hopefully, this increased oversight will prevent outrageous defrauding of forex customers in the future.

The full text of the CFTC press release is reprinted below and can also be found here.

To read the initial CFTC press release from November 24, 2009, click here.

To read the full CFTC complaint, click here.

To read the full CFTC order, click here.

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Release: 5779-10

For Release: January 29, 2010

Minnesota Resident Trevor Cook Incarcerated for Violating Court Orders in CFTC Anti-Fraud Action Charging Him in $190 Million Foreign Currency Fraud

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that Minnesota federal Chief Judge Michael J. Davis incarcerated CFTC defendant Trevor G. Cook on January 25, 2010, for violating the court’s asset freeze order against him by dissipating funds and failing to surrender more than $35 million in assets. The court had ordered the asset freeze in connection with a CFTC civil anti-fraud action.

In a hearing that concluded on the same day, the court found Cook in civil contempt, and U.S. Marshals escorted him from the courtroom to jail. Chief Judge Davis ordered that Cook remain in jail until he has “purged the contempt” by, among other things, surrendering $27 million located in offshore accounts, a BMW and two Lexus automobiles, a submarine, a houseboat, a collection of expensive watches, a collection of Faberge eggs and $670,000 in cash.

The CFTC filed a motion in December, 2009, alleging that Cook had violated the court’s asset freeze in the CFTC’s case against him entitled CFTC v. Trevor Gilson Cook et al., filed in U.S. District Court for the District of Minnesota on November 23, 2009 (see CFTC Press Release 5756-09, Nov. 24, 2009). The CFTC obtained an emergency court order freezing Cook’s assets on the same day the CFTC filed its complaint.

The CFTC complaint charges Cook, nationally syndicated radio host Patrick J. “Pat” Kiley, and six entities they controlled with fraud and misappropriation in connection with running a massive scheme that defrauded over 900 U.S. customers of more than $190 million. As alleged, the defendants fraudulently solicited customers for the purported purpose of trading off-exchange foreign currency (forex) contracts in managed, segregated accounts. The accounts were allegedly placed with Crown Forex, SA, a Swiss entity, in which Cook has been a majority owner since at least December 2008. The CFTC also charges that Cook and the other defendants misappropriated millions of dollars of customer funds, using them to purchase property, develop a hotel and casino in Panama, buy seven luxury cars, a house boat and a submarine and to fund their frequent gambling.

In its continuing litigation in this matter, the CFTC seeks a return of ill-gotten gains, restitution to defrauded customers and civil monetary penalties.

The CFTC appreciates the assistance of the U.S. Securities and Exchange Commission and the U.S. Attorney’s Office in Minneapolis.

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