Largest Retail FX Broker FXCM Banned By CFTC, Fined $7 Million For Taking Positions Against Clients

Tyler Durden's picture

The CFTC on Monday fined Forex Capital Markets, parent FXCM Holdings LLC and founding partners Dror Niv and William Ahdout to pay $7 million to settle charges it defrauded retail foreign exchange customers and engaging in false and misleading solicitations. As part of the settlement, FXCM agreed to withdraw its registration and never seek to register with the CFTC again, effectively banning it from operating in the US. The CFTC found the retail FX broker had an undisclosed interest in the market maker that consistently won the largest share of FXCM's trading volume, and was therefore taking positions opposite its retail customers.

The CFTC also found that FXCM willfully made false statements to the National Futures Association in order to conceal FXCM's role in the creation of its principal market maker as well as the fact that the market maker's owner had been an FXCM employee and managing director.

The commodity regulator said in a statement that "between Sept. 4, 2009 though at least 2014, FXCM engaged in false and misleading solicitations of FXCM’s retail customers by concealing its relationship with its most important market maker and by misrepresenting that its 'No Dealing Desk' platform had no conflicts of interest with its customers."

Niv, FXCM's chief executive officer, and Ahdout, its managing director, are also barred from future CFTC registration and acting for those who are registered for the agency.

FXCM is currently the largest Retail Foreign Exchange Dealer (RFED) in the US, with an estimated market share of approximately 34.0% in December. It is unclear what the fallout will presently be for the US FX market following the CFTC order. The shakeup could prompt a Jefferies/Leucadia takeover, given the company’s existing financial obligations and past deal with Leucadia in the aftermath of the Swiss National Bank (SNB) crisis. The news also comes during after hours trading in the US – prior to the enforcement action, FXCM’s share prices had already been trading close to its 52-week low of $6.65, having closed at $6.85 Monday.

According to Gretchen L. Lowe, Principal Deputy Director and Chief Counsel of the CFTC’s Division of Enforcement, in a recent statement on the order, “Full and truthful disclosure to customers and honest discourse with self-regulatory organizations such as NFA are vital to the integrity and oversight of our markets. Today’s action’s demonstrates that the CFTC is committed to protecting customers from harm in the markets it regulates.”

Following the CFTC order, the National Futures Association (NFA) also stipulated that the group’s founders William Ahdout and Dror (Drew) Niv as well as FXCM have been forced to withdraw from NFA membership, also facing a permanent ban. The effective date for these actions is February 21, 2017. The NFA has accepted the settlement offer of FXCM, and the aforementioned individuals neither admitted nor denied the allegations outlined in the order.

As for FXCM's thousands of retail clients, they may soon have to find more creative ways of losing their money than "investing" in 50x levered, central-bank dominated, HFT-infested currency markets whose  only purpose these days seems to be to inflict the greater damage by stopping out the largest number of positions possible.

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Cognitive Dissonance's picture

You mean they didn't their clients best interest in mind when trading against them? Trader beware.

Jim Sampson's picture

So then we should see Goldman next?  Maybe Gartman?

nope-1004's picture

Beat me to it.  If this little dude gets a $7mil fine, Goldman should get a $7 billion fine.

The Alarmist's picture

I'm confused ... isn't that the definition of making a market and providing liquidity?  Only problem or conflict might be that FXCM gets to do the marking to market.

bfellow's picture

This shit won't end until we start jailing them at a minimum. Maybe lamp post a few of the too. Always sends a message.

Fizzy Head's picture

The CFTC has zero credibility!
Btw, the rich quietly own physical money....

https://www.google.com/amp/people.com/music/prince-owned-gold-bars-value...

thecondor's picture

Pete Rose for the Baseball Hall of Fame

DaBard51's picture

Your tax dollahs, at work they are.  Prompt Regulation...

 

 

 

When nine hundred years old you become, look this good you will not.

konputa's picture

I'm so glad Bart Chilton cleared all of this up for us.

lasvegaspersona's picture

These are the louses that took over DoucheBanks Fx and screwed me out of my remaining balance of about $3k

stopthehandouts's picture

Once again a financial institution is fined for breaking the law, and no one goes to jail. The rest of us would be in orange if we had done this. Equal justice for all my flaming ass!

BaitMaster's picture

Retail FX is a fools game. The house(bank) always wins.

Kaiser Sousa's picture

B

I

N

G

O

!

stawks too...oh well, fools never learn...

BTFD!!!!!!!!!

Kasperfx's picture

LOL what a bunch of bull, their running and CFTC is fucked, because once  TRUMP'S admin looks into what they did with retail FOREX back in 2010 THEIR WILL PLENTY  GOING TO JAIL.  Right, Corzine? 

deerhunter's picture

Worked for a company who hired a guy to be sales manager whose only claim to fame was he wrote a "proprietary" trading program that lost him 7 million trading on CBOT. Top four sales guys quit within 3'weeks. Once a con man always a con man. Always seems funny to me that a lot of sales managers haven't really been much as front line closers. Not sure why that is ? Maybe the old , "those that can't do Teach?"
Night all. Let the pond scum continue to bubble. All will be revealed.

Herdee's picture

OANDA trades against their own retail traders, they all do, except that OANDA owns a small bank and does their dirty business through them.

DipshitMiddleClassWhiteKid's picture

oanda does do alot of shady stuff. i was trading a microlot account (and profitably) at that and my friend has thousands of dollars in his account. I was winning alot of trades and my average spreads for the majors and crosses were about 1-2 pips higher than my friends. 

 

Oanda is also owned by Bill Gates, or his holding company, Cascade Investments. 

 

 

vegas's picture

How many fucking times do I have to say this: never, under any circumstances deal with a U.S. broker ... for anything. They're crooks in bed with the LP banks from the U.S. These guys must not have given enough money to the Clinton Crime Family Foundation ... oh wait ... she lost; never mind.

 

www.traderzoogold.blogspot.com

Joebloinvestor's picture

What a FUCKING BULLSHIT FINE!

At least 1 and possibly 2 orders of magnitude too little.

Bruce Flea's picture

CFTC... Useless...

The fine print on ANY retail forex broker plainly states that they take the initial position against you to fill your order. Then they hedge as needed.

I've had an FXCM account for years. Never had any issues regarding withdrawals, and never had any trades go sideways that wasn't my own damned fault.

Forex is a ridiculous market anyway. They should let Vegas casinos run forex markets. After all, you don't actually purchase anything at the retail level. The broker is just a casino. You bet that the dollar will rise in value over the euro, pound, swissy, aussie, loonie, or vice versa. Simple game actually. Nowhere in the futures market can you buy or sell a "pair". Forex is nothing more than a useless derivative. UK spread betting has it figured out. Why can't the geniuses at our wonderfully overpaid dipshits at the CFTC?

Fuckin crybaby snowflakes lost their rent money, so they sue. Now I gotta find another broker.

Don't bet what you can't afford to lose...

Big Brother's picture

Damn.  Gotta close all positions by 02.21.2017.

Orly's picture

I agree with that assessment.

My account was bought when IBFX went back to Japan and I haven't really seen much of a difference in the way the quotes come in.

IBFX were quite nice on the phone.  FXCM not so much but I am not asking for them to be sweet.

:D

Xena fobe's picture

Agree.  I presume all brokers do the same at times to fill a market order. The "house" may win or lose.  Didn't know it violated any rule. 

jewish_master's picture

The founder is israeli. Israeli firm :-)

The Greek horse's picture

I just liquidated my account FXCM trader here that went to school= ON LINE TRADING ACADEMY.. Last week I had 3 trades with quality entries and price spiked into my zones and I did not get filled on all 3 trades... FXCM  excuse was only 1 LIQUIDITY provider out of 17!?!? I also had the GBP/AUD short that triggered strangely .. The other ones that did not trigger was EUR/USD ( the most liquid pair???) and the USD/JPY with the EUR/CAD.. it's embarrassing who much money I lost with FXCM.

Zerohedge THANKS for everything!

black rifles are cool's picture

Was John Corzine running money in there?

Jtrillian's picture

THIS... SHOULD... BE.. ILLEGAL!!!

billwilson2's picture

If we did not have regulation we would not have to put up with this shitty conviction. As tRump says, cut all those stupid useless regulations and let free markets rule. Yeah, right. Wall Street is full of crooks and we need stronger, not weaker rules. and restrictions.

Michigander's picture

I'm shocked, I tell you...just shocked! 

Peak Finance's picture

IS it just me or does a 7 Mill Dollar fine for this sound WAY TOO FUCKING LOW????

Are criminal charges pending? 

Big Brother's picture

I currently use FXCM. 

Personally, I never observeded any shenanigans.  I can't really speak to the sub-penny, nanosecond resolution, but for the most part its been okay.

I can testify the following:

If your account has less the $4000 in it, the following applies:

1) you pay a $10.00 monthly maintenance fee; and you maintain your "no-dealing desk" status; you get access to exotic pairs like USDTRY, USDZAR, and USDCNH.

2) FXCM out-right states, "we will take opposing positions to your entries" (like any other bucket shop (i.e. you do deal with a dealing desk, aka a market-maker).

--

Honestly, if you're in Forex, should this be a surprise to you that this stuff happens?  My only surprise is that the CFTC made a complaint about it.

Disclosure:  customer of FXCM for 7 years.

Iconoclast's picture

Having worked on the other side of the industry I'd need to write a book to reveal the stunts that spivs and con men like FXCM pull to rinse their clients, it's the same with spread betting firms in the uk such as CMC and IG. They're all not content with clients losing (and 80%+ do through poor decision making) they have to stiff them too. But the key issue is when the Swissie came off the Euro peg FXCM lost circa 200 million, thereby revealing their lies about being non dealing desk and using an ECN model. They're frauds.

Deplorable Steve's picture

Are you really that dense?  If FXCM really was "dealing desk," FXCM would have made $275 million when EURCHF came off the peg, not lost $275 million.  Because if FXCM really was "dealing desk," they would have been holding positions opposite to their clients (who lost $275 million).  Instead, FXCM had offloaded all open EURCHF positions to liquidity providers (LPs).  And when EURCHF came off the peg, FXCM's was unable to exit the client positions because the LPs went AWOL, leaving many of the clients deep under water - about $275 million in excess of affected customer deposits.

Grandad Grumps's picture

What about Goldman?

Iconoclast's picture

Down 48% pre market.

K_BX's picture

Why would anyone have funds with a brokerage firm with neg. equity in the first place?

Deplorable Steve's picture

Tyler Durden - "As for FXCM's thousands of retail clients, they may soon have to find more creative ways of losing their money than "investing" in 50x levered, central-bank dominated, HFT-infested currency markets..." Care to explain how HFT works in a multi-trillion-USD-per-day noncentralized market?  Didn't think so, but I guess it sounds all highbrow and everything.  I just trade the patterns and don't worry about who might be dominating the market.  If you have a winning strategy and trade it right, you will do alright.  If you have a losing strategy, you will lose no matter what is going on behind the scenes.

And about the 50x leverage.  50x is the absolute maximum permited in the US, but there is no requirement you use 50x just because it is available (in fact if you do, your entire balance will be tied up in maintenance margin, leaving nothing for drawdown, and the slightest move against your position will force the closure of all your positions and result in the return of the maintenance margin back into your account - which will be about 99% of your balance).  In practice, US Forex brokers allow somewhat less than 50x (like mid 40s) because of draconian threats from the NFA and CFTC (both of which can barely hide their contempt for the FX industry, let alone serve it and their US customers).