IBFX gets spanked by the NFA
Obsessively addicted to writing
Obsessively addicted to writing
It seems that IBFX has gotten some unwanted attention from the NFA over several issues lately. A reviewer named Martin from the Czeck Republic submitted a link to an NFA document. One of the Review Moderators referred it the AsstModerator. He knows that IBFX is a broker of special interest to me, so he gave me the link from the review and asked me if I'd like to write about it to help inform the membership. (As if there was any chance I'd ever say “No” to writing a story like this.)
On first glance,the press release doesn't look that interesting. InterBank FX and it's president, Todd Crossland, got nailed by the NFA's Business Conduct Committee for a $225,000 fine for screwing up some AML supervision, failure to supervise non-Member solicitors who used deficient promotional material, and failed to adequately supervise IBFX's electronic trading system. Amanda Albretsen of IBFX was also mentioned on these issues, but not fined. Todd Crossland was also found to have failed to supervise IBFX's activities.
I've been amazed to find out just how nit-picky the NFA can be over AML and advertising. It's surprising that there are any brokers without a bunch of citations for this. Failure to supervise is very vague. Failure to supervise an electronic trading system? Sounds like they expected Todd to be sitting in the server room staring at a bank of monitors for the whole trading week. To find the real story, you have to read the case documents.
Let's start with the AML. In order to monitor for money laundering, certain red flags should trigger closer look at the situation. It seems that there was an outside account manager who also served as an IB for many of the accounts he managed. Despite having claimed a net worth of less than 1 million dollars and risk capital of $25,000, he deposited over $4 million into accounts in his own name. Any amount over $5000 is supposed to at least be checked, and this guy made deposits as large as $250,000 (two such deposits on the same day). 16 withdrawals over $100,000 were made. He opened and funded 12 accounts in his own name to “train new traders” and wasn't asked the names of any of the traders. In August 2007, IBFX notified all non-NFA IBs and money managers that they would have to register with the CFTC and first give permission for a background check. This person repeatedly failed to respond with any of the required info. Despite all this long history of red flags dating back several years, IBFX did nothing until beginning to prepare a Suspicious Activity Report (SAR) on May 5th, 2008, only after a prospective client called IBFX and said that this money manager asked that money be sent directly to him instead of being used to open a brokerage account in the client's name. This only triggered a warning because IBFX finally stopped allowing this person to operate as an IB and money manager in December 2007 after they found that he was operating websites that he had not disclosed to IBFX.
Even better, IBFX was aware that the CFTC and FBI had begun to investigate this guy in March of 2008. Yet, despite this and the fact that the alarm bells had finally begun to sound on May 5th, IBFX allowed this person to withdraw $2 million on May 16th 2008. Later that day, IBFX received a call from the landlord of this guy's offices. They had been abandoned and the landlord couldn't contact him. IBFX finally finished their SAR report and submitted it on May 20th.
I don't know whether this is gross incompetence, endemic laziness, or just the desire to look the other way as the spreads roll into the company's coffers, but no matter what the true explanation is, IBFX screwed up royally on this.
Failure to supervise electronic trading??? I really wondered what this could be. I think the NFA found a bit of eloquence in their writing on this one, so I'll quote them:
“Based upon the information provided by Interbank, between January 1, 2008 and September 12,2008, lnterbank's trading platform experienced at least 300 incidences (more than one a day) that in at least some instances prevented or limited at least some of its customers from accessing the trading system. Interbank represented, however, that its system is unable to determine what affect each of the individual incidences had on customer access.”
Glad to see I wasn't the only customer having connection issues.
It wasn't until September 17th 2008 that IBFX got a procedure for notifying customers about this sort of thing and how to deal with it (come to think of it, I don't recall seeing too much from them about this later – hmmmmnnnn). Currently, if a customer gets notified, they can call and close trades over the phone – if they are notified that there's a problem. NFA rules require brokers to promptly notify customers of problems with trading platforms and alternative methods for dealing with trades under these circumstances.
But wait, there's more!
IBFX has been getting customers through non-NFA third party solicitors. There's nothing inherently wrong with this, as long as the sales materials these third parties use complies with NFA rules. IBFX told the NFA that this was all taken care of. Third party websites and sales materials were all checked. No problems, no problems at all. Well, maybe one problem.
One of these third parties was Global Profit Systems International, run by Dustin Pass. The NFA says that Global had forexmastermaker.com and tradingliveonthenews.com as websites at that time. On February 5th,2007, IBFX notified Dustin Pass than his he had at least one website failing to give the possibility of loss adequate prominence and had problems with displayed testimonials in violation of NFA standards. Nothing happened. IBFX sent Dustin Pass a reminder at the end of February. In mid-may 2007, the problems with the website were largely the same. In June, Dustin Pass corrected some of the problems, but others remained. IBFX told the NFA that they are uncertain if anything else was done after that. They had no records of any further reviews of the websites.
And the punishment for all of this was handed down on July 28, 2009 and is as follows:
IBFX and Todd Crossland agree to having the NFA independently review IBFX's electronic trading platform for 180 days. They further agree to pay a fine of $225,000. The NFA Business Conduct Committee agrees that Crossland and IBFX won't get nailed for any more Member Responsibility Actions (MRAs) or BCC complaints for anything prior to the acceptance day that the NFA already knew about. Also, this will terminate any pending complaints as of the date of the offer. In other words, Anything else the NFA has on Todd Crossland or IBFX prior to this time will be wiped. I hope no one out there had any pending complaints before the Business Conduct Committee. The good news is that this should result in some serious improvements in connectivity to IBFX's trading servers and that they are still on the hook for any new shenanigans.
As for Amanda Albretsen, IBFX's AML person, she neither denies or accepts responsibility and gets a 1 year probation. The charges remain open for that year. If she manages to not get caught ignoring any more obvious signs of money laundering, the who issue goes away for her. If she gets caught with any more problems of this sort, she'll be facing a proper NFA hearing over these issues as well as whatever new issues occur.
Personally, I'm very displeased that such a large brokerage could let so many issues build up over such a long time. I'm surprised that anyone at the top end of this was allowed to remain in any sort of supervisory position and at the small size of the fine. My only hope is that they've all learned their lessons and will try to do a better job in the future.
NFA News Release about these issues with IBFX
NFA Complaint Document
NFA decision Document