More Brokers Slapped by the CFTC. Their Crime? Daring to Accept US Traders.

Pharaoh

Colonel
Messages
19,957
More Brokers Slapped by the CFTC.
Their Crime?
Daring to Accept US Traders.

by Pharaoh

I'm not addicted. I can stop writing any time I like.

Background.

If you missed out, the Dodd-Frank Act banned offshore forex brokers from offering retail forex services to residents of the United States unless they registered with the CFTC. Last year, the CFTC began a sweep against offshore brokers that either had US forex traders and even some that had no US Clients, but that didn't directly state that they did not accept US clients. This went into full force in January of 2011 when the CFTC sued 14 forex brokers. In September of 2011, the CFTC sued 11 more forex brokers. In January of 2012, FxOpen was forced to pay a fine by the CFTC and was barred from accepting US Clients.


The Latest CFTC Actions.

On February 9th, the CFTC got a permanent injunction against InterForex, Inc. to prevent it from offering services to US clients. There's no fine mentioned in the CFTC Press Release and no mention of providing services. Based on this, I'll guess that this is a preemptive action against a forex brokerage that didn't have any US clients.

On February 29th, the CFTC got a permanent injunction plus an $80,000 fine against Enfinium Pty Ltd through Vantage FX Pty Ltd. It appears that they had stopped accepting US clients before the deadline, but didn't get rid of their existing US forex clients fast enough.

On March 7th, the CFTC got a permanent injunction plus a $140,000 fine against Windsor Brokers, Ltd. I guess they were a little slower than Enfinium/VantageFx in making the judge happy.

What is very strange is another case. I don't see a CFTC press release on it, but FPA member Babis posted a link to an article on CourthouseNews saying that the CFTC got the permanent injunction plus a $280,000 fine against GIGFX on February 24th. Babis is in the middle of a dispute over a withdrawal and Gig's website is now down. The article says that Gig didn't even respond to the complaint and says that the court ordered that the website be taken down based on the CFTC's request.

If this is the case, that would mean the CFTC not only managed to fine a company for violating the Dodd-Frank act plus get an injunction against further violations, but it looks like they also may have killed the company's website just to be really sure that the injunction wasn't violated. Exactly how are US traders and other clients of GIG Fx around the world supposed to get their account balances back? I wonder if not mentioning this one on the CFTC Press Releases page was an accident or a deliberate attempt to not brag about something that looks like it may gave gotten out of hand. Accident or not, you can read the full text of the ruling here.

I can't really blame the CFTC for all of this (except for the possibility of wiping a broker off the map without warning clients - let's all watch closely and see how this one develops). They're just enforcing the flawed law in the Dodd-Frank Act. They didn't write it.


The Lesson of the Coffee Cup.

I love using props when I'm trying to make a point. I'll use whatever is handy to help get the idea across.

Sitting next to me is a coffee cup. What's it worth? The price I paid was set by the store that sold it to me. If they charged a lot less, they'd sell more, but the profit per each cup would become so low that the store would make less money. If they charged a lot more, they'd sell fewer cups and make less money. This sort of analysis of "What's the optimum price to make the most money?" is at the very heart of of the how wholesalers and retailers operate under capitalism.

If I think the price is too high or the quality is too low, I'm free to shop for coffee cups somewhere elsewhere. If I don't like the color or style, I can keep shopping at the same store or elsewhere. No one tells me where to shop or what to buy. This open competition between sellers of goods and services at all levels is a fundamental part of free market capitalism.

Is there any need for government intervention in cases like this? Those of the more extreme Libertarian viewpoint might say absolutely no government intervention is needed. Those who want to protect every possible interest would say that every step from the gathering of raw materials through delivery and display of the coffee cups in the store needs to be carefully monitored by multiple government agencies. I take a more balanced view. I want there to be some regulations ensuring that my coffee cup isn't somehow dangerous to use. For example, I don't want it to be made of anything poisonous or radioactive and I'd be rather annoyed if it exploded in the microwave. Being a mostly nice guy, I'd like to feel assured that the factory where it was made didn't carve it out of the bones of endangered animals or utilize child labor. Beyond that sort of basic protection of consumer safety and the general health of the life forms involved in making it, I think the government shouldn't interfere with the coffee cup market.


How does my Coffee Cup Relate to Forex Brokers?

In the forex market, there's a LOT of fraud. The CFTC, NFA, and SEC has been doing a fine job dealing with Ponzi schemes pretending to be managed forex accounts. These organizations have also been slamming some big brokers with huge fines for cheating forex traders. This is the sort of thing we need the government and regulators to do. Consumers can drive a bad forex broker out of business, but it takes a lot of victims complaining for a long time before most bucket shops disappear. Without government intervention, most will just pop up again under new names.

What we don't need is laws locking out legitimate styles of trading, such as by blocking hedging and restricting leverage. I seldom hedge and don't typically use a lot of leverage, but I like having my options open. Thanks to these rules, I don't have these options anymore at any of my current forex brokerages. This made US brokers far less competitive than their counterparts. Under capitalism, the expect results of many US residents moving their accounts offshore happened, until Dodd-Frank intervened.

We don't need the government to ban all offshore brokers from accepting US residents who want to day trade forex. This isn't capitalism. This is a restriction on the rights of consumers to engage in legitimate business transactions without undue governmental interference. Some will say that the offshore brokers just need to register with the CFTC. On that basis, the brokers would need to register with and follow the local trading regulations in every country where they provide services. Those rules are highly variable and often in conflict. Should every small brokerage have to hire 100 lawyers just to keep them in line with dozens of different regulators? Do they apply the strictest rules to all accounts, thus making them so non-competitive that they will quickly go out of business? Should they apply special rules (and maybe a have a special trade server) for retail traders from each country they offer service to? How wide would the spread need to be to pay for those lawyers and servers? Would there be any traders willing to pay those spreads? I don't think so.

Some people will say that all offshore brokers are bad. I'll agree that many are. On the other hand, there are other countries outside of the USA that have good regulations to limit what brokers can get away with.


My Plan to Fix the Issue.

Offering forex accounts should not be a crime. The Dodd-Frank law needs to be amended. The CFTC needs to power to pursue fraud against US residents no matter where it originates. These current actions show that the USA is already sending the CFTC after foreign brokerages for the wrong reasons. The CFTC should not be directed to waste it's time chasing brokers where the only charge is providing services to US residents. The CFTC needs to be able to chase offshore forex brokers if and when those brokers try to rip off traders.

There are two ways I can see to approach this. The most liberal is to allow US forex traders to select any broker they like, anywhere in the world. Give government agencies like the CFTC the power to investigate complaints and to sue and ban individual brokers that have acted to steal money from US clients. The other approach would be to work with other regulators world wide. When the CFTC and its counterpart in another country each feel that the other is a truly worthy regulator, with the power and the will to protect forex traders, each would recognize the licenses issued by the other. This would be similar to how individual nations view a driver license issued by another country. I can use my US driver's license to drive in many countries, but not all.

Either way, getting this law changed won't be easy. Many offshore brokers are unlikely to sue, because US regulatory reach could easily be misused to cause them issues with many banks that do international business. I think what's really needed, perhaps with some quiet financial help from a few offshore brokers, is for a group of larger US traders to file a lawsuit to try to get those unfortunate provisions in Dodd-Frank overturned. America was founded based on freedom and capitalism. Sometimes it takes a Supreme Court case to remind Congress that the power to make laws still has a few limits.

It would be a long and hard battle. So was the American Revolution. So was ending slavery. So was granting the right to vote to all US citizens of legal age. Freedom is a thing worth fighting for, both on the battlefield and in the courts.

Sitting around whining won't stop this continuous erosion of freedoms. Sitting around saying "There's nothing we can do" is the sort of defeatist attitude that begs the government to take away more of your liberty. The time has come to take action.

Are there any large account holders in the US who think this is a good idea? Anyone know a good lawyer who would be interested in taking the case?
 

Luis Barrigas

Recruit
Messages
2
Hi:

I am customer of HotForex.com . I have around 40K there. I love them , i thiknk they are excelent Broker, nice spread, fast execution, ultra good support. Just perfect.

THe only thing i dont like is that they are based in Mauritius , which i am not sure but i believe its an Off Shore zone. However they are Regulated but FSC ( Financial Services Comission of Mauritius)

So my question is:

What u think about the Security of our money with this Broker ?



Please reply soon as u can, its very important to me
 

Laurie Gold

Corporal
Messages
119
Hey Pharaoh, thanks for the information and I agree that change is needed. In fact, sometimes I simply do not like my government. I used to trade at Vantagefx and I liked them (one of the few brokers where i would get positive slippage and my account rep, Alastair, always responded) , but they gave me the boot because of Dodd-Frank and I do not even reside in the US anymore. To use another analogy, there are no government regulations preventing me from going to Vegas and gambling away everything I own, but to place restrictions on leverage, hedging and what Brokers I can use, essentially limiting my ability to trade is overreaching. Interesting argument can be made that the US government is limiting my ability to make a living.
 

Laurie Gold

Corporal
Messages
119
HotForex

Hey Luis,

I used to use Hotforex and never had a problem with withdrawing funds (which is concern number 1). Hope that helps.
 

PaladinFX

Private
Messages
26
The only thing i dont like is that they are based in Mauritius, which i am not sure but i believe its an Off Shore zone.
What u think about the Security of our money with this Broker?


I guess it doesn't get any more offshore than Mauritius, if you want to stay on planet earth. :D

While personally I would not use a broker outside of the 'Big Three' (US, Europe, Australia), you should stay with them, if you are satisfied.
What you need to realize though is that, should a problem arise, it will be much harder to get your money back from a Mauritius-based broker.

I'd probably only leave as much money on my trading account as I really need for daily business, and regularly withdraw the excess to a bank account in a safer country.
You can still incorporate these funds into your risk calculation, even though it'll look like you're risking huge portions of your account to the broker.


P.
 

jdx

Recruit
Messages
4
"I can't really blame the CFTC for all of this (except for the possibility of wiping a broker off the map without warning clients - let's all watch closely and see how this one develops). They're just enforcing the flawed law in the Dodd-Frank Act. They didn't write it."

I blame every individual and agency in government that operates against the best interests of the people. They claim to create peace through their use of violence. That is an impossibility. Government protects no one outside of their corrupt system of initiating force against innocent people.
 

RahmanSL

Major
Messages
2,536
Going along with Laurie, I think the CFTC should apply the same law in Vegas and make it illegal to hedge (i.e placing more than one bet at a time) at the blackjack, roulette and any other gaming tables for "players' protection" against excessive losses.....Should be pretty interesting to see how players will react to such a law:p


But such CFTC laws can be overturned by a "Royal decree" and I think we got just that "royalty" to make that "decree" right here at the FPA:p
 

f-man

4Xangels Representative
Messages
762
Dear Luis,

HotForex is currently considered a very safe Broker. Of course because everything changes, we at 4XAngles.com run regularly Due Diligence reports on our trusted brokers to keep updated with what is happening. All our clients will be the first to know if we feel that there is any reason to withdraw their money from any of our trusted brokers.
We also offer cosultancy services, debt collection services and other necessary services for the Forex traders. If you need further assistance, please contact me at george@4xangels.com with any question you might have.


Hi:

I am customer of HotForex.com . I have around 40K there. I love them , i thiknk they are excelent Broker, nice spread, fast execution, ultra good support. Just perfect.

THe only thing i dont like is that they are based in Mauritius , which i am not sure but i believe its an Off Shore zone. However they are Regulated but FSC ( Financial Services Comission of Mauritius)

So my question is:

What u think about the Security of our money with this Broker ?



Please reply soon as u can, its very important to me
 

FreddyFX

Sergeant
Messages
367
Hey Pharaoh, thanks for the information and I agree that change is needed. In fact, sometimes I simply do not like my government. I used to trade at Vantagefx and I liked them (one of the few brokers where i would get positive slippage and my account rep, Alastair, always responded) , but they gave me the boot because of Dodd-Frank and I do not even reside in the US anymore. To use another analogy, there are no government regulations preventing me from going to Vegas and gambling away everything I own, but to place restrictions on leverage, hedging and what Brokers I can use, essentially limiting my ability to trade is overreaching. Interesting argument can be made that the US government is limiting my ability to make a living.

Like they have been doing for a LONG time already, taking ALL the money from the citizens of the USA.
Just remember the Stanford case that played:
Thousands and thousands of innocent sacers got hit with a blow in the neck with the SEC action...................and with me so many lost their live savings, while we ALL know that 6 or 7% interest on a CD is NOTHING compared that I now make as a forex trader.

Makes people hate governments.
 

Martin Shimon

Recruit
Messages
1
Whats all this talk about lawyers? Why make this harder than it is? Amazing things get done these days through social media.

Why not start a petition on change.org to address the appropriate authorities and circulate it to every trader. That way the lawmakers themselves will be forced to revisit it. Now is the time because of election heat.

My opinion is that not enough traders really care about this un-American act because the successful traders managed to do well anyhow and only unsuccessful traders were really inconvenienced. Rather than fight, they just gave up.

Any such movement would have to start in the US. Unfortunately, Americans care more about what cooking-oils their Girlscout cookies are made from or what Rush Limbaugh says out of his ass, rather than real issues that effect our freedoms.

While petitions do work, they tend to work best on stupid issues.

But its a thought and it costs nothing.
 
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