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CFTC slaps a broker because of Dodd-Frank Act – The USA Nanny State Rolls On

CFTC slaps a broker because of Dodd-Frank Act – The USA Nanny State Rolls On

I’m never sure if I love to hate the CFTC or hate to love the CFTC. On the one hand, they’ve been really ramping up enforcement actions against scammers that steal money from traders and investors. On the other, they are more than happy to run around wasting time and taxpayer money to restrict the rights of US citizens and residents to deal with brokers from other countries.

It’s bad enough that there are so many pointless government restrictions, such as no hedging, FIFO, and leverage restrictions that make US traders want to get their accounts to offshore brokers. Sadly, our government in the land of the (formerly) free keeps chasing any broker that dares to accept US clients without subjecting itself to US restrictions.

FxOpen has been ordered to pay $140,000 and to stop dealing with US clients. The “crime” was not registering as a Retail Foreign Exchange Dealer (RFED) with with the CFTC. At least the penalty was minimal. I’ll wager this was done to convince other offshore brokers to quietly give up and accept a slap on the wrist instead of putting up a proper legal fight against these unjust rules.

HELLO GOVERNMENT AND REGULATORS! I’m thrilled that you kicked FXCM in the teeth for differential slippage being used to snatch money from traders. I’m ecstatic that you’ve caught and heavily fined other US brokers for using malicious plugins for MT4. I’m grateful that you’ve taken actions against scam brokers who try to rip off US clients. I applaud you for all the onshore Ponzi Schemes you’ve hunted down and closed.

I’m less than happy that those same regulators and regulations that are being used to protect investors and traders from obviously undesirable actions also contain provisions that limit the rights of traders to make trading decisions in their US brokerage accounts and also are designed to keep all that investment money inside the USA.

Government regulations should be designed to protect people in the least restrictive way possible. Traders need to be aware of risks, not be prevented from taking risks. Sure, dealing with a broker in another country is, on average, more risky than dealing with one in the USA. Then again, trading forex is more risky, on average, than trading stocks or buying bonds. I am happy to have the government warn me of danger. I am thrilled when the government goes after financial criminals, at home and abroad. What I don’t need the government doing is tying my hands and telling me which brokers I can and can’t trade with and what trading style I have to use. It’s my money and I should be free to place it with the broker of my own choice and to trade in a style I prefer.

Imagine for a moment if all governments worldwide started making rules like this. Imagine not being able to conduct financial investments outside your own country unless the brokerage or other investment company was registered with and subject to the regulations (possibly contradictory regulations) of all the countries where it did business. Imagine of this extending into other areas of international commerce. We are supposed to be living in an age of globalization, yet the US government is desperately trying to throw the wheels of progress into reverse while using “protecting people” as an excuse.

So much for freedom being a core value in the United States.

I have a suggestion for the US Congress and the CFTC. Freedom and safety don’t have to be in conflict if rules are written competently. Americans need justice, not tight control. Dump these silly restrictions on forex trading and focus on penalizing brokers that rip off clients. If an offshore brokerage is caught stealing from US traders, them ban that brokerage from having US clients and work with other countries to fine the company and/or top shut it down instead of blocking all offshore brokerages. If you really want to keep investor money inside the USA, lighten up on the trading restrictions for US brokerage to make those brokers more competitive and maybe fewer US traders will be feeling the need to move their money offshore. Maybe offshore traders will open their accounts inside the USA instead.

Of course, it’s so much easier for the American government to keep careful track of money belonging to US citizens if it’s all safely kept inside of US banks and brokers. One might almost think that these offshore account restrictions were part of a larger plan to keep people from moving money overseas.

CFTC Press Release about fine against FxOpen

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Pharaoh

Pharaoh

Pharaoh is one of the FPA's oldest members (he claims to be about 4000 years old, but we think he's exaggerating a little). He says he created the world's first trading pair (Cow/Goat) while ruling ancient Egypt. Although there are no archeological or historical records to support this claim, we can't find anything to disprove it. Although he's not as active at the FPA as he used to be, he still holds the highest post count of all FPA members.

We don't understand how he does it, but Pharaoh has an uncanny ability to spot scams faster than anyone else we've seen. He claims to have known a number of companies were HYIP scams just by their domain names and that each time an examination of the website proved him right. He's also famous inside Forex Peace Army for warning about Ponzi schemes, even ones run by large and well established companies. He's been in a number of threads trying to warn people away from active Ponzi schemes. In spite of the efforts of shills and those gullible enough to believe in free money to discredit his words, he keeps up the warnings. In each case, the company ended up either disappearing with all client money or being shut down by the authorities.

In addition to investigating scams, Pharaoh has written a number of articles on a wide rage of trading topics, including forex broker selection, risk management, and how to select a good account manager. He's also covered other items of interest to traders, such as protecting wealth and purchasing precious metals.

Pharaoh claims to be a business consultant, but says he makes most of his income by running a globe-spanning hamster smuggling operation. If we are to believe him, he's currently working on a network of hamster tunnels under southern Europe.

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Comments

Denny W
7 years ago,
Registered user
Can the CFTC do that to FxOpen? Because Fxopen it's not under their jurisdiction.
Laurie Gold
7 years ago,
Registered user
Hey Pharaoh; I am aware the CFTC brought actions against quite a few brokerages a several months back. Any idea of what happened with those cases? Moreover, I agree with you, the primary reason US trade4rs go off-shore is because of the trading conditions. Certainly Congress and the CFTC can allow US brokerages to compete with those conditions.
Denson
7 years ago,
Registered user
CTFC Regulations

When I had an American Broker back aways before (and VERY shortly after) CTFC passed these ridiculous laws to 'protect' me I lost $714 (never forget that amount) because of that stupid FIFO ruling. That day I had seven or 8 trades open and then on one pair it started going quickly against me (and it was my largest lot trade). I had to close out about 6 very small winners BEFORE I could close the rapidly losing trade due to FIFO.

Thanx US Govt. I've been trading since 92 - and you think you know more about trading than I do? Still have my open account with FinFX (Thank God!) I pray they tell these stupid politicians here to go to hell if they pressure Finland to abide by the U.S. Trade Regulations!
marjiemiller
7 years ago,
Registered user
The question is: Will FXOpen pay it?

> Can the CFTC do that to FxOpen? Because Fxopen it's not under their jurisdiction.

Good Point. And then question is: Will FXOpen pay it? Anyone can win a lawsuit or even a criminal conviction, and never get the money. Collecting is the hard part.

I think it's telling that no "victims" ever receive any money. It seems to be a government "shakedown" for fines, which is just another name for taxes.

On another point, I've heard some bad "rumors" about FXOpen, which stopped me from opening an account with them...So, did they bring the heat upon themselves with complaints, or did the CFTC just go after them for the cash?
PistolDave
7 years ago,
Registered user
I agree with Pharaoh. The government is doing it's duty properly when it regulates the industry; not when it restricts the freedom of the people to choose and thereby restricts their chances of increasing their prosperity.

I have always been opposed to government regulation and authority in general, but without it there would be a free-for-all in the markets that would allow any scam artist, bogus brokerage service, pyramid scheme, etc. free reign to prey upon the many gullible and naive traders who discover this new way of "get rich quick" business. I've been trading for a long time, but I can still remember when I "discovered" the futures market for myself. I saw all that easy money and how I could get rich so quickly. I had stars in my eyes. And, I am embarrassed to admit, I did fall for some of the hyip programs and other bull---t that scammers were promoting. Yes, I was a newbie and I had to learn the hard way, but even now I still don't want the government restricting the way I place my trades in a legitimate trading market, or what country I can do business in. I don't want a socialist state; I want freedom to choose and the freedom to have the chance to achieve prosperity by my own efforts.

So, we have gone through a period of time where forex dealers have had little or no restrictions on how they do business. I assume that most of them have been mostly honest in their dealings with their customers, but some have not. And there has been a nonstop howl of complaints by traders who have lost money because of the actions of unscrupulous dealers they have chosen to place money with. Alright, the government is coming to the "rescue" of all of us now. Again, there is no free ride here. If you want don't want to use your own good judgement, and you don't want to take responsibility for your own choice of how you risk your own money, the authorities will do that for you. And they only expect a small fee for their generous service; namely taxes and some restriction of your freedom. Still not enough to satisfy you? Well they can still tax more and regulate more... and more... and more. It is possible to regulate an industry completely out of business, therefore I suggest we all start using our own good common sense and that we take responsibility for our own actions so we don't have to rely on big brother to do it all for us. Yep. That's what I think. Well, I'm off my soapbox for now. :)
Pharaoh
7 years ago,
Registered user
> Can the CFTC do that to FxOpen? Because Fxopen it's not under their jurisdiction.

The Dodd-Frank Act makes any broker that accepts US clients (citizens or residents) subject to the CFTC. Personally, I'd love to see this jurisdiction question brought before the US Supreme Court.


On another point, I've heard some bad "rumors" about FXOpen, which stopped me from opening an account with them...So, did they bring the heat upon themselves with complaints, or did the CFTC just go ..

FxOpen is one of 25 brokerages sued by the CFTC (so far) for committing the "crime" of not registering with the CFTC while accepting US clients. To the best of my knowledge, this is all the CFTC has against FxOpen and most of the other brokerages named. For a company of their size, $140,000 is a slap on the wrist. That much money probably barely covers the CFTC's legal costs, so my personal theory is that this is just to set an example to bring the other offshore brokers into line.

I'd have to dig through the CFTC press releases to see if any others have been fined yet. I selected FxOpen for this article since the ruling against them was last week and since the fine seemed more along the lines of a warning shot to get the attention of other offshore brokers.

There are a few scam brokers on the list of sued companies and I hope that those are getting some special attention.
fxfrench
7 years ago,
Registered user
> Good Point. And then question is: Will FXOpen pay it? Anyone can win a lawsuit or even a criminal conviction, and never get the money. Collecting is the hard part.

I think it's telling that no "vic..

Of course FXOpen will pay it. With a new office in Sydney Australia and under the strict regulation of the Australia Securities and Investments Commission, FXOpen's past, present and future conduct is under the microscope. I am quite sure that the rumours you heard were without merit. :)
ANGE JUKIC
7 years ago,
Registered user
> Can the CFTC do that to FxOpen? Because Fxopen it's not under their jurisdiction.

GUYS OPEN AN ACCOUNT IN OZ.

Many great brokers and none of this Dodd Frank Crap.

Happy trading
Scoony
7 years ago,
Registered user
It is all about taxes and control

Hey guys !

I am not sure if you have noticed because it gradually grows onto you...The US Government is trying to control everything and everybody - like robots.
If you have funds outside the country they cannot control your actions, they dont get reports and they cant collect TAXES...

It scares the hell out of them that Trilliions of USD could be elsewhere and they cant get it from you.

So they make up these stupid rules like the Frank-Dodd Act to use it as justification to get that control back over you.
They even go to foreign countries (I still wonder what the legal ground is) and sue brokers for doing their normal and legal activity!

Normally the foreign Government and courts should defend and protect their "brokers" but they dont - it is obvious that this is a worldwide plan
with "higher" interests.

Sooner or later it will come to Europe and the rest of the world, too...

Americans...get your freedom back! Dont let corrupt politicians take it away from you.

Scoony
aicohn
7 years ago,
Registered user
Calling this the "nanny state" (aka socialism) really misses the point here, pharaoh with all due respect.

Socialism isn't the appropriate prism through which to view the CFTC's actions. Fascism is.

This was done to save domestic forex, and more so the domestic futures brokers who wanted this.

Consider that the CFTC had a rule proposed that would have prevented segregated customer funds being used for speculation as was done with Mother-F&*cker Global a full six months before MFer went belly up taking $1.2 billion in supposedly safe customer money with it. The CFTC tabled the proposed regulation. Why? Lobbying by the brokers, including, you guessed it... Jon Corzine.

And those "no hedge", "fifo", restrictive leverage restrictions? Those are directly patterned after futures trading, no doubt to keep forex from having a competitive advantage. The 10:1 restrictions initially proposed are slightly more restrictive than current overnight requirements from the CME where they currently require $5400 margin to carry $125K worth of euros (20:1 give or take). I trade in both venues. I know. Those restrictions, as proposed, and as they've evolved are readily seen by anybody who's traded both as a way to keep domestic futures trading competitive with domestic forex. So they had to protect both domestic brokers (futures and forex) from foreign competition. This sorry court case & the ones like it are the result. Your tax dollars at work.

Government is in bed with the brokers on this, so socialism has nothing to do with it. It's fascism by definition, and that's what we're dealing with. We've been in this environment since that frickin' tarp. All the money went to bail out wall street, not a dime to main street. They don't care a wit about customers. Maybe they never have.

Now I'm starting to sound like OWS. I don't disagree with them, in fact. But I think they should be occupying the federal reserve, the treasury department, congress, and our beloved CFTC. That's where their efforts should be directed. That is the fascist nidus.
aicohn
7 years ago,
Registered user
Not quite so simple...

> GUYS OPEN AN ACCOUNT IN OZ.

Many great brokers and none of this Dodd Frank Crap.

Happy trading

Australian brokers are requlated by ASIC and ASIC has an MOU (memorandum of understanding) with the cftc requiring enforcement of us regulations. I've had two australian accounts closed because of this. Get an australian account (if you can) & sooner or later, it will be closed.

If fxopen were continuing as an unregulated broker, they might be able to thumb their noses at the cftc, particularly if they had no presence in the usa & do no business with a us bank. As they've gone the asic route, complying with the cftc became a foregone conclusion, as has been noted by an fxopen representative previously. Thus, rather than requiring americans to use regulated (theoretically safer) brokers, dodd-frank may be driving us residents to unregulated ones. But as I've said, this regulation has nothing to do with protecting investors/traders and everything to do with protecting the domestic brokers.

What I really resent is our taxes being used for this. Given the MF Global disaster, the fact the CFTC was considering but shelved regulations that might have prevented the losses under lobbying pressure by the industry, it's time for the CFTC to get a not-so-friendly reminder for whom they work. Zeroing the CFTC budget seems reasonable to me & republicans would be of a mind to do so. I don't see that we're getting good return on investment for our tax money.
Pharaoh
7 years ago,
Registered user
> Calling this the "nanny state" (aka socialism) really misses the point here, pharaoh with all due respect.

Socialism isn't the appropriate prism through which to view the CFTC's actions. Fascism is...

Although socialism and fascism are supposed to be opposite extremes, the end result when you follow either path to its eventual conclusion is that the government takes full control of everything.

Since Dodd-Frank is supposed to be "for our protection", the stated motive could be described as socialist. Since it could well be part of a larger plan to take power from the people for the protection of the state, the underlying motive could be described as fascist.

I think the best word we could both agree on would be totalitarianism.
aicohn
7 years ago,
Registered user
Agree on totalitarianism, but when the government is being run by the corporations for the benefit of the corporations, which is what we have here, that's not socialism but fascism. That's what fascism is, at least in part.

They say this is for our benefit, but I don't think it is. And there are other examples of behavior in which the CFTC has acted for the benefit of the brokers, not us. The MotherF**er Global scam, and the CFTC shutting the barn door after the horses got out (they'd been thinking of doing it 6 months earlier, but didn't when Jon Corzine asked them not to). The willful negligence of the CFTC with respect to JP Morgan, HSBC and manipulation of the precious metals markets is another notable example. I mean, the CFTC had advance notice of a gold market manipulation from a trader in London describing how it would happen & when (Andy Maguire), it went off precisely as described with no apparent action on their part. Either the CFTC couldn't catch the clap in a Bangkok brothel (unlikely) or they are acting at the behest of JP Morgan and HSBC (likely). Do you really think it's an accident the restrictions on the forex market are patterned off the way the futures markets work? Do you REALLY? How do you think those restrictions benefit forex traders? Don't you think it just might be possible the futures brokers have been watching the explosion of forex & might just maybe wanted to get a piece of the pie.

This is fascism, my friend. Think Mussolini.
Stephen74
7 years ago,
Registered user
Cake and eat it too..

So what is it then? Preferable to go with a broker not regulated so we can have access to what's been taken away from us, or not? On the one hand I see so many posts about 'scam brokers' that aren't 'regulated', then the other hand articles like this supposing that the reason for our suffering is because a broker wanted to be 'legit' and get regulated. So, encourage brokers to be regulated or not? Does it matter, or not matter? Which is it?

I was reading online somewhere about the mutual enforcement agreements these countries have passed with one another, and I'm sure that Australia, and others, will readily enforce the CFTC rules should that country have such a mutual agreement with the US.

At this point it looks like the few non-discriminating brokers towards us traders should be gratefully embraced and not encouraged to take on regulation that may require them to lose me as a customer.

Or, just settle for the trading privileges our rulers allow us to have, which seems to be the case thus far since nothing really is or has been done to change any of it.

As I recall, July of this year they are voting on additional restrictions. Oh goody, I can't wait to see what's taken away next. Why not just take my remaining money (and rights) away, wrap me up in a mattress and stick me in a closet. I'd be safe, right?
Pharaoh
7 years ago,
Registered user
Full on fascism requires a consistent governmental approach to grabbing power. What I see is, in it's own way, worse. Each extreme corner of the US political spectrum wants to reign in different rights to protect their own view of rights. Each side uses the excuse of "protecting the people", and at least some of the people in DC really believe they are doing the right thing in providing these excessive protections. It's not 100% corporations getting all the power - otherwise, you would still be able to order a cup of steaming hot coffee at your local drive thru without it being served at a certified safe temperature and with "Warning: HOT LIQUID - Do not spill on your lap!" emblazoned on the cup. Meanwhile, whether the end result is more fascist or militant socialist, the end result will be totalitarian. The real question is whether we are blundering into this purely out of political stupidity or if someone is pulling the strings behind the scenes.


Personally, I do prefer to trade with a regulated broker. Just not one that's so regulated that I can't make my own trading decisions. These rules mean that most US citizens are not free to trade with any offshore broker, regulated or not.
skalamanga
7 years ago,
Registered user
Ah Well!

The govt. in question is destined to become a most cruel and evil dictatorship.
"He had two horns like a lamb and spoke like a dragon". Rev. 13 : 11
onewithzachy
7 years ago,
Registered user
My sympathy to American traders.

To my understanding this is not just for American citizens, but also for American residents - anyone who live in US territory regardless nationality.

So if a forex trader with non-US broker move in to United States, s/he'll be declared breaking the law already, doesn't care that s/he is still a foreigner.

The law also apply to American citizens who live abroad. If they open an account to local broker (or any non - US broker), s/he is subject to the law.

I think the only reason is that US govt doesn't want anyone with leverage playing USD and commodity. Geithner actually propose to have this globally (go to wsj.com/articles/SB10001424052702304432304576369413015984874 and somewhere else I forget). Central banks may agree to such a rule because it making much more easier to intervene the market (doesn't have to face to face with leveraged trader, etc, etc)
Pharaoh
7 years ago,
Registered user
As I understand the rules, US citizens living abroad currently can still get away with opening accounts at offshore brokers. Given time, that liberty will also be burned in the name of safety.