Two FPA members fell victim to the scam at Legend Trader Limited, a managed forex accounts service based in Hong Kong. The scam worked like this:
1. Pay Legend Trader $3500 up front. Some of the money is supposed to insure Legend Trader in case you skip out on paying account management fees. Some is supposed to to buy an “exotic options contract” to insure the principal in the account.
2. Put $10,000 or so into an account. The CEO/chief trader of Legend Trader, Khalid Alam (aka Khalid Alam Chowdhury) promises to use tight risk management. He also promises that as soon as a little profit is made, he will only risk the profit, never the initial principal.
3. Watch the account balance go up some, then see your account balance suddenly plummet due to a trading style best described as “random trades entered by a drunken monkey.”
4. Ask about using the insurance to recover lost principal. Get lots of excuses. In one case, get appointed to be the European representative of Legend Trader with promises of a cut of the money from any new accounts introduced.
5. Keep asking about the insurance. Somehow, there are always delays and excuses. Eventually, an offer to get back half of what the insurance paid within a month or two is offered.
6. Realize that Legend Trader isn’t answering phones or emails for extended periods.
7. Ask the FPA for help. FPA Investigator Lt. Gerard sends an email to Legend Trader asking if there is a way to fix the problem that will be fair to all parties involved.
8. Then see Charles Lam, Legend Trader’s lawyer (claiming a bachelor’s degree in law – probably a fake one he bought somewhere for $20) make threats against the FPA.
9. Get hung up on when you finally get Khalid on the phone.
10. Eventually realize that Legend Trader is not ever going to return any money at all.
A client paying for an insurance policy against skipping out on account management fees is ludicrous. If an account manager is making so much money that the client owes a lot of fees, this means the client is also making a lot of money and would have to be insanely stupid try to avoid paying fees to someone who is generating so much money. Exotic options contracts do exist, but they have nothing to do with being an insurance policy for any sort of managed account against loss. No insurance company that I’ve ever heard of is going to insure the initial principal in any forex account. From what I can tell, all of those upfront fees were nothing but a way for Legend Trader to take more money from clients while providing no benefits to clients.
After all attempts to negotiate a solution to this problem met with no cooperation from Legend Trader, the FPA issued a scam finding against Legend Trader on July 28, 2008. I am told that the FPA received thank you messages from a number of people who were about to send money to these scammers. At minimum, FPA’s scam warning about this company prevented a number of other people from being victimized.
Once a scam finding is confirmed, the FPA usually advises the victims on how best to contact the proper regulators and if there are any other means for the victim to pursue the case. In this case, since the CEO/chief trader was living in Shenzhen, China (a wonderful city that I highly recommend visiting), the FPA gave the victims the phone number for the Shenzhen police as well as the Chinese word for “English.” (I did wonder what was going on when I got an email from Gerard asking how to say “English” in Chinese.) Gerard’s reasoning was that the Chinese Government takes a very dim view of foreign nationals using their country as a base of operations for questionable financial activities, and might want to know about what Khalid was up to. I agreed with his logic.
I don’t know if either FPA victim actually called the Shenzhen police. I do know that someone involved with Legend Trader managed to get the legal wheels turning in Hong Kong (Hong Kong is a part of China, but has its own semi-detached legal system). Both FPA victims received an email notice that Legend Trader Limited had been liquidated. The Hong Kong Government seized all assets. All foreign partners have been deported and are totally forbidden to travel to Hong Kong or the rest of China in the near future. (That would be the Chinese way of saying, “Don’t even ask about coming back until you fix the problems you caused.”)
Those deported include the person identified as the CEO/chief trader, Khalid Alam (identified as Khalid Alam Chowdhury in some of the documents he sent to the FPA members he victimized) of the UAE, Stephen Johnson of the UK, Lisa Elizabeth of Australia, April Lam of Singapore, and Adam Dobson of New Zealand. I’d definitely recommend not putting money with any company that any these people are associated with in the future.
Gerard tells me that he gave the contact info for the Hong Kong Department of Justice to both victims, so that they can now see if it is possible to recover any of their money.
For traders: Look for warning signs. This company was very suspicious. Their email accounts weren’t even on their own domain. The upfront fees were excessive and also made no sense.
Read my article about avoiding managed forex scams for more on how to protect yourself from managed account fraud.
For scammers: The FPA doesn’t run away or hide when you make threats. Your scams will be publicly revealed. Sooner or later, criminals will find themselves in court. Trying to hide your operations in another country won’t save you. There are plenty of legitimate ways to make money in forex, so why not give those a try?
I’d like to thank Lt. Gerard and the rest of the FPA Scam Investigations Committee for providing me with the information needed to write this article.