SEC ISSUES BULLETIN ON FOREIGN CURRENCY EXCHANGE TRANSACTIONS

The following bulletin is an excerpt from the SEC website: “Washington, D.C., July 20, 2011 — The Securities and Exchange Commission today issued an investor bulletin highlighting some of the most significant risks that foreign currency exchange (forex) transactions may pose for individual investors. The forex market is a large and generally liquid financial market. Banks, insurance companies, and other financial institutions as well as large corporations use the forex markets to manage the risks associated with fluctuations in currency rates. However, the risk of loss for individual investors who trade forex contracts can be substantial. “Forex trading can be very risky and is not appropriate for all investors,” said Lori J. Schock, Director of the SEC’s Office of Investor Education and Advocacy. “Individual investors considering forex trading need to fully understand the unique characteristics of this market and consult their financial adviser before making any investment decisions.” Last week, the Commission issued an interim final temporary rule to permit registered broker-dealers to continue to engage in retail forex transactions for up to one year under the existing regulatory framework that applies to them when effecting such transactions. Under Section 742(c) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, retail forex transactions would have been prohibited as of July 16, 2011, in the absence of Commission action. The interim rule provides the Commission with time to collect additional information regarding the retail forex activities of broker-dealers and take such regulatory action as may be appropriate to reduce forex risk for investors purchasing or selling foreign securities.”

CFTC GETS INJUNCTION/CIVIL PENALTY/INJUNCTION JUDGMENT AGAINST FORINVEST GROUP

The following is an excerpt from the CFTC website:

"Washington, DC - The U.S. Commodity Futures Trading Commission (CFTC) today announced that Judge James B. Zagel of the U.S. District Court for the Northern District of Illinois entered a default judgment and permanent injunction against ForInvest Group (aka ForInvests Group LLC) (ForInvest).
The judgment, entered on June 17, 2011, finds that ForInvest solicited clients to open off-exchange leveraged foreign currency (forex) trading accounts and acted as the counterparty to its customers for all of the forex transactions in these accounts, without being registered as a retail foreign exchange dealer (RFED) with the CFTC. ForInvest has never been registered with the CFTC in any capacity.
The judgment arises from a CFTC complaint filed in the U.S. District Court for the Northern District of Illinois on January 26, 2011 against ForInvest, a Delaware limited liability company, charging it with two registration violations of the Commodity Exchange Act and CFTC regulations. ForInvest was one of 14 foreign currency firms sued by the CFTC in a nationwide sweep of firms allegedly illegally operating without registering with the CFTC (see CFTC Press Release 5974-11, January 26, 2011).
Judge Zagel’s order permanently bars ForInvest from engaging in the illegal conduct charged in the CFTC complaint and orders ForInvest to remove its forex solicitation webpages from the Internet. The order requires ForInvest to pay a $280,000 civil monetary penalty and permanently bars ForInvest from engaging in any commodity-related activity, including trading, and from registering or seeking exemption from registration with the CFTC.
This case is one of the first initiated by the CFTC to enforce new forex regulations that became effective on October 18, 2010. These new regulations require entities that wish to participate in the forex market to register with the CFTC and abide by regulations intended to protect the public.”

It looks like the CFTC is doing it’s job when it goes after 14 firms that are making illegal trades. The above is apparently only the first of many cases that the CFTC will bring forward.

SEC ALLEGES FRAUD IN THE FOREX MARKET

Misrepresentation of facts has always been a real problem in the securities field. I've misrepresentations made by real estate companies, insurance companies and securities firms. I certainly have been duped by misrepresentations of various companies both as a client and as an agent of such businesses. As an agent of one such business I sold hundreds of thousands of dollars of fraudulent single premium life insurance policies along with IRAs. When the company in question was shut down I was devastated because I had been acting I thought in the best interests of my clients however, the corporate managers did not have such a lofty ambition in regards to being a good fiduciary of other peoples money.

It is good to see some criminal charges being filed in this case by the U.S. Attorney's office. However, it is unfortunate to see that like most Wall Street fraud schemes, the crimes only come to light when a company fails and litigants get access to the real financial statements.

Although these traders, if guilty, are clearly at fault for the fraud investors also must share some blame for their own losses. Various schemes to make lots of money with little risk are out there and can be perpetuated by anyone but, the old motto "Too Good to Be True" should be the first thing that comes into the mind of an investor when a Wall Street person comes to call on you.





The following is a case brought by the SEC against two Forex currency trader who allegedly mislead investors as to the safety of their principal. In addition, the SEC alleged that investor funds were diverted for personal use by the two traders. The following is an excerpt from the SEC governmental posting:

"Washington, D.C., Oct. 28, 2010 — The Securities and Exchange Commission today charged two foreign currency traders and their Boston-based company with operating a fraudulent scheme in which they sent investors misleading account statements while stealing their funds and incurring major trading losses.

Litigation Release No. 21712
SEC Complaint

The SEC alleges that Craig Karlis of Hopkinton, Mass., and Ahmet Devrim Akyil formerly of Hingham, Mass., fraudulently raised approximately $40 million from approximately 750 investors in a purported foreign currency (Forex) trading venture through their firm Boston Trading and Research LLC (BTR). Investors were falsely promised that BTR had a system in place to limit trading losses. BTR also falsely claimed to investors that "we do not profit unless you do" while in reality Karlis and Akyil were illegally diverting investor money for their own personal use as well as to fund BTR's operations and pay expenses for other companies with which they were associated.

"The bait was the promise by Akyil and Karlis to limit investor risk, and the switch was the theft and unauthorized trading that cost investors 90 percent of the invested funds," said Robert Khuzami, Director of the SEC's Division of Enforcement. "If you don't deliver what you promise and violate the securities laws, we will hold you accountable."

David Bergers, Director of the SEC's Boston Regional Office, added, "Akyil and Karlis secretly enriched themselves while many of the defrauded investors lost their retirement savings and financial security."

According to the SEC's complaint filed in federal court in Boston, for a minimum investment of $10,000, investors could deposit money with the BTR program. BTR used a website, sales representatives and live presentations by Karlis and Akyil to solicit funds from investors around the world. Investors provided Akyil with a limited power of attorney that granted him the right to direct the trading of their funds in the Forex market.

The SEC alleges that BTR's misrepresentations to investors included the following:

Investors would have 100 percent transparency about what was going on in their accounts through daily and monthly account statements and 24-hour access to real-time information about the trading Akyil was doing on their behalf.

Investors, through draw-down agreements, could lose no more than an agreed-upon percentage (typically 30 percent) of their investment.
The BTR trading system included an automatic stop-loss program that would curtail losses once they reached a certain percentage.

BTR and its principals would be paid from profits only.
The SEC alleges that BTR, through Akyil and with Karlis's knowledge, traded funds differently from what was disclosed in daily account statements to investors. The balance and equity positions that BTR provided investors on their account statements did not show that their funds had been diminished through BTR's use of investor money for undisclosed purposes. Meanwhile, Akyil and Karlis depleted the investment pool through misappropriation and trading losses far past the stop loss limits promised to investors. BTR collapsed in September 2008 and ultimately distributed the remaining funds to investors, which amounted to approximately 10 percent of their account balances.

The SEC's complaint charges Akyil, Karlis, and BTR with violating the antifraud and registration provisions of the federal securities laws, and seeks civil injunctions, the return of ill-gotten gains, and financial penalties.

Separately, the U.S. Attorney's Office for the District of Massachusetts today unsealed an indictment charging Akyil and Karlis with criminal violations based on the same misconduct. The SEC also acknowledges the assistance of the Commodity Futures Trading Commission."

It is good to see some criminal charges being filed in this case by the U.S. Attorney's office. However, it is unfortunate to see that like most Wall Street fraud schemes, the crimes only come to light when a company fails and litigants get access to the real financial statements.

Although these traders, if guilty, are clearly at fault for the fraud investors also must share some blame for their own losses. Various schemes to make lots of money with little risk are out there and can be perpetuated by anyone but, the old motto "Too Good To Be True" should be the first thing that comes to mind of an investor when a Wall Street person comes to call on you.