Capital Growth Fund Ltd. that the fund had lost all of its money due to a defaulting broker when, in fact, most of its losses were due to trading losses, and of providing false and misleading information to NFA.

 The NFA commenced an inquiry into Scevola’s operations Based on information that a former Lake Shore Asset Management Limited principal, Laurence Rosenberg, was affiliated with Scevola and Resolute Capital. Lake shore had been previously barred from NFA membership after misappropriating more than $11 million of participant’s money.

On December 14, 2009, Mitchell filed an Answer to the Complaint in which he denied the material allegations contained therein.

On May 17, 2010, a NFA Hearing Panel issued a Decision accepting Scevola’s settlement offer and permanently barred him from NFA membership, associate membership and principal status with any NFA Member.

FSA regulated firms should carry out risk assessments of the money laundering and financial crime risks that they are exposed to. However, between September 2006 and November 2008, Alpari failed to carry out thorough assessments and, as a result, put the firm at risk of being used to further financial crime.

Alpari failed to carry out satisfactory customer due diligence procedures at the account opening stage and failed to monitor accounts adequately. These failings were particularly serious as Alpari’s customer base included those from higher risk jurisdictions, such as Nigeria, and its customer relationships did not operate on a face to face basis.

Alpari also failed to have in place adequate systems for screening customers against UK and global sanctions lists and for determining whether customers were politically exposed persons (PEPs).

Despite increasing its customer base from 400 to 11,500 live accounts between mid 2007 and mid 2008, Alpari did not expand its compliance and anti-money laundering function in line with the rest of the business and placed too much responsibility on Chattopadhyay.

Margaret Cole, director of enforcement at the FSA, said:

“The FSA expects firms to assess the financial crime risks to which they are exposed properly. The FSA also expects expanding businesses to commit sufficient resource to their compliance and anti-money laundering functions. Alpari failed to operate and maintain adequate money laundering systems and controls, leaving it open to the risk of financial crime.”

The proposals under the consultation paper represent an evolution of the existing regulatory regime for the fund management industry.  Fund Management Companies ["FMCs"] whose activities are limited in scale and impact may continue to operate under a notification regime and be subjected to certain conditions.   This is similar to the existing framework for exempt fund managers.  FMCs who serve retail investors and/or manage or advise on a larger portfolio of assets will have to be licensed.  MAS also intends to require all FMCs to meet business conduct as well as capital requirements.

Under the proposed business conduct requirements, FMCs will need to maintain customers’ monies and assets with independent custodians, ensuring segregation of duties between the functions of fund management and fund administration.  FMCs will also need to have compliance arrangements which are commensurate with the size and scale of the FMCs’ business. These requirements aim to enhance safeguards against theft or misappropriation of customers’ monies.

The Panel found that AVS Carter Financial used a misleading website as well as misleading customer account documents and account statements. As alleged in the Complaint, all of the U.S. customers with whom NFA spoke expressed confusion regarding the non-regulated “AVS Carter” entity they were doing business with as well as which entities were actually regulated. Only AVS Carter Financial was regulated by the Commodity Futures Trading Commission and NFA. The Panel also found that Akram failed to supervise AVS Carter Financial’s promotional material and website.

Along with the permanent bar, AVS Carter Financial must also deactivate, if it has not done so already, all of its websites that promote the firm and websites over which the firm has control.

Follow these links for complete text of the Complaint, respondents’ Answer and Decision.

The CFTC complaint, filed in the U.S. District Court for the District of Arizona, Phoenix Division on March 9, 2010, alleges that Weber, through personal solicitations and his websites — www.weberfx.com, www.webercapitalmanagement.com and www.newtempsite.com — fraudulently solicited customers to invest at least $280,000 in forex trading. The complaint also alleges that, contrary to Weber’s representations, only a fraction of customer funds were actually traded and that the majority of the funds were misappropriated to pay for Weber’s lavish lifestyle.

Additionally, Weber continued to solicit prospective and existing clients even after the Arizona Corporation Commission, Securities Division, served a “cease and desist” order upon him on September 12, 2008, according to the complaint. The order required him to stop certain forex business activities and to close two of his websites. The state of Arizona subsequently on October 22, 2008, indicted him on 29 criminal violations, including fraud and theft, related to his forex solicitation activities. The criminal charges against Weber remain pending.

In its continuing litigation, the CFTC seeks restitution of funds to defrauded customers, the repayment of ill-gotten gains, civil monetary penalties and permanent trading and registration bans.

• clarified the scope of the CFTC’s anti-fraud authority with respect to retail off-exchange foreign currency transactions;

• provided the CFTC with the authority to register entities wishing to serve as counterparties to retail forex transactions as well as those who solicit orders, exercise discretionary trading authority and operate pools with respect to retail off-exchange foreign currency transactions; and

• mandated minimum capital requirements for entities serving as counterparties to such transactions.

“These proposed rules for retail foreign exchange trading are important steps in implementing the additional consumer protections authorized in the 2008 Farm Bill,” CFTC Chairman Gary Gensler said. “The Commission looks forward to receiving and considering the public’s comments on this important issue.”

Pursuant to this authority, the Commission is proposing a comprehensive scheme that would put in place requirements for, among other things, registration, disclosure, recordkeeping, financial reporting, minimum capital, and other operational standards. Specifically, the proposed regulations would require the registration of counterparties offering retail foreign currency contracts as either futures commission merchants (FCMs) or retail foreign exchange dealers (RFEDs), a new category of registrant created by the Farm Bill. Persons who solicit orders, exercise discretionary trading authority and operate pools with respect to retail forex would also be required to register, either as introducing brokers, commodity trading advisors, commodity pool operators, or as associated persons of such entities. As was the case prior to the passage of the Farm Bill, “otherwise regulated” entities such as financial institutions and SEC-registered brokers or dealers remain able to serve as counterparties in such transactions under the oversight of their primary regulators.

The proposed regulations also include financial requirements designed to ensure the financial integrity of firms engaging in retail forex transactions and robust customer protections. For example, FCMs and RFEDs would be required to maintain net capital of $20 million plus 5% of the amount, if any, by which liabilities to retail forex customers exceed $10 million. Leverage in retail forex customer accounts would be subject to a 10-to-1 limitation. All retail forex counterparties and intermediaries would be required to distribute forex-specific risk disclosure statements to customers, and comply with comprehensive recordkeeping and reporting requirements.

Comments regarding the proposed regulations may be submitted by any of the means listed in the Federal Register release and should be received by the Commission within 60 days of the date of publication.

From the CFTC
Click here to view the CFTC’s announcement in the Federal Register

On-line social networking groups have changed the way people make trading decisions. A number of NFA Members sponsor blogs, chat rooms, and forums (also called message or bulletin boards), and some use sites like Facebook or Twitter for business purposes. Associates may also sponsor or participate in these groups. Unfortunately, these on-line communities provide opportunities for posters to spread unsubstantiated rumors and intentional misrepresentations. The form of communication does not change the obligations of Members and Associates who host or participate in these groups, and electronic communications must comply with Compliance Rules 2-9, 2-29, 2-36, and 2-39.

NFA’s interpretive notice entitled NFA Compliance Rule 2-9: Supervisory Procedures for E-Mail and the Use of Web Site,” (NFA Manual, ¶ 9037) provides guidance on how NFA’s promotional material and supervision rules relate to email and web sites but does not specifically address other types of electronic communications. This notice discusses a Member or Associate’s responsibilities in connection with on-line social networking facilities such as blogs, chat rooms, forums, Facebook, and Twitter.

Obviously, any electronic content that can be viewed by the general public, or even by a more closed community that includes current and potential customers, can be promotional material. For example, blogs dealing with commodity futures or options are promotional material when written by an NFA Member or Associate, and forex blogs are promotional material when written by a Member or Associate subject to the forex rules.

Therefore, content generated by the Member or Associate is subject to the requirements of NFA Compliance Rules 2-29, 2-36, or 2-39. The same is true for futures, options, or forex content written by a Member or Associate and posted on a third party’s site.

The issue becomes more complicated for user-generated comments responding to a Member or Associate’s blog and for Members and Associates who host chat rooms or forums. What is their responsibility for posts from customers or others over whom the Member or Associate has no direct control? When inadequately monitored, social networking sites may contain misleading information, lure customers into trades that they would not normally make, or be used in an attempt to manipulate prices.

If a Member or Associate hosts a blog, a chat room, or a forum where futures or forex are discussed, the Member or Associate is required to supervise the use of that community. This requires, at a minimum, that the Member or Associate regularly monitor the content of the sites it hosts, take down any misleading or otherwise fraudulent posts, and ban users for egregious or repeat violations. Not only are these actions required by NFA’s supervision rules, they are both common sense and common practice. Similar requirements apply to Facebook and other sites that allow others to post to the Member or Associate’s “wall” or other assessable area.

Audio pod-casts and videos on the Internet—whether on the Member or Associate’s Web site or on an independent site such as You-Tube—are similar to radio and television advertisements. If they make specific trading recommendations or refer to profits that have been obtained in the past or can be

These dues apply when the Forex Dealer Member offers to be a counterparty to
a forex transaction or accepts a forex trade (whichever is earlier), and NFA will
send the Member an invoice for the minimum dues ($50,000 or $45,875) minus
any amount already paid for that membership year. Thereafter, the dues will be
assessed on the firm’s membership renewal date and will be based on the Forex
Dealer Member’s latest certified financial statement.

(proposed amendment)
The only exception to the dues set forth above is a situation in which NFA does
not serve as the DSRO for a Forex Dealer Member and the DSRO has agreed to
examine the Forex Dealer Member’s forex activities. In this case, the surcharge
paid by the Forex Dealer Member, regardless of gross annual revenue, is
$12,000. Accordingly, for such a Forex Dealer Member the dues to be assessed
at the time it offers to be a counterparty to a forex transaction or accepts a forex
trade (whichever is earlier), and on its membership renewal date thereafter, will
be $13,500.