$20m penalty for Forex CT
The Federal Court has ordered Forex Capital Trading (Forex CT) to pay a $20 million penalty for engaging in systemic unconscionable conduct, paying conflicted remuneration to its team leaders and account managers and failing to act in the best interests of its clients.
Additionally, the company’s sole director, Shlomo Yoshai, had been ordered to pay a $400,000 penalty and was disqualified from managing corporations for eight years.
Forex CT offered clients opportunities to trade in contracts-for-difference (CFDs) and margin foreign exchange contracts issued by the firm.
The Australian Securities and Investments Commission cancelled its Australian financial services licence (AFSL) after an investigation.
ASIC found Yoshai was involved in Forex CT’s trading floor culture, an environment that had been likened by former account managers to ‘The Wolf of Wall Street’, where a bell or a gong was rung when clients deposited funds of certain amounts into their trading accounts and account managers could participate in incentive ‘games’ such as ‘wheel of fortune’, roulette tables and dice games to win cash if certain client deposit targets were met.
The Court found Forex CT engaged in a system of unconscionable conduct by:
- Offered incentives to encourage clients to transfer more money to their Forex CT trading account, even after the client had told the account manager that they could not afford to invest more money, or were reluctant to do so;
- Employed high pressure sales tactics;
- Recommended inappropriate trading strategies to clients;
- Made misleading or deceptive representations to clients;
- Implemented and encouraging a trading floor culture that was directed towards maximising trading volume and client deposits rather than promoting a culture of compliance with applicable legal requirements;
- Implemented an employee remuneration scheme and key performance indicators where account managers were rewarded and paid commissions based on net deposits (gross deposits less withdrawals) made by their clients;
- Failed to ensure compliance with financial services laws; and
- Failed to act in the best interests of its clients when providing personal advice and failed to do all things necessary to ensure that the financial services covered by the licence were provided efficiently, honestly and fairly.
Justice Middleton found “Forex CT had ‘systemic compliance deficiencies’ and a culture of non-compliance” and “the vast losses incurred by clients support the imposition of a significant pecuniary penalty”.
The Court also found that the affected clients were vulnerable with little or no trading experience.
Some of the individual clients were in circumstances of financial stress, and others were, at times, relying on credit or superannuation savings to fund deposits to their trading accounts.
In disqualifying Yoshai for eight years, Justice Middleton described Yoshai’s behaviour as “incompetent and irresponsible”.
AUTHOR
Chris Dastoor
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