The U.S. Commodity Futures Trading Commission (CFTC) has filed a civil enforcement action against Forex Capital Markets, LLC (FXCM) in the U.S. District Court for the Southern District of New York. The complaint alleges FXCM engaged in undercapitalization, failed to promptly report this violation, and improperly guaranteed against customer losses.
According to the CFTC, FXCM, a registered Retail Foreign Exchange Dealer (RFED) headquartered in New York, was required to maintain adjusted net capital of approximately $25 million as of January 15, 2015. However, the firm allegedly admitted to a shortfall of at least $200 million, representing a $175 million excess of liabilities over assets.
This shortfall reportedly stemmed from the removal of a fixed exchange rate for EUR/CHF (1.2000) and the subsequent drop to 1.1659. FXCM’s systems were allegedly unprepared for such a market event, resulting in increased losses. The company secured a $279 million loan from a holding company on January 16, 2015, to resolve the capital deficiency.
The CFTC further alleges that FXCM did not immediately notify the agency of its undercapitalization, violating CFTC regulations. Notification only occurred after inquiries from the National Futures Association (NFA) and the CFTC itself. Additionally, FXCM is accused of operating a policy that zeroed out negative customer balances, effectively guaranteeing against loss – a practice prohibited by CFTC rules. This policy was reportedly outlined in customer account opening documents.
The CFTC is seeking civil monetary penalties and a permanent injunction against future violations of federal commodities laws. The NFA provided assistance in the investigation, which was led by CFTC staff members Saadeh Al-Jurf, Luke Marsh, Dmitriy Vilenskiy, and Paul G. Hayeck.
Source: CFTC.gov
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