Forex traders and professional investors in general would be well aware of the numerous currency trading related scams that are being unearthed every year. While the underlying principle behind a Forex scam is always the same – to prey on greed – the modus operandi changes according to the circumstances. In the recent years, the CFTC is actively engaged in bringing the perpetrators of Ponzi schemes to justice. However, the scammers always fly below the radar of regulation watchdog by operating companies in multiple domains outside the USA and with different names.
The $50 million scheme operated by IB Capital FX LLC is a classic example of doing business in the disguise of a reputed global enterprise, but in reality, without any kind of formal registration with the CFTC or any other monitoring agencies.
Until 2015, it was easy to set up a Forex brokerage firm in New Zealand. Many offshore entities and foreign nationals who lacked credentials took advantage of loopholes in the financial regulatory framework and opened an office in that country. One such brokerage firm which was registered with FSPR (Financial Service Provider Register) in 2011 was IB Capital FX (NZ) LLP. The firm was registered under the address IBCAP Office, Level 5, 22 the Terrace 6011 Wellington, New Zealand.
However, in November 2012, the FMA (Financial Markets Authority) officially announced that the firm was deregistered as it did not have a proper place of business in New Zealand.
Following deregistration, IB Capital claimed that it is shifting its operations to Europe and requested clients to send payments, if any, to an account held with ING in the Netherlands. Barring the withdrawal request page, the website became inactive soon. As per records, from December 2011 until May 2014 when the company was officially closed, a person named Emad Echadi held the post of director. This is irrespective of the domain (New Zealand, Netherlands, and the UK) in which they were operating.
Between January 1, 2012, and September 18, 2012, IB Capital FX, through its director Echadi and customer service executive Michel Geurkink, offered to facilitate trading in the
To open a trading account, as is common with Forex brokers, customers were required to sign a trading agreement with IB Capital FX. The agreement details about the risks involved in Forex trading and the margin, which needs to be compulsorily maintained to avoid liquidation of positions. The agreement also explicitly stated that there is a conflict of interest as the broker would act as the counterparty to the client’s trades.
After completing documentation, the clients were asked to send payments to the IB Capital’s bank accounts maintained at ING. Three accounts with denomination in the euro, pound, and US dollar were used for the purpose of receiving funds from the clients. Echadi was the sole signatory for all the accounts. On behalf of IB Capital, through agents and direct solicitation, Echadi and Geurkink received a minimum of $50 million from 1,850 clients. Approximately 950 customers were from the USA.
Echadi used a network of agents to achieve his objective of raising money from people interested in retail Forex trading. The court document particularly named three persons and two entities. They are Kevin Clarke, Bill Breame aka Bill Breen, Senen Pousa, Global Forex Management (GFM), and Investment Intelligence Corporation (IIC).
Both Clarke and Breame are US citizens. They operated the unincorporated GFM, and their whereabouts are not known.
Senen Pousa is an Australian Citizen who owned the IIC. The registered address of IIC was Waterfront Place, Level 19, 1 Eagle Street, Brisbane, QLD, 4000, Australia. Notably, Pousa was convicted in another related case filed by the CFTC on September 18, 2012. Interestingly, IB Capital was also indirectly linked to the scheme operated by Pousa as explained further.
Back in 2012, the ASIC (Australian Securities and Investment Commission) claimed that Senen Pousa, an Australian national, was offering financial services illegally through IIC. The CFTC’s investigation revealed that Pousa was running a Ponzi scheme named ProphetMax using IB Capital FX as the brokerage firm. The CFTC initially charged Pousa and his company (CFTC v. Pousa, et al., Case No. 1:12-cv-00862-LY, Texas). However, three years later, the regulation watchdog confirmed the involvement of IB Capital FX in the scheme. On November 27, 2013, the court convicted the defendants and ordered Pousa and IIC to jointly pay a civil monetary penalty of $79 million and a restitution plus prejudgment interest to the tune of $33 million to clients. The court also hit Pousa and IIC with permanent trading and registration ban.
Coming back to the case being discussed, on January 17, 2012, Echadi opened four trading accounts with CFH Markets Ltd of the United Kingdom.
The trading accounts were opened in the name of IB Capital. In the corporate account opening form of CFH, Echadi declared that IB Capital was investing its own assets. In short, Echadi, who was the sole signatory of the four trading accounts, did not disclose the truth about the $50 million's origin.
Between January 30, 2012 and May 2, 2012, the trading accounts were funded with approximately $48.9 million of IB Capital clients' money.
From May 30, 2012, to August 2, 2012, three withdrawals amounting to $51.6 million in total were made from the trading accounts of IB Capital at CFH.
In November 2015, CFTC filed a civil enforcement action against IB Capital FX for violation of the following rules:
On October 14, 2016, a Texas judge ordered the defendants to jointly and severally pay a restitution of $35 million plus
CFTC strives to protect investors from losing hard earned money to swindlers. However, traders and investors should spend some time to investigate the background of the company or individual offering any kind of financial services. It will save precious money and invaluable time at a later stage.
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