Usually when the CFTC comes after a Forex broker, it's because that broker has been scamming traders. But there are occasions where the CFTC gets it wrong. One such case is when the CFTC took action against My Forex Funds (MFF). Initially, the CFTC accused MFF of misleading customers. But the case has since been dismissed.
What is My Forex Funds?
My Forex Funds is a proprietary trading firm (a prop firm) that was founded in Ontario. Traders can apply for a funded account there, trading with the firm's money. If they are profitable, they receive a cut. Proprietary trading is a popular and legitimate way for traders with small personal bankrolls to build up their profits more rapidly than they could with individual accounts.
The allegations against My Forex Funds
The US Commodity Futures Trading Commission (CFTC) filed its enforcement action against Traders Global Group Inc. (doing business as My Forex Funds) on August 28, 2023.
The CFTC claimed that Traders Global Group Inc. had been misleading traders about how the firm worked and profited. Here were the allegations:
- The CFTC said that the company was telling traders that the funded accounts were live accounts, whereas the CFTC said that they were simulated (demo) accounts, and that MFF was the counterparty to each trade.
- According to the CFTC, MFF was manipulating slippage and creating artificial delays so that traders would profit less.
- The CFTC claimed that MFF was making money mostly by charging its customers fees, not from their profitable trades.
- The CFTC claimed that MFF was paying the profitable traders using the fees they had collected from the unprofitable ones. In other words, it was alleged that they were running a Ponzi scheme.
It's worth noting that it's a normal industry practice for prop firms to issue funded traders simulated (demo) accounts, not live accounts.
It's important for firms to disclose this, but the practice is not fraudulent. The firm mirrors your trades in their own accounts, then pays you a split of the profits. The behind-the-scenes mechanics are different, but you are being treated and paid fairly.
On August 29, 2023, all of MFF's business operations were suspended. The defendants' personal assets were frozen. The Ontario Securities Commission (OSC) also took action against MFF.
The effect on traders was devastating. The assets freeze forced MFF to suddenly shut down operations.
- Traders found they could not log in.
- Live trading ceased abruptly.
- Traders could not access or manage pending payouts.
- Some never received their payouts.
Initially, many traders figured they would receive restitution. As of early 2026, MFF has only begun outlining a process to honor verified payout requests from August 2023, with a detailed schedule and broader restitution plan still pending.
Normally when an agency like the CFTC takes action against a supposed scammer, that's that. Con artists often try to flee, but when they are eventually caught, they are punished.
That's why it was a surprise to many when the defendants filed a Motion for Sanctions against the CFTC on March 7, 2024.
What did the Ontario Securities Commission (OSC) find?
The OSC conducted its proceedings differently than the CFTC. The CFTC went in assuming and alleging severe fraud. But the OSC did not. Instead, its focus was more on whether MFF had improperly structured its activities and disclosures. The OSC did not find MFF guilty of the type of fraud the CFTC claimed the company had committed.
Why the CFTC's case was dismissed
As it turned out, that Motion for Sanctions ended up turning the entire situation around. The CFTC acknowledged the following mistakes:
- Failure to factor in materials from the Ontario Securities Commission.
- Waiting too long to fix mistakes in the Declaration.
Despite its errors, the CFTC claimed that nothing had materially changed in its arguments against the defendants. It argued that in addition, sanctions against the CFTC were unwarranted since it had amended the Declaration within the Rule 11 time limit.
The biggest issue with the CFTC's claims, however, had to do with a transfer of $31.5 million CAD. The CFTC said that MFF founder and CEO, Murtuza Kazmi, had transferred these funds from MFF's corporate account to his personal accounts. It was on this basis that they were able to freeze MFF's assets. In truth, Kazmi had paid the $31.5 million to the Canada Revenue Agency (CRA). They were taxes.
As a result of the asset freeze, Kazmi found himself locked out of his personal funds as well. Finance Magnates reports that he said, "I had to beg and borrow funds from family and friends. From getting gas for the car to buying groceries to paying for medication, all had to be done on borrowed funds."
What made the situation even worse was that a week prior to filing for MFF's assets to be frozen, the CFTC already was aware that the $31.5 million had been transferred to CRA. That was the information contained in an Ontario Securities Commission email — the same materials that the CFTC ignored when it made its case against MFF.
In response to the incident, the court-appointed a special master write up this Special Master's Report and Recommendation. In case you are not familiar with court proceedings, a special master is a neutral outside party appointed by the court under Federal Rule of Civil Procedure 53 to assist with complex or fact-intensive matters in a case. The special master presents their findings and recommendations to the judge.
The special master's findings and recommendations
If you have been reading this article while giving the CFTC the benefit of a doubt, you might think what happened was likely the result of negligence at worst. But the special master's report is even more damning than that. The report states:
The OSC expressly placed the CFTC on notice of its misstatements on numerous occasions soon after the SRO/PI Motion and Declaration were filed. Nevertheless, the CFTC repeatedly failed to correct the record.
Basically, there was no way that the CFTC could have failed to notice these corrections. Concluding the report, the special master writes:
The CFTC's conduct, which was undertaken over the course of a year and involved numerous instances of sanctionable behavior, was willful and undertaken in bad faith. It likely affected the Court's decision to order the SRO or, at the very least, maintain it, and it likely affected the Court's decision on the PI Motion, because the Court did not have the full, complete and truthful information before it. The CFTC's conduct was undertaken for the purpose of gaining a tactical advantage, that is, restraining all or substantially all of Defendants' assets, and has caused significant expense and diversion of Court and party resources. Without the imposition of sanctions, this conduct appears likely to repeat itself.
The special master recommended that the judge:
- Sanction the CFTC
- Dismiss the enforcement action with prejudice
- Order the CFTC to pay the defendants' legal costs
The judge followed through with all three of these recommendations, sanctioning the CFTC under Rule 11, dismissing their case, and ordering the agency to pay the defendants' legal costs.
It is very rare for a judge to impose Rule 11 sanctions on a government regulator. For the judge to have done so is an indication that the court believed the CFTC was truly abusing its power. That means that it was going beyond negligence, and actually exercising wilful bad faith.
A court in Canada unfroze the majority of MFF's assets afterwards, and restored the firm's access to client data.
My Forex Funds is in the process of reopening
My Forex Funds managed to survive the CFTC's bad faith enforcement action. As of the time of this writing, the firm is working toward getting its business back up and running. You can visit the My Forex Funds website to view a timeline with updates.
It is likely that this will be a challenging transition, both for logistical reasons and because what the CFTC put MFF through caused the company to lose some credibility with traders. Even though the accusations were false and ignored key evidence, the CFTC's actions caused financial hardship for MFF customers. As a result, customers may be more hesitant to trust MFF in the future, or even prop firm trading in general.
What will the impact be on the CFTC?
Critics have at times accused the CFTC of stretching its mandate with respect to how it handles offshore brokers that accept US clients. Some of its actions could be seen as "regulation by litigation," where enforcement rather than clear guidance is used to establish what constitutes lawful conduct.
The case with My Forex Funds appears to be the first time that a court has agreed with that conclusion, taking issue with the CFTC's enforcement tactics.
The My Forex Funds saga is likely to make the CFTC a bit more cautious about policing prop firms, as well as other business models that are new and innovative. The judge did not determine the case was outside of the agency's purview. So, the CFTC will likely continue to take actions against prop firms it deems to be violating the rules. But it now knows that over-reaching on facts or jurisdiction can backfire in court.
Acting CFTC Chair Caroline Pham took accountability, saying:
As described in detail in the Court's report, the CFTC engaged in willful and bad faith conduct by making multiple false statements to the Court and other 'numerous instances of sanctionable behavior' over the course of a year. This is inexcusable.
By the time the report came out, the CFTC had already placed certain staff members on administrative leave as a result of misconduct. So, it seems likely the CFTC will pay closer attention to preventing misconduct within its own ranks going forward.
