Corporate regulator ASIC says the Federal Court has ordered Forex Capital Trading Pty Ltd (Forex CT) 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.”
In a statement issued early Wednesday morning ASIC also revealed that the company’s sole director, Shlomo Yoshai, has been ordered to pay a $400,000 penalty and banned from managing corporations for eight years for breaching his duties as a director and aiding Forex CT’s unconscionable conduct.
As background ASIC said that Forex CT offered clients opportunities to trade in contracts-for-difference (CFDs) and margin foreign exchange contracts issued by the firm.
But the regulator said “Forex CT engaged in a system of unconscionable conduct by:
- offering 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;
- employing high pressure sales tactics;
- recommending inappropriate trading strategies to clients;
- making misleading or deceptive representations to clients;
- implementing 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;
- implementing 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; and failing to ensure compliance with financial services laws.”
The Court also found Forex CT 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.
ASIC said its investigation found that Forex CT had a trading floor culture geared towards maximising trading volume and client deposits rather than complying with the law.
“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.”
In handing down his decision, His Honour Justice Middleton found that Forex CT had “systemic compliance deficiencies” and “a culture of non-compliance” and said that “the vast losses incurred by clients support the imposition of a significant pecuniary penalty,” according to ASIC.
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 Mr Yoshai for eight years, His Honour described Mr Yoshai’s behaviour as “incompetent and irresponsible.”
ASIC’s Cathie Armour said in the statement that “The significant penalty handed down by the Court reflects the seriousness of this conduct. If corporations disregard the law and their client obligations, ASIC will take action and the consequences can be severe.”