Forex Capital Markets LLC, the largest retail Forex broker in the US, was hit with a civil lawsuit today by the CFTC.
The complaint filed by the CFTC alleges that "FXCM had an advertised policy of zeroing out negative customer balances, effectively guaranteeing customers against loss in contravention of CFTC regulations."
CFTC rules forbid Forex brokers to make such claims. FXCM clients took a $200-million hit when the Swiss National Bank decided to abandon its euro peg on January 15, 2015. The New York-based brokerage was forced to seek a rescue loan the following day, which came from Leucadia National Corp.
Forex brokers like Alpari UK were wiped out that day and clients managed to get back about 80% of their funds, with the rest going to legal and bankruptcy administrative fees.
The agency also took issue with the fact that FXCM did not report a critical capital shortfall in the aftermath of the SNB debacle and that regulators found out about the infraction after initiating a formal request:
"The Complaint also alleges that FXCM failed to immediately notify the CFTC when it knew or should have known that its adjusted net capital was less than that required under the applicable CFTC regulation and that it was, therefore, undercapitalized."According to current regulations, FXCM is required to keep at least $25 million in operating capital, but the firm experienced a much larger shortfall. The regulatory agency is seeking monetary penalties and FXCM has not made any public statements regarding the lawsuit at this time.