FXCM Exits U.S. Forex Industry Amid $7 Million CFTC Penalty for Defrauding Its Retail Clients

The CFTC has fined one of the most well-known Forex brokers in the industry, Forex Capital Markets (FXCM), and founders Dror Niv and William Ahdout, $7 million for illegally profiting off its retail clientele.

According to the CFTC, between 2009 and 2014, FXCM acted as a counterparty to its customers’ currency trades while claiming it was not doing so.

FXCM had an undisclosed stake in a “market maker” that consistently received the largest amount of order flow originating from FXCM’s retail customers. The so-called market maker would take the opposite side of FXCM customers’ trades, and then would pass 70 percent of the revenue back to FXCM as a “rebate.”

The CFTC explained:
“This market maker received special trading privileges, benefitted from a no-interest loan provided by FXCM, worked out of FXCM’s offices, and used FXCM employees to conduct its business, the Order further finds.”
In its investigation, which was carried out with assistance from the National Futures Association, the CFTC found out that between 2010 and 2014, the market maker division kicked back $77 million in ill gotten profits back to FXCM.

Not only did FXCM profit handsomely from this scheme, Dror Niv never told NFA investigators about FXCM’s stake in the market maker during meetings between FXCM staff and regulators.

As a result of the egregious infractions, in addition to the hefty civil monetary fine, Dror Niv and William Ahdout have been barred from ever registering with the CFTC again.

In a separate press release, FXCM said today it will be leaving the U.S. Forex markets. FXCM will be selling its American customer base to GAIN Capital Holdings. The sale is still not finalized and is subject to regulatory approval.

FXCM said the profits from the sale - approximately $52 million - will be used to repay its debt to Leucadia, which was incurred when FXCM took on substantial losses on January 15, 2015, due to SNB’s decision to abandon the euro-peg.

While FXCM said it will be leaving the American market, the company’s press release states that trading services will continue at FXCM’s foreign subsidiaries, “FXCM wants to express its most sincere thanks to those U.S. customers who have been with FXCM over the years and wish you all the best of luck following this transition.,” said FXCM.

In October of 2016, Hong Kong’s SFC levied monetary penalties on FXCM Asia Limited for asymmetrical price slippage on clients’ FX trades between 2006 and 2010.