Source: financemagnates Friday, 12/07/2024 | 12:11 GMT
- Last week, CFTC Commissioner Caroline Pham unexpectedly amplified MFF’s allegations against the CFTC.
- Although the enthusiasm for protecting customers from fraud is justified, mishandled cases can result in prolonged litigation for prop companies.
Back in September 2023, when the Commodity Futures Trading Commission (CFTC) filed a complaint against Traders Global Group Inc., the operator of prop trading firm My Forex Funds (MFF), it was probably hoping for a decisive legal victory.
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In the lawsuit, CFTC’s Division of Enforcement claimed that the defendants, Traders Global Group and founder Murtuza Kazmi, fraudulently solicited customers to enter into leveraged forex exchange transactions. According to the US derivatives market regulator, what MFF presented as a prop trading platform, offering customers to “become professional traders” and trade with Traders Global’s proprietary funds, was actually a Ponzi-like scheme luring customers to lose money.
Major Enforcement Action in Prop Industry
For the CFTC, the MFF case is more than a regular case. The lawsuit captured widespread attention in the FX industry as one of the first enforcement actions against the emerging prop trading hype. Financial regulators such as the CFTC often seek high-profile litigations to consolidate their authority over new domains, shape industry practices, and strengthen their positions in the eyes of the public.
On August 29, two days before filing the complaint, the US District Court in New Jersey handed the agency an early win, an ex-parte restraining order freezing the defendants’ assets and nominating receivership on the MFF business
Since then, however, the road has been less uphill than what the CFTC planned. In November 2023, the court did grant in part the CFTC’s motion for a preliminary injunction against MFF, based on a prima facie look at the facts brought by the agency.
Yet, during the hearing, it was revealed that the CFTC failed to inform the court that a sworn declaration by an agency investigator included false statements (to support the motion for an asset freeze, the CFTC wrongly alleged that Traders Global transferred $31.5 million to “unidentified accounts” of the founder; shortly afterward it discovered that the money was used for lawful tax payments).
In a sidebar exchange, the judge lashed out at the CFTC counsel: “I am trying to understand the timeline of this. You learned of this discrepancy, this mistake a week or two after the filing, and you didn’t inform the Court or defense counsel […] if that is accurate, CFTC is going to be in a lot of trouble today.” The court decided to cut the freeze order from $310 million (as originally requested by the CFTC) to $12 million.
MFF Fights Back
Following the revelations, MFF retaliated in March with its own motion against the CFTC. Defendants accused the CFTC staff of “repeatedly lying” to the court, asking for sanctions against plaintiffs that will include, at minimum, an “evidentiary hearing on the CFTC’s pattern of misconduct.”
In addition to mischaracterizing the 31.5 million tax payments, the MFF defense alleged that CFTC counsels sought to intrude on the attorney-client privilege between founder Kazmi and his counsel.
Clashes and reciprocal accusations between litigants aren’t a rare phenomenon. But last week, the MFF allegations were amplified from a surprising direction: CFTC commissioner Caroline D. Pham.
