'Irresponsible': Forex Capital Trading hit with $20m penalty

'Irresponsible': Forex Capital Trading hit with $20m penalty

Forex Capital Trading, a company that once billed itself as a "leading provider of forex and CFD trading services", has been ordered to pay $20 million by the Federal Court which found it had engaged in "systemic unconscionable conduct".

The Melbourne-based operation, likened to a Wolf of Wall Street set-up, was shut down in July last year.

The Federal Court issued a severe penalty to the company due to the seriousness of its conduct which included high-pressure sales tactics that were not in the best interests of the company's clients.

Agents of the company would pressure clients to top up their accounts even when those account managers were told by the client they could not afford to do so.

The sole director of Forex Capital Trading, Shlomo Yoshai, also has been ordered to pay a $400,000 penalty and disqualified from managing corporations for eight years.

Federal Court Justice Middleton described Yoshai's behaviour as "incompetent and irresponsible" as he had breached his duties as a director and aided the company's unconscionable conduct.

It is unclear whether the company or Yoshai have the capacity to pay the penalties imposed.

In a statement, the Australian Securities and Investments Commission (ASIC) says Forex Capital Trading's unconscionable conduct included the offer of incentives to encourage clients to transfer more money to their Forex CT trading account, even after the client was reluctant to do so.

ASIC says the company made misleading or deceptive representations to clients and recommended to them "inappropriate trading strategies".

Forex Capital Trading encouraged a trading floor culture aimed at maximising trading volume and client deposits instead of compliance with legal requirements.
Employees of the company were rewarded for net deposits by clients, that is gross deposits less withdrawals.

"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," says ASIC.

Justice Middleton found Forex Capital Trading had "systemic compliance deficiencies" and a culture of non-compliance leading to "vast losses" by clients.

The Court also found 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," says ASIC.

The Forex Capital Trading website, which is no longer operating, said the trading platform had been decommissioned on 31 July last year and that it had terminated customer agreements.  

In disqualifying Mr Yoshai for eight years, His Honour described Mr Yoshai's behaviour as "incompetent and irresponsible".

"The significant penalty handed down by the court reflects the seriousness of this conduct," says ASIC commissioner Cathie Armour.

"If corporations disregard the law and their client obligations, ASIC will take action and the consequences can be severe."

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