NFA Forex Dealer Dead Pool

[forex scholar]

It has been one year since the Scholar started posting about the misdeeds and misadventures of the undercapitalized and the criminally minded in the retail foreign exchange world. To mark that anniversary here is a rundown of the top stories from a year of woe and sloth in retail forex. Cue up the Benny Hill Music…

1) One World Capital Blows Up
Without question this former forex dealer is the poster child of this thread. In July of 2007 I reported on One World’s shoddy book keeping as exposed by the NFA. I closed that post with this prediction: “In short, One World is a classic Dead Forex Firm walking. Firms like One World are the reason the NFA is going to raise capital requirements. And when they do, does anyone honestly believe the One World's of the world will survive?”
http://www.fxstreet.com/forum/showpost.php?p=5102&postcount=6

In August I did a follow up report titled “One World Forex with One Foot in the Grave” detailing the many complaints traders were making about One World Capital, in particular the problem customers were having withdrawing funds. These reports coincided with information I was being fed that One World was in dire straits and that their sales staff had resigned en masse.
http://www.fxstreet.com/forum/showpost.php?p=5976&postcount=39

In September the news grew worse as customers confirmed to me they were having great difficulty getting money out.
http://www.fxstreet.com/forum/showpost.php?p=6308&postcount=51

Finally, the firm slipped beneath the waves in December just as the new capital requirements were kicking in.
http://www.fxstreet.com/forum/showpost.php?p=8337&postcount=92

The final death blow came on December 13th after the CFTC raided the joint and put them out of business for good.
http://www.fxstreet.com/forum/showpost.php?p=8597&postcount=106
http://www.fxstreet.com/forum/showpost.php?p=8632&postcount=108

2) The Forward Forex Follies
Of the many firms that went belly up in 07’ perhaps known was more humorous to observe than NFA member Forward Forex. These two posts are must reads. Upon having the NFA enter his company’s office the CEO of the firm, Onelio Manuel Murias, fled the premises likes a scalded hound. The firm was shut down shortly after.
http://www.fxstreet.com/forum/showpost.php?p=5224&postcount=8

Digging through wreckage of the firm one finds a whole cast of crazy characters right out of One Flew Over the Cuckoo’s Nest. Here is a typical day in the life of a Forward Forex salesman:
http://www.fxstreet.com/forum/showpost.php?p=5303&postcount=11

“And on and on it goes. Customers are pressured into sending in their 401k money or to take out second mortgages, which are then promptly flushed down the drain in worthless options contracts. Sales agents are described as harassing, berating and screaming at customers to send in money. One "Customer Service" representative tells a distraught customer who is losing his shirt that their sales agent (who else but the notorious Blauch) can't be reached because he has "had a heart attack" and then finishes the conversation by saying "sorry, but this is the chance you took." And my personal favorite, “sales agents throwing chairs across the room in fits of rage.”

Indeed, that is the chance you take with poorly capitalized firms.

3) Strolling through Maggot Mile
This story highlighted the loathsome villainy of Worldwide Clearing, one of the many seedy bucket shops populating South Florida. I also pointed out that another NFA registered forex dealer, Nations LLC, was inhabiting the same address and made the following prediction, “Anyone want to make odds on how long it will be before Nations gets shuttered? Perhaps the folks over at Intrade can add a dead forex firms expiration date contract to their prediction market. If so, I’m going long on Nations going under. And I ain’t worried about a margin call…”
http://www.fxstreet.com/forum/showpost.php?p=5243&postcount=9

A week later that is exactly what happened.

4) Nations LLC Bites the Dust
The collapse of Nations was entirely predictable for anyone who did a cursory background check on them. Cause of death? Undercapitalization. Pure and simple.

http://www.fxstreet.com/forum/showpost.php?p=5325&postcount=12
http://www.fxstreet.com/forum/showpost.php?p=5349&postcount=14
http://www.fxstreet.com/forum/showpost.php?p=6359&postcount=53
http://www.fxstreet.com/forum/showpost.php?p=6669&postcount=59

5) Underwater Udo
This self described “scuba rogue” was sent to the clink for using customer funds to buy himself cars put his wife through school and go deep sea diving all the while sending his customers statements telling them they were making a killing when in reality he was spending their money to fund his own lavish lifestyle.
http://www.fxstreet.com/forum/showpost.php?p=5713&postcount=27

6) Switzerland’s Swiss Cheese Regulation
Meanwhile in Switzerland gangs of scheming thieves were wreaking havoc in what had become the most notorious forex backwater on earth. I was quick to expose the lie put forth by Swiss forex dealers that their membership in anti-money laundering associations like ARIF was regulation comparable with the FSA or NFA for example.
http://www.fxstreet.com/forum/showpost.php?p=5950&postcount=38

Following that came some muckraking stories on Tradex Swiss AG. The Tradex story made national headlines as well.
http://www.fxstreet.com/forum/showpost.php?p=6308&postcount=51
http://www.fxstreet.com/forum/showpost.php?p=6641&postcount=58
http://www.fxstreet.com/forum/showpost.php?p=7049&postcount=70

Following the Tradex debacle Swiss authorities had to shut down another bucket shop, Aleccoh FX, which was being run by some shady character at the Forex TSD bulletin board who hides behind a George Soros avatar.
http://www.fxstreet.com/forum/showpost.php?p=11745&postcount=132
http://www.fxstreet.com/forum/showpost.php?p=11766&postcount=133

Finally, the stench of Switzerland’s rotting forex broker dealer corpses became so pungent the Government stepped in and demanded everyone get a banking license pronto: http://www.fxstreet.com/forum/showpost.php?p=8632&postcount=108

Coming Tomorrow- Part II of the Scholar’s Greatest Hits

[forex scholar]

You didn’t think the Scholar would forget such criminal masterminds as Robert Gray or overlook the smooth talking shysters hustling and bamboozling the public at places such as Easy Forex or FX Open did you? On with the show…

1) Forex Bastard’s Babe Bound for Big House
The sordid tale of Forex Bastard (aka Dmitri Chavkerov) and his mistress from Russia captivated the forex world after it was learned she actually got her golden ticket to America in a sham marriage that the Bastard himself presided over!
http://www.fxstreet.com/forum/showpost.php?p=12511&postcount=159

2) Dirty Rotten Scoundrel
The collapse of Forex Liquidity is perhaps the greatest con job ever committed in retail forex. It involved the forging of a fake bond valued at almost $40 million. This fake bond was used by FXLQ to fulfill their net capital requirement and for months they got away with it. Eventually the hoax was uncovered and FXLQ was shuttered by regulators and forced into bankruptcy:
http://www.fxstreet.com/forum/showpost.php?p=8382&postcount=95
http://www.fxstreet.com/forum/showpost.php?p=8491&postcount=102
http://www.fxstreet.com/forum/showpost.php?p=8491&postcount=109

But digging deeper one finds that Robert Gray has a long history of malfeasance in the forex industry.
http://www.fxstreet.com/forum/showpost.php?p=11817&postcount=134
http://www.fxstreet.com/forum/showpost.php?p=11817&postcount=137

He has worked at over a half dozen different forex dealers just in this decade alone hopping from firm to firm (sometimes stealing the previous firm’s clients on his way out the door) always hustling, always scheming. Today Gray finds himself in deep legal manure but he’ll get no help from the forex community that has come to loathe him as this Irish ballad can attest to:

I read at one of these links that Robert Gray has an Irish passport and that if things ever get too rough he can always hop on Aer Lingus and live out his days shepherding sheep on a quiet farm outside Galway. Well, should that day come I'm sure the forex trading community will sing in unison:

Oh Robbie Boy, the pipes, the pipes are calling
From glen to glen, and down the mountainside.
The summer's gone, and all the flowers are dying.
'Tis you, 'tis you must go and we gladly say goodbye.

But come ye not back when summer's in the meadow
Or when the valley's hushed and white with snow,
'Tis we'll dread you be there in sunshine or in shadow.
Oh Robbie Boy, Oh Robbie Boy, we loathe you so...

3) The Running Man
These posts detailed the antics of Mr. Ryan Nettles who cut a Genghis Khan like swath through the forex industry. His war with Craig Karlis of Tradex Swiss AG fame became grist for the forex tabloids. He then treated the NFA with equal contempt when another one of his firms (Tradeco) went down the toilet in the summer of 2007. Last he was heard hawking his Weekend at Bernie’s like dead corpse of a company, Finex, to the poor sods at Varengold. Someone sign this man up for the 400 meter relay at the Olympics!
http://www.fxstreet.com/forum/showpost.php?p=8404&postcount=99
http://www.fxstreet.com/forum/showpost.php?p=8405&postcount=100

4) Metatrader Misery
“What happens when a business deal goes bad? You get bitterness, recriminations, machinations and vows to get even. This appears to be what happened after Poltek FX and FX Open parted company.”

Such is the opening to two investigative pieces I did on the broker war between Poltek FX and FX Open. This bloody civil war spilled over into numerous bulletin boards as each side released damaging information about the other in an attempt to discredit one another. In the end they both wound up deeply discredited themselves.

These posts also detailed how risky some of these small metatrader brokers are. There isn’t a shred of transparency with these firms and it is impossible to do any kind of background check on them because they are not regulated and won’t even tell you where they are based or who owns the company. It is a leap into the dark that too many traders have been eager to take.
http://www.fxstreet.com/forum/showpost.php?p=11956&postcount=140
http://www.fxstreet.com/forum/showpost.php?p=11956&postcount=141

5) Shark Hunting in the Caribbean
This post told the story of Mitch Vazquez and the gang at GCI who were closed down by the CFTC in 2002 only to emerge from the ocean like Jaws himself and start circling the waters off the coast of Belize, in defiance of the very court settlement Vazquez had apparently agreed to. Oh by the way this deadly man-eating squalus is also known to inhabit the lakes of Switzerland in the guise of Forex.CH. Swimmers beware.
http://www.fxstreet.com/forum/showpost.php?p=12145&postcount=145

6) Easy Forex Exposed
Back in November of 2007 the Israeli media was running stories on the sales practices of Easy Forex. Quoted in one report was an Easy Forex solicitor who said “I had this evil grin on my face one day, when a client lost $35,000 in a quarter of an hour. A guy gets wiped out - I get my commission. A guy comes up a winner and turns a profit - I pay."
http://www.fxstreet.com/forum/showpost.php?p=8043&postcount=87

A lawsuit is pending in an Israeli court but when television crews are quoting former salesmen taking glee in their clients losing their shirts the trading public shouldn’t be too worried regarding the judge’s ruling. Stay away from these guys!

Last month some ex-traders put even more heat on Easy Forex claiming all sorts of irregularities including tales about Easy Forex’s “Net Deposit Method.” A must read for anyone concerned about the dealing and sales methods of market makers.
http://www.fxstreet.com/forum/showpost.php?p=13168&postcount=174


Two Volumes down, with more to come I’m sure. There is still a lot of mucking out to do in the FX Barnyard and there is still a lot of time to pass until the CFTC comes out with its new rules. In short, there is still much to be written. And so it shall be.

[RebateFX.com]

Good to see you still love FXOpen so much as to give all your attention to the broker.

I would like to add that the guy called "MaXeY" who started the "fxopen scam scum" thread at FF is yet to find a broker that will accept his cheating off quotes script. Check his other posts. There are a bunch of other brokers he is calling scam scum at the moment.

As for the Erlan thing, there has been an independant investigation into it. It was resolved in FXOpen's favour. See the result at
http://www.forexpeacearmy.com/forex-...-resolved.html

"Erlan", who we know is not one person, but a bunch of people working for Poltek/Masterforex/Beaverhead Financial etc, has failed to contact FXOpen about his issue. Indeed, when FPA acted as a mediator to get him to contact FXOpen, his reaction was not to make a phone call, but to go on yet another forum rampage. He was banned 3 times in one day using multiple accounts to spam Talkgold forum with his anti fxopen propaganda straight after the FPA got involved.

What does this all mean for FXOpen clients? Nothing. The company is going from strength to strength and is constantly improving it's services. Poltek on the other hand appear to be floundering and are not paying withdrawals to people. PoltekFx.com Is a big Scam!!

If you want to talk about FXOpen some more, why not pop into our head office for a chat? Perhaps some of your misconceptions can be cleared up.

[forex scholar]

Originally Posted by RebateFX.com

If you want to talk about FXOpen some more, why not pop into our head office for a chat? Perhaps some of your misconceptions can be cleared up.

Where is your office located?

[RebateFX.com]

Originally Posted by forex scholar

Where is your office located?

14 Gezira Al Wosta, Zamalek, Cairo, Egypt

You are welcome to visit anytime.

[forex scholar]

The NFA has just blown the lid off I Trade FX’s finances. I Trade FX has had a wild financial history going from $6,500,000 in adjusted net capital in March of 2007 to
$-3,000,000 in April of 2007 then up to an astonishing $34,000,000 by December of that same year. Last month the firm took a huge net capital drop down to $16,000,000. Who knows what it will be next month. But judging from this just released NFA BCC action against the firm we are beginning to get an inkling why the firm’s numbers are all over the place:

http://www.nfa.futures.org/basicnet/Case.aspx?entityid=0367140&case=08BCC00014&contrib =NFA

First the NFA reveals this juicy little tidbit about I Trade FX’s customer base:

…the firm had approximately $10 million in customer liabilities and approximately 3,000 active customer accounts, though only nine of these accounts had more than $50,000 in equity.

For a firm that saw its net capital grow from a little over $1,000,000 in 2007 to $34,000,000 by the end of the year that is a TINY customer base. Only 3,000 accounts? Only NINE accounts with equity of over 50k? The firm is barely doing any business. So how did their capital figure grow to such a huge amount?

Answer per the NFA: David Smith

Who is David Smith? Well he is famous in Jamaica for starting a couple currency trading clubs (Olint Corporation & TCI FX Traders) that racked up huge profits. Only problem for Mr. Smith was that he neglected to register with Jamaican authorities and in 2006 they swooped in and raided his place of business seizing everything in sight. The raid was upheld by the Jamaican Supreme Court last year. The Government has yet to charge Smith with any crime and in the meantime he has shuffled on over to the Turks and Caicos Islands to await the outcome of the investigation: http://www.jamaicaobserver.com/magazines/Business/html/20060316T220000-0500_100771_OBS_DAVID_SMITH_ON_THE_BUSINESS_OF_CUR RENCIES_TRADING_.asp

But while he was awaiting his fate in Turks and Caicos he continued to operate his Olint and TCI accounts at I Trade FX. And this is what has so concerned the NFA.

In 2007. when NFA got wind of the Cease and Desist order against Smith they asked I Trade FX to turn over Smith’s bank records since he was a principal in the firm. I Trade FX could not get Smith to comply and so they dumped him as a principal. But the NFA didn’t let the matter die there. They began digging through Smith’s trading activity at I Trade FX (particularly his Olint and TCI accounts). Examples of Smith’s activity cited by NFA included:

…NFA reviewed the activity in an account Olint opened with I-Trade in September 2006. The Olint account opening documents indicated Smith and his wife owned Olint and that the funds in the account came from them only. During the first two months this account was open, no trading activity occurred; however, during this time, Olint made four deposits totaling approximately $59 million and eight withdrawals totaling about $35.5 million.

Several more examples like this are cited in the NFA report including this one:

Between August 2006 to May 2007, Olint and TCI deposited almost $100 million into its trading accounts at I-Trade, but only a small percentage of these funds were used for trading purposes. By May 2007, Olint and TCI had withdrawn the vast majority of the funds from its I-Trade accounts. However, approximately $50 million of the funds which Olint and TCI withdrew were sent to JIJ Investments, a company owned by Martinez and his brother and father, Jacob and Jared Martinez (owners of I Trade FX).

What the NFA is charging I Trade FX with is failure to notify NFA of suspicious activities, not money laundering itself. But it does raise very troubling question about the people I Trade FX is associating with.

I Trade FX responded in a radio interview in which they directly contradicted some of the NFA’s charges (Smith was only a minority shareholder according to I Trade FX.) But in one eye popping segment of the interview David Smith and I Trade are busted by the interviewer on the question of “why wouldn’t David Smith give the NFA his bank records?” I Trade FX claimed Smith’s lawyers felt NFA had no jurisdiction to ask for Smith’s bank records and so Smith declined. Ten minutes later David Smith gets on the phone and states the NFA never asked him for his bank records and that I Trade gave NFA that response because Mr. Smith needed more time to put his records in order. Smith quickly back tracks when he gets called out on his original answer and in general gave a less than stellar performance. This radio interview was just conducted at nationwidenewsnetwork.com and is a must listen:
http://boomp3.com/listen/byus88nrr_h/dsm-interview_provider-investforlife

This is big news in Jamaica even if most people in the United States have no idea who David Smith and I Trade FX are. At the end of the interview the interviewer asks David Smith why customers of Olint aren’t getting paid their monthly returns. Smith has no answer and after an agonizingly long pause throws out that his “brokers” won’t give him the funds and he doesn’t know why. The credibility of David Smith crumbles by the hour and his constant references to himself in the third person in this interview only damage him further.

It may be that we have only touched the tip of the iceberg with this story so stay tuned as this investigation moves forward.

[forex scholar]

Google “David Smith” and “forex” and you come up with hundreds of results. The man is the George Soros of Jamaica and reading through some of the material on him either you love him or you hate him.

On the Internet you can find plenty of testimonials from customers who back up his claims that his trading club “Olin” was routinely getting 10% monthly returns. But I give you this blog post from “All Messed Up – My Life” to give you a front row seat at a David Smith love fest: http://www.normalontheoutside.com/?p=134

David Smith is a Celebrity

I went to a Forex Expo over the weekend. It was the first of its kind that I’d ever seen put on in Jamaica, and since I have been dabbling in FX trading for the past 2 months or so I decided to go.

The first three sessions of the expo were very good and I picked up quite a few pointers that I could see being immediately useful. In the last two sessions however I lost interest slightly as the presenters (MTI and I-TradeFX) began to shamelessly promote their own services, which in all honesty was to be expected, I stuck around nevertheless as I was hell bent on winning one of the gate prizes. Though I won nothing I did find something extremely interesting, almost everytime time Jared Martinez said the name David Smith there was a loud round of applause in the auditorium. I said to myself, “this man is a frigging celebrity!”, and its really not hard to understand why.

This man has, almost single-handedly, started to revolutionize the landscape of the financial sector in this country. For years we were stuck with getting returns of 4-5% per YEAR on whatever money we placed in the various banks. We knew it was meager, but we pretty much took it for granted that that was the way it had to be. Then came along David Smith, a man with years of experience in FX trading who formed an ‘investment club’ called OLINT and started giving his members 10% return per MONTH on their investment. Yes, you checked that right, that’s 120% per year. A year or two ago the government cracked down on his operation, stating that he was putting people’s money at risk and that he was not licensed to do what he was doing. The government’s argument was load of crock, but that is what happens when people are ignorant and choose to fight against what t
hey do not understand instead of learning more about it.
Nevertheless I don’t think the actions of the government were based on their care and concern for the people of Jamaica. These new investment clubs were causing an upset. They were ’showing up’ the financial institutions who were giving us cents on the dollar (if so much) from the fruits of our investments. The heads of these institutions continually rub shoulders with the decision makers of this country….I am sure you see where I am going.
Screw the PNP AND the JLP. I say David Smith for President!!!
(I’m kidding about that last bit, but the party in power should really take some advice from that man).

Such is the effect that Smith has on his followers. Indeed, below this blog post there are over 100 comments, many of them like this:

I have been a member of Olint going on 3 yrs. David Smith’s Olint is God sent to us.
I have met David, he is a brilliant young man whom unselfishly has used his talent to help us ordinary Jamaicans. There is not one member who is unsatisfied with their returns as most if not all have gotten back their principle. Olint has been contributing factor to the development of Jamaica and its people. There is nothing negative you can say to sway us - as the proof is in our pockets. GOD BLESS DAVID SMITH, HIS FAMILY AND THE OLINT MEMBERS
Olinter

So what got Olinter so riled up? Well, many of the people commenting claimed that Smith is merely operating a Ponzi scheme. In fact, the International Monetary Fund recommended that Jamaica close all its unregulated investment schemes due to the concern many bankers have about ponzi schemes in Jamaica.
http://www.jamaicaobserver.com/news/html/20080704T020000-0500_137465_OBS_CLOSE_UNREGULATED_INVESTMENT_SCHEM ES__WARNS_IMF.asp

This article that came out last week in the Jamaica Observer states there are 35 such known schemes in operation on the island today and that their collapse could wreak havoc on the island reminiscent of the Albanian Ponzi Scheme revolution of 1997:
http://en.wikipedia.org/wiki/1997_unrest_in_Albania

In fact, one major investment scheme has already been exposed in Jamaica, Cash Plus.
http://www.jamaicaobserver.com/news/html/20080416T010000-0500_134601_OBS_CASH_PLUS_DRAMA____CARLOS_HILL_AND _CO_ACCUSED_CHARGED_WITH_FRAUD.asp

Only time will tell if David Smith’s Olint is a Ponzi scheme too. And if it is it could have far reaching consequences well outside the happy confines of Jamaica.

[forex scholar]

The NFA has come out and clarified that it is not investigating any of the transactions in question by Olint or TCI. They are merely citing I Trade FX for not filing any anti-money laundering notices in regards to the transactions in question. Jamaican media is all over this one: http://www.radiojamaica.com/content/view/9731/26/

Olint and TCI Not Part of Investigation

The US securities watchdog company, "National Futures Association" (NFA) says local investment clubs Olint and TCI are not part of its investigation into foreign exchange trader, I-Trade.

Last week it emerged that a complaint had been filed with the NFA about a failure to report suspicious transactions involving foreign exchange trading.

Director of Communication at the NFA Larry Dykeman told RJR News that its investigations do not involve the local companies.

Last week the independent investigators NFA commenced investigations into a complaint about I-trade, a foreign exchange dealer which had Olint's David Smith as one of its principals.

Mr. Smith withdrew as a principal of I-Trade at the end of December last year.

Mr. Dykeman said the complaint arose because I-Trade did not supervise their complaint officer who should have raised an alarm about some of the account activity.

"What we are saying in this complaint is that, I-Trade as a member of NFA had an anti-money laundering programme in place that should have triggered them when they saw this account activity on behalf of Olint and TCI, they should have filed a suspicious activity report to the Federal government," said Mr. Dykeman.

According to the NFA there could be a logical explanation to the account activity but added that certain transactions should automatically trigger a report to the authorities.

I-trade could be fined if found guilty or the NFA could suspend its membership in the regulatory body.

The NFA's investigation into I-Trade will be completed by the end of the month.

[forex scholar]

David Smith is rumored to have over $1 billion in assets under management. As such he has money squirreled away all over the world. I Trade FX is just one of many brokers Smith has cash at. It is rumored that he has money at all the big FX brokers in the U.S. The folks over at investforlife.wordpress.com have been doing a great job covering the Olint story and today they printed an email from an anonymous source to Oanda asking them if they have any David Smith accounts and if so have they frozen them:
http://investforlife.wordpress.com/2008/07/10/olintoandatruth/

Naturally, Oanda cannot comment on private customer information. But they state in their email responses that regulators can request customer accounts be frozen. Smith is stating that is why he can’t give customers their money back. Olint customers are worried that Smith is playing the slippery eel and that he is using that as an excuse for non-payment.

My hunch is that regulators are swarming all over David Smith’s accounts right now and he most likely is telling the truth. But that being said will there be enough money in all his accounts to pay back his customers? That remains to be seen…

[forex scholar]

The new net capital numbers are out. Here is the link to access the report:
http://www.cftc.gov/stellent/groups/public/@financialdataforfcms/documents/file/fcmdata0508.pdf

The following firms have net capital below $10 million

Advanced Markets $5,017,000
Bacera $5,387,000
MG Financial $6,001,000
Forex Club $7,380,000
Hotspot $7,843,000
Friedberg Mercantile $8,167,000
CMC $8,426,000
Ikon $8,462,000
MB Trading $8,660,000
Easy Forex $8,662,000
IFX $9,141,000

In particular you will notice that three firms are far below the upcoming increase to $10 million. Advanced Markets, Bacera and Money Garden. In fact, they are struggling just to meet the current $5 million net capital requirement with Advanced Markets a scant $17,000 above the current law! That kind of capitalization does not inspire much confidence and traders really need to beware doing business with them.

The following firms have net capital below $20 million

GFS Forex $10,829,000
Alpari $11, 668,000
ODL $15,182,000
I Trade FX $15,828,000
FX Solutions $18,088,000
CMS Forex $19,306,000

The following firms have net capital above $20 million

PFG $20,275,000
Interbank FX $22,980,000
Gain Capital $44,293,000
GFT Forex $58,304,000
FXCM $70,794,000
Oanda $164,256,000

As always conduct your due diligence and make sure the firm you are trading with will be able to comply with the new law.