My Forex Funds Fiasco: Will the CFTC Be Sanctioned Like the SEC in the DEBT Box Case?

After the Securities and Exchange Commission (SEC) was sanctioned earlier this month, with orders to pay the legal costs of DEBT Box, the Commodity Futures Trading Commission (CFTC) is now defending itself against one such motion brought by My Forex Funds, calling it “an apparent attempt to strongarm a more favorable settlement.”

The prop trading firm, which is facing fraud allegation, is citing the similarities of “gross abuse of power” by the SEC, as highlighted by the court order, in handling the DEBT Box case with the CFTC’s misrepresented facts and its “staff [that] acted in bad faith.”

CFTC's Defense against Sanctions

In a motion filed earlier this month, My Forex Funds sought sanctions against the CFTC alleging that the regulator knowingly misrepresented a tax payment to obtain a temporary restraining and asset freeze order against the prop trading firm. The defendants accused the CFTC investigator for lying in the court and even for the intrusion on the attorney-client privilege between CEO of the prop trading firm, Murtaza Kazmi, and his counsel. However, the CFTC stressed that its questioning to Kazmi "did not elicit privileged information."

Highlighting the misrepresentation of tax payments, which was the primary allegation for seeking the sanctions order, the CFTC said: “This was a mistake, coupled with an error in judgment to await addressing the classification in open court rather than immediately filing a corrected declaration as to the nature of this payment, and the CFTC CFTC The 1974 Commodity Exchange Act (CEA) in the United States created the Commodity Futures Trading Commission (CFTC). The Commission protects and regulates market activities against manipulation, fraud, and abuse trade practices and promotes fairness in futures contracts. The CEA also included the Sad-Johnson Agreement, which defined the authority and responsibilities for the monitoring of financial contracts between the Commodity Futures Trading Commission and the Securities and Exchange Commiss The 1974 Commodity Exchange Act (CEA) in the United States created the Commodity Futures Trading Commission (CFTC). The Commission protects and regulates market activities against manipulation, fraud, and abuse trade practices and promotes fairness in futures contracts. The CEA also included the Sad-Johnson Agreement, which defined the authority and responsibilities for the monitoring of financial contracts between the Commodity Futures Trading Commission and the Securities and Exchange Commiss Read this Term has expressed its regret for failing to do so.”

“The CFTC has now taken every possible step to cure this mistake and alleviate other concerns of the Defendants, including by correcting its error on the witness stand and subject to cross-examination, filing a corrected declaration, and voluntarily producing an overlooked email to further clarify the record.”

The legal representatives of the agency further highlighted that “the Court did not rely on the misclassified transfer in imposing a preliminary injunction and maintaining a modified asset freeze.”

My Forex Funds Refutes CFTC's Claims

The CFTC initially charged My Forex Funds and Kazmi, with fraud at the end of August. According to the regulator, the company generated at least $310 million in fees from its prop trading business. The platform has had more than 135,000 customers sign up since November 2021. However, the regulatory action shuttered the business overnight with its temporary restraining and asset freeze order. After being challenged by the defendants’ lawyers, a court unfroze the majority of Kazmi's assets.

The defendants are also not satisfied by the latest response of the CFTC against the sanctions motion, claiming that the regulator is “misleading the Court about its disclosure of the error.”

“[The regulator] claims that it made ‘an error in judgment to await addressing the classification in open court rather than immediately filing a corrected declaration as to the nature of this payment’. But, the timeline disproves this claim conclusively,” the defendants’ legal representatives stated in a consecutive motion filed after CFTC’s defence.

“The agency was not waiting to correct itself in open court, as it now pretends; it was continuing to rely on the misrepresentation.”

The Similarity to DEBT Box

Interestingly, a US court recently issued a sanction order against the SEC. The regulator was blamed for misrepresenting evidence to obtain a temporary restraining order and asset freeze against DEBT Box, a crypto company. The US court ordered the regulator to pay the legal cost incurred by the company.

In its initial lawsuit against DEBT Box, the SEC obtained a temporary restraining order alleging that the crypto company had already sent $720,000 overseas and would flee to the United Arab Emirates. It also raised concerns about the secret transfer of funds overseas if it was notified of the order. Although the court initially approved the order sought by the SEC, the Judge later concluded that the regulator misrepresented the evidence. Further, the $720,000 transfer was made within the United States, not overseas.

Gensler’s SEC has repeatedly acted outside the law – not going unnoticed by Judges admonishing the agency for a "gross abuse of the power entrusted to it by Congress" (DEBT Box case) and for acting without "faithful allegiance to the law" (Ripple case). Let’s not also forget… https://t.co/vay6WDBfJc

— Brad Garlinghouse (@bgarlinghouse) March 25, 2024

“The bad faith is inextricable from the abusive conduct, and a sanction of attorneys’ fees and costs for all expenses resulting from that conduct is appropriate,” the court order against the securities market regulator stated. “Each piece of support the Commission offered in seeking the TRO, and then later reiterated in defending the TRO, proved to be some combination of false, mischaracterized, and misleading.