Anatomy of a Forex Fraud – Gaming the Rules

If there is a way to cheat clients, they’ll figure it out in the forex industry! The CFTC announced yesterday

If there is a way to cheat clients, they’ll figure it out in the forex industry!

cftc logoThe CFTC announced yesterday that the Federal Court of Massachusetts imposed a $600,000 on Jeffrey Liskov and his company EagleEye Asset Management for committing a $3 million forex fraud. The verdict ends a nearly one and a half year case of the CFTC against Liskov. While scams and frauds are unfortunately part of the forex and investment business, digging deeper in the EagleEye case summary reveals some of the vulnerabilities of the industry.

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According to the CFTC’s complaint, Jeffrey Liskov had been recklessly managing client funds through his EagleEye Asset Management firm between October 2008 to August 2010. The story starts earlier as Liskov had worked for Fidelity between 1993 to 2007. During that time he had advised clients on long term investment plans with many customers funds targeted for retirement. Like many account managers working at leading brokers who migrate to other firms and take their clients with them, Liskov left Fidelity to establish Eagle Eye while also soliciting his former customers.

At EagleEye, Liskov partnered with FXCM and urged clients to open accounts with the forex broker, while also signing a limited power of attorney (LPOA). The LPOA provided EagleEye the ability to manage funds while collecting performance fees on the trading results. The CFTC’s charges stemmed around Liskov’s actions with one former client; PS. As a former Fidelity client. PS’s assets were primarily invested in mutual funds with limited exposure to equities. PS’s account was a low risk retirement account.

Prior to trading customer accounts, Liskov had been heavily involved with forex trading and between 2004 and the launch of EagleEye in November 2008 had invested $270,000 of his personal funds which he had lost $215,000 of. As can be imagined, his trading performance was never mentioned to clients.

Having suffered large losses, but also during that time seen large gains in forex take place, Liskov began to solicit clients to not only benefit from the possible performance fees, but also have the opportunity to reinvest those funds in forex trading.

Following Liskov’s advice, PS had transferred $100,000 to FXCM and signed the LPOA with a 20% performance fee. Liskov initially had success trading PS’s account and had earned over $21,000 in gains in the first two months, while also pocketing a performance fee of $4250. With those initial gains, PS deposited and additional $200,000 and Liskov had brought the account to nearly $900,000 and earned close to $60,000 in fees. However, by late 2009, the account suffered huge losses. According to the CFTC’s complaint, PS had no access to her account details and relied on information from Liskov and was unaware of the losses.

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With PS’s account well below the benchmark level of nearly $900,000, Liskov’s opportunity to achieve his performance fee was limited. To skirt around this problem, Liskov opened a second account for PS without her knowledge by forging her signature. The account was funded by separate forged wire transfers from her Fidelity account whose details Liskov had. This account was subsequently wiped out after Liskov had achieved initially achieved a $22,000 performance fee. A third account was opened in the same process. Altogether, Liskov had lost over $3 million in PS’s funds while collecting $212,546 in fees. Of those fees, much of it was lost as Liskov sustained an additional $200,000 in losses in his personal trading account at FXCM.

Finally, in July 2010, FXCM had terminated its relationship with Liskov due to the large customer losses. Following this matter, Liskov then opened a forged account and wire transfer with Deutsche Bank FX (DBFX) with $800,000 of PS’s funds. At this point, DBFX contacted PS about the account and LPOA, at which point she terminated the account, and Liskov’s fraud was uncovered.


This case reveals one of the bigger problems within the financial industry; performance fees. While performance incentives are viewed as the carrot on the stick to keep money managers in line, it also provides limited responsibility for traders and encourages risk taking. This issue was one of the ingredients that led firms to over leverage during 2005-2008, this was one of the ingredients that Specifically in cases where the dollar numbers are larger, a trader can easily see a situation where they say to themselves “if I just add some leverage and get a small move my way, I good reap millions”. The obvious downside is losing credibility and the prospect of finding a new job, but greed will get people to take chances.

Another point of this case is that it involved a lesser used method of bilking clients. While the forex industry is probably best known for money managers churning accounts to collect commissions, and brokers playing games with pricing, Liskov used an unconventional method to scam his clientele.

While playing a passive role, the case also appeared to have exposed holes in FXCM’s supervision of money managers.  While not named as a defendant in the CFTC’s case, in the past, we have seen brokers being charged for their monitoring of partners. Notably, in a similar case of money manager fraud such as by an IBFX affiliate where the broker was sued as well as in early 2012 when PFG was fined $700,000 by the NFA (wonder where that money went) for failing to monitor its IBs.

We reached out to FXCM about their involvement with the charges and whether the case had led to any internal monitoring changes at the broker.  FXCM responded “FXCM actively cooperated with the regulators in this case and provided evidence. At no time have the regulators or the customers blamed FXCM or brought charges against FXCM.”

In addition, they added “FXCM has a money manager policy whereas if a money manager does not meet our internal level of monthly profitability, we terminate his ability to manage our clients. As of now, there is no regulatory requirements to do so, we take an industry leading approach to protect our clients. “

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