Gain Capital Group, the largest retail FX broker in the United States, was ordered to pay a civil penalty of $300,000 to resolve CFTC’s allegations over its handling of customer accounts introduced by Illinois broker, Mark Miller and his investment firm, Foremost Trading.
According to the CFTC, Foremost worked with Gain as an independent introducing broker and was subject to a prior enforcement action for fraud and other violations. Foremost owner, Miller made a series of unauthorized and fictitious transactions between February 1, 2014, and August 31, 2016 and possibly more.
The CFTC alleged that Miller made these transactions in a customer account introduced to Gain Capital by Foremost Trading. The watchdog alleged that Miller misappropriated customer funds by reporting fake errors to the customer’s futures commission merchant, Gain Capital, which caused this account to lose more than $700,000.
Gain Capital was accused of failure to supervise Miller and allowing his fraud to continue for years. According to the CFTC, the broker’s employees would have discovered the scam if they had conducted a diligent review of Miller’s activity and followed its policies for ‘processing trade move requests between accounts owned by different persons’.
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Additionally, Miller was accused of arranging over 500 unauthorized, bogus trades that moved money from a customer’s accounts to proprietary accounts held by him and his family members. Moreover, he requested winning trades be moved to his proprietary accounts held at Gain Capital.
“Foremost made hundreds of suspicious trade move requests to Gain in connection with Foremost’s proprietary accounts and the injured customer’s accounts. Miller had discretion to trade this customer’s accounts and also traded the proprietary accounts. At least some of these trade move requests transferred winning trades out of the customer’s accounts and into Foremost’s proprietary accounts based on purported trade errors. Gain employees did not consistently seek additional information on these trade move requests, as was provided in Gain’s policies and procedures,” the order further explains.
Gain’s officers, employees and agents ignored red flags that the introducing broker and his principal were procuring their clients through fraudulent means and engaging in fraudulent business practices, the order finds.
Furthermore, the company has agreed to ‘cease and desist’ from any futures breaches of the CFTC regulations, the order said.
The CFTC’s investigation was conducted in conjunction with a parallel inquiry by CME Group, which has taken disciplinary action against Miller and Foremost. The CFTC thanks CME Group for its assistance in this matter.