Full details of FXCM's class action suit
A few days ago I reported that FXCM was slapped with a class action suit over alleged fraud and racketeering.
A few days ago I reported that FXCM was slapped with a class action suit over alleged fraud and racketeering. Today I bring you the full lawsuit document. Here are some of the more interesting details and you can read it in full yourself in the below embedded document.
The Plaintiff, William H. Sanders, claims to have lost over $150,000 to FXCM over the years due. Two main topics the lawsuit deals with is the Demo accounts which serve to attract clients while not simulating real market conditions and when clients do switch to live they receive completely different execution and the execution itself where it is claimed that FXCM is in fact a market maker which actively goes after profitable clients. The main excerpts are below:
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Plaintiff, William H. Sanders, just like thousands of other customers, was lured into transacting business with Defendant, FXCM, buying and selling foreign currencies in what is known as the foreign exchange (“Forex”) market, but little did Sanders, or any of the others, know that FXCM intended to, and did, systematically bilk them out of their account money through an elaborate scheme of fraudulent tricks, devices, and artifices. What was represented to Sanders and others as a foreign currency trading platform developed upon professed principles of “fairness, honesty, and integrity,” which was supposedly rooted in providing customers with a true market trading experience, totally devoid of dealer intervention and market manipulation, was in truth a platform predicated upon deceit and trickery that systematically looted the accounts of customers who, like Sanders, placed their trust in FXCM.
The scheme deployed by FXCM was complex and varied, utilizing aggressive and pervasive marketing and advertising campaigns, including television, internet, seminars, webinars, and other media, portraying FXCM as a foreign currency trading platform where investors could trade foreign currencies in a true market environment. The advertisements were specifically targeted to convey a sense of trust and transparency to potential FXCM customers and to gain the customers’ confidence in FXCM’s trading platform. To further bolster customers’ confidence in its platform, FXCM enticed customers to use FXCM’s practice or demo account (hereinafter, the “Demo Account”) to simulate an FXCM trading experience. But the Demo Account, just like the myriad advertisements, misled customers about the true nature, functionality, and performance of the platform. Once lured into opening an account, customers were subjected to a staggering array of stratagems and ploys, some using extremely sophisticated computer software based upon complex algorithms and high-speed computers, to deceive the customers into believing that their trading was being affected by normal market forces, while in reality FXCM traded against its own customers.
And the so-called “Demo Account” – which was held out by FXCM as the sine qua non to persuade prospective customers to trade with FXCM – was the most cunning and crippling canard of all. By trading through the “Demo Account” without being at financial risk, the customer was allowed to experience direct market pricing, free from FXCM dealer interference or manipulation. The switch pulled by FXCM on how trading occurs once the customer opens a “live” account and starts trading with real money, is nothing short of a modern-day equivalent of the classic street con game known as “Three-card Monte.” Once “live” trading began, direct market pricing was replaced by profound dealer interference and trade manipulation.
To further its fraudulent practices, FXCM associated with software developers and programmers to create and deploy one of the most sinister software applications ever imagined, the central component of which included a back-end administrative console that provided FXCM an arsenal of system commands to facilitate FXCM’s fraud on customers. For example, through this console, FXCM can prevent the customer from closing out a profitable trade; hold up a trade so that FXCM can pirate the profit by trading against the customer; or manipulate the price of the market by utilizing “flash” trades to artificially move a market to close out a customer’s “stop order.” FXCM deployed these technological tricks to separate customers, like Sanders, from their money.
Defendant further deceives customers by failing to disclose its dishonest practices in its disclaimers contained in Defendant’s customer agreements. Buried in the fine print of Defendant’s lengthy, misleading, contradictory, and largely incoherent computer-generated customer agreement, Defendant purports to innocuously “disclose” and “disclaim” to the customer that, at times, the Defendant may act as a “principal” in transactions, which may result in the customer’s not getting the “best price” on certain trades. In fact, Defendant does not act as a “principal” in a “market” at all; rather, the Defendant acts as a well-armed and unscrupulous adversary to its customer, with superior knowledge, a technological advantage, one which ignores its own Code of Conduct, and which intentionally defrauds unwitting customers.
Defendant has worked with software companies and individual software programmers to modify its back-end systems and middleware to enable it to engage in the dishonest trading practices described below. Defendant has modified its trading platform so that many of these dishonest trading practices are applied to a customer’s account by automated computerized algorithms. Through this association, Defendant has also modified its trading platform to include a sophisticated back-end administrative console which provides Defendant and its employees a series of system commands designed, each accessible through a drop down menu, to execute many of the dishonest trading practices described below. All of these software modifications have been implemented by Defendant to prevent customers from making money and to cause customers to lose money to Defendant.
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Defendant’s dishonest trading practices include, but are not limited to, the following:
a. Slow Server Command: When a customer is engaged in profitable trading activity, Defendant routes the customer’s account to a “slow server,” causing trade execution to be slowed down, and allowing Defendant the time to hijack any potential profit in the trade by buying and selling in-between the customer’s order and the real market, with Defendant’s taking any profit and leaving the customer victimized with no money for his or her effort;
b. False “Error” Messages: Defendant uses its administrative back-end software to prevent the customer from closing out a profitable trade and instead causes the trading system to generate any one of a series of “error” messages to the customer, blocking the customer’s efforts to finalize what would have been a profitable order;
c. Flash Trades: Defendant, in a practice known as “stop hunting,” manipulates the market price of the traded currency, including printing bogus “flash trades” which move the “market” to trigger the customer’s stop order for a given trade, essentially closing the customer out of that trade;
d. Arbitrary Margin Rules: Defendant arbitrarily changes the margin rules on Fridays for an ensuing week without any notice to the customer, which results in the customer’s being deprived of any trading advantages or leverage opportunities they may have, and again causing the customer’s account to be closed out in favor of Defendant;
e. Abuse of “Slippage”: Defendant, in a practice known as “slipping a trade,” takes advantage of “slippage” in a given trade. “Slippage” is the change in price between the time when a price is quoted and a market order is placed. It is customarily caused by market movement while the trade is being executed. The incidence of “slippage” should roughly be equal in favor of the customer and the broker. Defying all laws of probability, in almost every case, Defendant’s customers suffer losses as a result of “slippage” at grossly greater percentages than Defendant does, which can only be explained by Defendant’s manipulation of pricing; and
“Slow Fill” and “No Fill” Commands: Defendant often fails to execute valid and profitable trade orders entered by the customer and instead causes the trading system to generate a “slow fill” or “no fill” message to the customer as the customer attempts to close out a profitable trade, preventing the customer from making a profit while generating illicit profits for Defendant.
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Details of FXCM’s class action lawsuit
Thanks to Michael and other notable fx bloggers, cases such as these are being given the publicity they deserve and traders are starting to realize that questionable practices are rife in the industry…and that brokers can in fact be held accountable.
Thanks to Michael and other notable fx bloggers, cases such as these are being given the publicity they deserve and traders are starting to realize that questionable practices are rife in the industry…and that brokers can in fact be held accountable.
Hi Mike,
I dont usually question your view but you mentioned that brokers “was lured into transacting business with Defendant”
personally i don’t think its true, the product is explained to clients prior to signing up and i agree brokers have responsibilities to inform clients but also clients should read the details defining the product.
these days firms put risk warnings in the body of the text. plus the demo does actually show how the product works.
im not sure what the complaint is about,
Hi Mike,
I dont usually question your view but you mentioned that brokers “was lured into transacting business with Defendant”
personally i don’t think its true, the product is explained to clients prior to signing up and i agree brokers have responsibilities to inform clients but also clients should read the details defining the product.
these days firms put risk warnings in the body of the text. plus the demo does actually show how the product works.
im not sure what the complaint is about,
I think what continues to amaze me most is how people believe that demo = real. No execution is occurring. By definition, Live trading will be different! When you find a broker you like, put small funds into a Live account.
I think what continues to amaze me most is how people believe that demo = real. No execution is occurring. By definition, Live trading will be different! When you find a broker you like, put small funds into a Live account.
I just read through the entire complaint and one thing was very obvious: Absolutely no proof whatsoever! Just vindictively-worded emotionally-laden accusations. This lawsuit SMACKS of sour-grapes… As in: I lost money and now I just have to blame anyone and everyone else but myself!
This is nothing more than a hail-mary pass.
I just read through the entire complaint and one thing was very obvious: Absolutely no proof whatsoever! Just vindictively-worded emotionally-laden accusations. This lawsuit SMACKS of sour-grapes… As in: I lost money and now I just have to blame anyone and everyone else but myself!
This is nothing more than a hail-mary pass.
Perhaps this has been going on for some time. Maybe the people who are really in the know are Kathy Lien and Boris S. who left the company at the same time just a few short yrs ago.
I guess it must be about publicly advertised PAMM accounts, which are quite popular at Alpari Ru, but usually not well tolerated by regulators. And all deposit/withdrawal methods where ownership is not verified like liberty reserve.
I guess it must be about publicly advertised PAMM accounts, which are quite popular at Alpari Ru, but usually not well tolerated by regulators. And all deposit/withdrawal methods where ownership is not verified like liberty reserve.
Perhaps this has been going on for some time. Maybe the people who are really in the know are Kathy Lien and Boris S. who left the company at the same time just a few short yrs ago.
@Tom,
I just read the complaint as well and I have to say that they point out things in the actual software that FXCM has developed that only an insider to FXCM would know and this means they either have someone from the inside or some proof regarding the software used.
Regardless – it’s going going to be interesting to see how FXCM are going to respond to that.
— Asaf.
@Tom,
I just read the complaint as well and I have to say that they point out things in the actual software that FXCM has developed that only an insider to FXCM would know and this means they either have someone from the inside or some proof regarding the software used.
Regardless – it’s going going to be interesting to see how FXCM are going to respond to that.
— Asaf.
It certainly does seem very suspicious that this person is suing only now that fxcm is a public company, when his trading occured back in 2004, 2005 and 2006
Lawyers…
It certainly does seem very suspicious that this person is suing only now that fxcm is a public company, when his trading occured back in 2004, 2005 and 2006
Lawyers…
Something we are discussing here at FM almost on a weekly basis. Our position and relationship with brokers is something we must find how to utilize in the benefit of all parties – but it’s quite a challenge. We are investing heavily in new content (coming soon) and even technology (mobile startup related to our industry) and will keep thinking of additional products as we grow. If you have interesting ideas let us know.
Since you asked, I’ll ask you the same: What do you say about this idea?
Something we are discussing here at FM almost on a weekly basis. Our position and relationship with brokers is something we must find how to utilize in the benefit of all parties – but it’s quite a challenge. We are investing heavily in new content (coming soon) and even technology (mobile startup related to our industry) and will keep thinking of additional products as we grow. If you have interesting ideas let us know.
Since you asked, I’ll ask you the same: What do you say about this idea?
One of their main complaints seems to be that FXCM marketed itself so extensively …. Isn’t this what all companies do? What they in fact should do?
Another question I have is that if this guy was so unhappy, why did he remain a loyal customer for like 6 straight years?
Maybe there’s something in this complaint but I just don’t see it …
Smells just like a typical lawyer maneuver to me …
One of their main complaints seems to be that FXCM marketed itself so extensively …. Isn’t this what all companies do? What they in fact should do?
Another question I have is that if this guy was so unhappy, why did he remain a loyal customer for like 6 straight years?
Maybe there’s something in this complaint but I just don’t see it …
Smells just like a typical lawyer maneuver to me …
There are only two logical basis for this suit. Either it is based mostly or completely on supposition and anecdotal evidence — or insiders have leaked the truth of what actually goes on at FXCM (not to mention other brokerages). Even if it is closer to the former — the plaintiff will most likely have the right to depose all connected parties — employees, software developers, corporate officers, and even banks that FXCM does business with. If the latter — if they have actual information from current or ex-employees, officers, or other connected parties, it will make the process of… Read more »
There are only two logical basis for this suit. Either it is based mostly or completely on supposition and anecdotal evidence — or insiders have leaked the truth of what actually goes on at FXCM (not to mention other brokerages). Even if it is closer to the former — the plaintiff will most likely have the right to depose all connected parties — employees, software developers, corporate officers, and even banks that FXCM does business with. If the latter — if they have actual information from current or ex-employees, officers, or other connected parties, it will make the process of… Read more »
Just an additional comment. A complaint such as the one you’ve read the contents of requires no proof. It is a complaint. Often proof does not get presented or come under examination until at least a preliminary hearing. The fact that the suit comes some years after does nothing to discredit it. Very often evidence is easier to hide over the short term but harder to hide over the longer term. Well guarded secrets take time to leak out and even longer to obtain significant verification of. If an investigator(s) was/were hired it could take a lot of leg work,… Read more »
Just an additional comment. A complaint such as the one you’ve read the contents of requires no proof. It is a complaint. Often proof does not get presented or come under examination until at least a preliminary hearing. The fact that the suit comes some years after does nothing to discredit it. Very often evidence is easier to hide over the short term but harder to hide over the longer term. Well guarded secrets take time to leak out and even longer to obtain significant verification of. If an investigator(s) was/were hired it could take a lot of leg work,… Read more »
One of their main complaints seems to be that FXCM marketed itself so extensively …. Isn’t this what all companies do? What they in fact should do?
Another question I have is that if this guy was so unhappy, why did he remain a loyal customer for like 6 straight years?
Maybe there’s something in this complaint but I just don’t see it …
Smells just like a typical lawyer maneuver to me …
One of their main complaints seems to be that FXCM marketed itself so extensively …. Isn’t this what all companies do? What they in fact should do?
Another question I have is that if this guy was so unhappy, why did he remain a loyal customer for like 6 straight years?
Maybe there’s something in this complaint but I just don’t see it …
Smells just like a typical lawyer maneuver to me …
Asaf – I hate losing money as much as the next guy. When I get stopped out at or near the low, it ALWAYS feels “personal.” But the same thing happens in stocks, futures & options too! Should I sue every single broker out there? If I had to guess, I would say that it sounds like this guy was simply an addicted or bad trader who would always put his stops at the most obvious price points, or perhaps tried to trade only during economic releases when fast markets put a lot of stress on trading servers everywhere. Bottom… Read more »
@Tom Delaney. Tom, what exactly is your association with FXCM? It looks to me that you work for them.
Asaf – I hate losing money as much as the next guy. When I get stopped out at or near the low, it ALWAYS feels “personal.” But the same thing happens in stocks, futures & options too! Should I sue every single broker out there? If I had to guess, I would say that it sounds like this guy was simply an addicted or bad trader who would always put his stops at the most obvious price points, or perhaps tried to trade only during economic releases when fast markets put a lot of stress on trading servers everywhere. Bottom… Read more »
@Tom Delaney. Tom, what exactly is your association with FXCM? It looks to me that you work for them.
Guys is this a real thing or just somone raging becase of a loose money
situation ? i started to doubt FX companies !
Guys is this a real thing or just somone raging becase of a loose money
situation ? i started to doubt FX companies !
Omar, i have traded years with different retail brokers. Based on my experience FXCM´s lawsuit is business as usual. And FXCM is more clean compared to other metatrader brokers (google “metatrader virtual dealer plugin” and you´ll see what i mean). All retail brokers are/were doing similar things as mentioned in document provided my Michael.
Only option is to go to true ECN´s like MBT and Dukascopy. Although you pay commissions there, at least you trade against other traders.
the short answer is yes, but for Crypto St, Coinsetter, Kraken etc, the long term goal is to do enough volume to pay lower fees with these exchanges, run an internal order book to cut out the 3rd party fees, and also bring cost savings through aggregating pricing from multiple exchanges.
As mentioned in the article, how everyone handles latency across external venues is the big question
the short answer is yes, but for Crypto St, Coinsetter, Kraken etc, the long term goal is to do enough volume to pay lower fees with these exchanges, run an internal order book to cut out the 3rd party fees, and also bring cost savings through aggregating pricing from multiple exchanges.
As mentioned in the article, how everyone handles latency across external venues is the big question
Trader, the fact that “All retail brokers are/were doing similar things as mentioned in document provided” does not make it an ethical/acceptable corporate behaviour. Unethical practices must be stamped out particularly in trading (be it fx, stocks, options, warrants, or any other market).
Omar, i have traded years with different retail brokers. Based on my experience FXCM´s lawsuit is business as usual. And FXCM is more clean compared to other metatrader brokers (google “metatrader virtual dealer plugin” and you´ll see what i mean). All retail brokers are/were doing similar things as mentioned in document provided my Michael.
Only option is to go to true ECN´s like MBT and Dukascopy. Although you pay commissions there, at least you trade against other traders.
Trader, the fact that “All retail brokers are/were doing similar things as mentioned in document provided” does not make it an ethical/acceptable corporate behaviour. Unethical practices must be stamped out particularly in trading (be it fx, stocks, options, warrants, or any other market).
Why didnt this guy just trade FX futures if he was so dissatisfied?
Folks don’t forget that many of the largest most sucessful firms, fxcm included, have all faced lawsuits almost EXACTLY like this one many many times before. This is nothing new. Each time, the lawsuits were either thrown out or lost. Check the NFA website for more info… You can also request full complaints & cases diretcly from the CFTC.
I would still definitely trust fxcm over some new small untested FX broker out of belize or even cyprus
This lawsuit is nothing but hot air.
Why didnt this guy just trade FX futures if he was so dissatisfied?
Folks don’t forget that many of the largest most sucessful firms, fxcm included, have all faced lawsuits almost EXACTLY like this one many many times before. This is nothing new. Each time, the lawsuits were either thrown out or lost. Check the NFA website for more info… You can also request full complaints & cases diretcly from the CFTC.
I would still definitely trust fxcm over some new small untested FX broker out of belize or even cyprus
This lawsuit is nothing but hot air.
Tom, According to the complaint the person lost about $150K which is not a lot of money and only filing this law suit must have cost around the $50K range. If this was an angry customer FXCM would have settled with him instead of having this law suit right after they IPO’d I don’t know any of the details but from reading this it smells like they have some inside information from the people that developed the FXCM execution engine otherwise he would not have claimed knowledge in this area. This could not have come in a worse time for… Read more »
Tom, According to the complaint the person lost about $150K which is not a lot of money and only filing this law suit must have cost around the $50K range. If this was an angry customer FXCM would have settled with him instead of having this law suit right after they IPO’d I don’t know any of the details but from reading this it smells like they have some inside information from the people that developed the FXCM execution engine otherwise he would not have claimed knowledge in this area. This could not have come in a worse time for… Read more »
mr William H. Sanders – If You are fxxxxxx idiot -dont trade!
Just give me your money instead FXCM… xD
mr William H. Sanders – If You are fxxxxxx idiot -dont trade!
Just give me your money instead FXCM… xD
I think everyone here will be real surprised as to what is really going on behind the green curtain, those of you that think you are such hot traders and making lots of money it wont last especially if you are using brokers. As to MB they are one of the worst, they are and ECN-Now that is funny, they charge a commission and then simply slow the servers down (price servers) make a spread on the price slippage on top of the commission, WOW the information that comes out in this complaint is going to shake this industry to… Read more »
I think everyone here will be real surprised as to what is really going on behind the green curtain, those of you that think you are such hot traders and making lots of money it wont last especially if you are using brokers. As to MB they are one of the worst, they are and ECN-Now that is funny, they charge a commission and then simply slow the servers down (price servers) make a spread on the price slippage on top of the commission, WOW the information that comes out in this complaint is going to shake this industry to… Read more »
seems the stock market didnt like the grounds of the law suit , FXCM stock UP
http://finance.yahoo.com/echarts?s=FXCM+Interactive#chart3:symbol=fxcm;range=5d;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined
seems the stock market didnt like the grounds of the law suit , FXCM stock UP
http://finance.yahoo.com/echarts?s=FXCM+Interactive#chart3:symbol=fxcm;range=5d;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined
Look – I have been trading for years, and I also lost money with fxcm due to slippage and all of the other crap they pull. So I really do not appreciate the comment about this guy not being able to trade. That has nothing to do with it. There were often times where I still made money, however with their slippage my profits were almost cut in half. I trade with another company now, and I do not have those issues any more. Yes, there will always be some minor slips when you enter or exit a trade, thats… Read more »
What trading platform are you using now instead of FXCM. I have personally exsperienced everything mentioned in this suit .
Look – I have been trading for years, and I also lost money with fxcm due to slippage and all of the other crap they pull. So I really do not appreciate the comment about this guy not being able to trade. That has nothing to do with it. There were often times where I still made money, however with their slippage my profits were almost cut in half. I trade with another company now, and I do not have those issues any more. Yes, there will always be some minor slips when you enter or exit a trade, thats… Read more »
What trading platform are you using now instead of FXCM. I have personally exsperienced everything mentioned in this suit .
Way to go!!!! Those dirty bums have scammed me out of thousands. I have said for years that they were dirty, now someone has proven it.
I new they were manipulating some of my trades especially the stop orders. Best of luck!!
Way to go!!!! Those dirty bums have scammed me out of thousands. I have said for years that they were dirty, now someone has proven it.
I new they were manipulating some of my trades especially the stop orders. Best of luck!!
@Asaf- Well, for once, we agree. This suit to me looks like a customer partnered with someone “in the know.” FXCM could be in trouble here. @omar- This is a real situation. FXCM has been one of the worst for years. How do most people think they made all of the money that they show for net cap when they were a deal desk? What the clients lost, they made. It’s only now that people are understanding how the Wild West of the industry worked before companies like IB and MB. I can’t understand why anyone had their funds with… Read more »
@Asaf- Well, for once, we agree. This suit to me looks like a customer partnered with someone “in the know.” FXCM could be in trouble here. @omar- This is a real situation. FXCM has been one of the worst for years. How do most people think they made all of the money that they show for net cap when they were a deal desk? What the clients lost, they made. It’s only now that people are understanding how the Wild West of the industry worked before companies like IB and MB. I can’t understand why anyone had their funds with… Read more »
the stock dropped again yesterday after the monthly metrics …
the stock dropped again yesterday after the monthly metrics …
so which brokers should we use in the spot market or should we switch to futures trading forex? Atleast those brokers are regulated..
so which brokers should we use in the spot market or should we switch to futures trading forex? Atleast those brokers are regulated..
Just have to look up FXCM’s books… They advertise ‘fixed spread’, provided with their advertised 1 pip markup. Hence each transaction (bid/ask = 2x) should provide them with this amount, and this markup only! Once checked, the rest should be easier… If the amount is higher (which I would strongly expect!) then FXCM should explain how it complies with the ‘fair process trading’ they so strongly advertise. I am with FXCM. I (want to) believe that they are not so ‘crooked’… But must admit each time you try to open/close a trade the price ‘jumps’ against you at least 1… Read more »
Just have to look up FXCM’s books… They advertise ‘fixed spread’, provided with their advertised 1 pip markup. Hence each transaction (bid/ask = 2x) should provide them with this amount, and this markup only! Once checked, the rest should be easier… If the amount is higher (which I would strongly expect!) then FXCM should explain how it complies with the ‘fair process trading’ they so strongly advertise. I am with FXCM. I (want to) believe that they are not so ‘crooked’… But must admit each time you try to open/close a trade the price ‘jumps’ against you at least 1… Read more »