Gain Capital Wins Appeal Claim with CFTC

In a judgment earlier this month, the CFTC decided in favor of an appeal from Gain Capital in the case

cftc logoIn a judgment earlier this month, the CFTC decided in favor of an appeal from Gain Capital in the case of Robert West vs Gain Capital. The appeal rejected an earlier decision that Gain was responsible to pay West reparations in regards to ‘recklessly fail(ing) to disclose material facts to its customer’.

The case revolves West’s trading activity in 2010. At the time, West had opened deposited $5000 in his account with his credit card and had engaged in two speculative positions with the EURUSD. The trades were opened via telephone calls with dealers. West suffered liquidation of his account after failing to meet minimal margin requirements.

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Following the losses, West complained to Gain Capital that had failed to inform him of the risks and that the broker closed his positions without his knowledge, and was answered that he had used too much leverage when he was trading. West then contacted the credit card company which reversed the $5000 deposit. He then filed a complaint with the CFTC against Gain Capital and sought a refund of $5000, plus $20,000 in potential profits that he had lost due to his account being liquidated. After judging on the case, Gain Capital was found to be at fault for omitting to West the risks involved with positions and he was awarded the full $20,000 in reparations.

Appealing the case, Gain Capital brought the judgment to the CFTC which disagreed with the ruling and concluded

“We reverse the Judgment Officer’s award of speculative profits. We hold that the evidence in the record does not support a conclusion that Gain Capital violated section 4b of the Commodity Exchange Act. We further hold that, even if Gain Capital had violated section 4b in connection with West’s purchase of the second contract, West was at most entitled to an award of his out-of-pocket losses. Since Gain Capital voluntarily refunded that amount to him, there is no additional remedy that we can award. Accordingly, we reverse the Initial Decision and dismiss this matter with prejudice.”

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The CFTC based their decision on three reasons:

1)The initial ruling was based on ‘Fraud by Omission’. The CFTC didn’t believe that Gain had acted recklessly and omitted information that led to West being misled, as he had provided information that related to his understanding of the market.

2)The CFTC rejected West’s claim that Gain was supposed to contact him and inform him of the margin call as well as that the broker was not allowed to close his positions without his permission. The CFTC stated that Gain had no obligation to provide a margin call as well as that they had permission to liquidate his account.

3)The CFTC also added that West incurred no ‘out of pocket’ expenses and was even refunded his initial $5000 deposit. Therefore, even if the CFTC accepted that Gain had committed fraud, West wouldn’t merit to receive reparations.

CFTC Clears Gain Capital of Wrongdoing

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