In a case submitted to the United States district court for the eastern district of Tennessee the group of 12 Plaintiffs claims that it was defrauded by IBFX (now subsidiary of TradeStation) and a money manager named Luis H. Rivas for about $25 million.
The Plaintiffs claim two things – that IBFX used deceptive marketing tactics and that Luis Rivas lost most of their money in what turned out to be a ponzi scheme. IBFX’s role in this suit however is not very clear as traders who were lured by Rivas weren’t direct traders but deposited their funds with Rivas who then lost most of them. Nonetheless Plaintiffs name IBFX as a Defendant in this case.
Similar suits against FXCM and FXDD claiming that these brokers used misleading marketing techniques and lured traders by offering demo trading were dismissed last year. It is clear however why in the past few years NFA has become very aggressive in its pursuit of CTAs claiming exorbitant returns and requires both them and brokers working with them to verify those results and keep an eye on their trading methods and marketing techniques.
Here’s the core part of the suit (the full document is embedded below):
In connection with and knowledge of Defendant Interbank FX, Defendant Rivas established The Forex Project (“TFP”) which was headquartered in Chattanooga, Tennessee with trading centers in Chattanooga, Tennessee, Knoxville, Tennessee, Spartanburg, South Carolina and elsewhere. Defendant Rivas represented himself as a trader in the foreign exchange market where his company goal was a fifteen percent (15%) monthly return on funds traded. Defendant Rivas took in $10,000 minimum deposits from customers and guaranteed a five (5%) monthly return. For this minimum monthly deposit of $10,000, customers would sign a three (3) year promissory note with Defendant Rivas guaranteeing a five percent (5%) monthly return. At the end of the three (3) year period, customers would receive the initial deposit back in full. Defendant Rivas’s goal was to make fifteen percent (15%) to twenty-five percent (25%) on all funds traded in the foreign exchange. From that return, Defendant Rivas would pay the customer five percent (5%), an equity agent who brought the customer to TFP, two percent (2%), trader doing the trading, three percent (3%) and the remainder to Defendant Rivas for administrative costs and profit. Defendant Rivas promised the five percent (5%) return beginning two (2) months after the initial investment.
Defendant Rivas had customers open accounts with Defendant Interbank FX and then wire transferred funds into the account. Defendant Rivas’ trading system was designed around the Meta Trader 4 trading platform provided by Defendant Interbank FX. The customers were never given other trading platforms or foreign currency trading company options. The customer would be required to execute a power of attorney to permit Defendant Rivas to trade their account in the foreign currency exchange market. Defendant Rivas held training seminars for prospective customers interested in trading on the foreign currency exchange market. Defendant Rivas employed equity agents as a means of attracting new customers to his program.
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The equity agents were two percent (2%) monthly for all investor funds into TFP. Defendant Rivas claimed approximately 222 customers with a total of $25,000,000 being held in fifteen (15) different accounts maintained by Defendant Interbank FX at its location in Salt Lake City, Utah. Any equity check payments to customers made by Defendant Rivas came from profits he earned by his trading of Defendant Interbank FX’s accounts.
Defendant Rivas’ foreign currency market trading accounts maintained by Defendant Interbank FX indicated the following. On March 8, 2008, Defendant had sixteen (16) accounts containing approximately $4,477,000. On April 25, 2008, Defendant Rivas had fourteen (14) accounts containing approximately $5,383,000. On May 16, 2008, Defendant Rivas had thirteen (13) accounts containing a greatly diminished amount of approximately $11,900. Between April 25 and May 16, 2008, Defendant Rivas withdrew approximately $3,427,000 by way if wire transfers. In making these withdrawals, in this period, Defendant Rivas lost over $2.5 million in what would have been open trades on the foreign currency exchange market.
From January 2007 Defendant Rivas deposited approximately $3,968,000 into his trading accounts held at Defendant Interbank FX. In fact, Defendant Rivas never had the ability to return the promised five percent (5%) monthly to 222 customers whom he claimed invested $25,000,000 in TFP. The $25,000,000 investment would have required a monthly payment of $1,250,000 to the customers and a monthly payment of $500,000 to equity agents. At the end of three (3) years, Defendant Rivas promised a full return of each client’s investment. Defendant Rivas’s total profits of $3,304,000 from January 2007 to May 16, 2008 could not have supported his promised payments of approximately $1,750,000 per month. Defendant Rivas had no ability to return the investors’ estimated $25,000,000 at the end of their respective three (3) year terms.
Defendant Rivas’ seminars which were regularly attended by approximately fifty (50) potential customers and numerous TFP employees regularly portrayed Defendant Rivas as representing having thirty (30) years of trading experience in the foreign currency market. On the last day of the seminars, Defendant Rivas directed everyone to the TFP website which had a direct link to Defendant Interbank FX’s account setup.
Defendant Rivas’ false representations were promoted and given credibility by Defendant Interbank FX in its extensive media advertising campaign which presented Defendant Rivas as a “forex trader” searching for a “reputable online broker.” Defendant Interbank FX described Defendant Rivas as “discovering” Defendant Interbank FX and being impressed by “the genuine customer service attitude and the company’s unique approach to forex trading.”
24. In early May 2008, equity agents realized that TFP’s customer’s equity checks began bouncing. Defendant Rivas made representations of his “financial problems” and the need for time to “trade out of his situation.” Defendant Rivas promised to refund their money but at eighty percent (80%) of the initial investment. These suspicious were confirmed on May 15, 2008 when four TFP investors filed an involuntary bankruptcy petition against Defendant Rivas in the United States Bankruptcy Court, Chattanooga, Tennessee. Thereafter, Plaintiffs discovered the nature and extent of Defendants’ racketeering schemes.
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