The ongoing legal saga surrounding FX broker USG Capital continued this week as the company’s court-appointed liquidator requested that its former employees be held responsible for the company’s debts. According to Globes, the liquidator will also seek the foreclosure of the owners’ properties.
USG’s legal problems stretch back to December 2015 when the company was taken to court for unregulated investment activities. The NIS 70 million ($18 million) class-action lawsuit was launched by a former client who claimed that, on top of its unlicensed activity, the firm charged illegal commissions and fees.
Following this, legislation from the Israel Securities Authorities (ISA) snuffed out USG’s ability to continue its operations. The firm claimed that the ISA’s legislation caused damage to its reputation that meant it could not continue its operations and it was left in serious debt.
The court-appointed liquidator of the company, Hanit Nov, argued that firm had acted fraudulently throughout its history. On top of charging fraudulent fees to clients, the company’s expenses were greater than the cash it was generating.
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To meet those expenses, the company would spend money deposited by clients. It would then cover those clients’ losses with the cash of new clients – a modus operandi very much akin to a Ponzi scheme.
As a result of this, Nov argued that the firm was, in effect, entirely fraudulent. Its business model was based on the idea that clients would lose cash for its benefit and it continued to charge baselessly for fees and commissions.
Given this, it is perhaps unsurprising that Nov has argued that seven of the companies’ officers and directors should be held personally responsible for its outstanding debts. The firm owes NIS 11 million ($3.09 million), 8 million ($2.25 million) of which is owed to former clients.
The liquidator is also seeking foreclosures of properties held by the owners of USG, Tomer and Avraham Sinai. The father and son own a number of properties, including three apartments, that the liquidator believes should be used to pay off USG’s debts.
In response to the liquidator’s petition to the court, Tomer and Avraham issued a brief statement professing their innocence. “We deny all that is said in the petition,” they said, “and our response will be given to the court.”