The U.S. Commodity Futures Trading Commission announced that it obtained a federal court judgment against two Mexican companies, MXBK Group S.A. de C.V. (MXBK), and its forex division, MBFX S.A. (MBFX), requiring them jointly to pay restitution of $28,969,059 to defrauded U.S. customers and an equal amount as a civil monetary penalty.
The judgement ends one of the crazier sagas among forex scams. The case was initially raised in 2010 as the Mexican firms had solicited over 800 US clients to open managed accounts with the firms. Representatives told customers that the two firms were involved with forex trading and could expect results of around 1% a week. The end result though was that accounts had suffered large losses and account statements were falsified to represent gains (see case details).
When approached for their money, MBFX and MXBK stated that they had achieved gains through 2008, but lost 90% of their investments due to their broker, Swiss ACM causing them losses in 2009. The claims against ACM ultimately led to the broker being raided and the loss of their bid to attain banking license. As a result, ACM’s business declined and they were subsequently acquired by Swissquote Bank (read more here) as they couldn’t continue operating in Switzerland without a banking license.
During the court procedures, it was recognized that in fact the two companies had ceased being ACM clients well before the time of the accusations; thus absolving the broker’s involvement. According to the CFTC’s claims, the accusations against ACM were part of a deliberate move by MBFX and MXBK to lay the blame of their losses on the broker in order to cultivate client trust and raise additional funds.
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The court found the firms guilty of fraud and misleading clients. As such, not only had MXBX and MBFX and Co. defrauded clients, but they managed to tarnish and send a broker out of business on their way down.
What is interesting about this case and other similar ones is that the defendants did trade and lose the funds they received as opposed to operating a Ponzi scheme. What this represents is that those involved truly believed they could beat the market, or at least keep raising money and doubling down until they achieved success. While no results are ever guaranteed, the case shows the importance of working with companies using reputable accounting firms and who can prove their performance.
The Order, entered on March 7, 2013, by Chief Judge Ted Stewart of the U.S. District Court for the District of Utah, finds that MXBK and MBFX accepted at least $28 million from more than 800 U.S. customers to trade forex transactions in pooled accounts. The Order finds that MXBK and MBFX defrauded their customers, in part, by misrepresenting their historical trading results. The Order also finds that MXBK and MBFX willfully made, or caused to be made, false reports or statements to their customers regarding the profitability of their accounts.
The Order also imposes permanent trading and registration bans against MXBK and MBFX and prohibits them from violating the anti-fraud provisions of the Commodity Exchange Act, as charged.
The CFTC’s enforcement action arose from a joint CFTC cooperative enforcement investigation with the Federal Bureau of Investigation (FBI), the Internal Revenue Service (IRS), and the Securities and Exchange Commission (SEC). On November 30, 2010, the SEC filed a complementary action in the U.S. District Court for the District of Utah (SEC v. Oram), which alleged violations of U.S. securities laws by three U.S. residents alleged to be involved in the MXBK and MBFX enterprise.