On Tuesday, the U.S. Commodity Futures Trading Commission (CFTC) simultaneously filed and settled charges against Forex Capital Markets (NYSE: FXCM) for failing to diligently supervise its employees’ handling of accounts held by Revelation Forex Fund. The fraudulent foreign currency exchange pool, Revelation Forex Fund, was operated by Kevin G. White and two legal entities that he controlled.
According to the CFTC, FXCM failed to follow its compliance procedures that require that it “know all of its customers” and that its employees identify and promptly report suspicious activities to the appropriate authorities.
In July 2013, the CFTC sued White and his entities for their fraudulent scheme and subsequently entered into a consent order for permanent injunction against them. In December of that year he pled guilty to numerous charges of fraud, including the embezzlement of approximately $1.8 million of client funds. White was sentenced to over eight years in prison for mail fraud.
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Although FXCM was aware of warning signs that Revelation Forex was a fraud, FXCM failed to identify or report these warning signs in violation of its own compliance procedures. Additionally, it failed to report that White’s operation of websites on behalf of the entities violated their exemption from registering as a commodity pool operator. The CFTC also finds that FXCM failed to respond fully to its document request and, in doing so, violated a previous commission order.
The CFTC requires FXCM to pay a civil monetary penalty of $700,000, disgorge commissions and fees of $143,922.50 that it earned from the Revelation Forex accounts (which attracted nearly $7.4 million in investments), and comply with certain undertakings. These include hiring a third-party compliance consultant to review and report on the supervisory issues.