American Regulatory Overreach? ILQ Stands Up to the NFA

Last month the National Futures Association (NFA) announced it had filed a complaint for failure to cooperate against ILQ, the US- based institutional FX broker and Liquidity provider. Today Forex Magnates was able to obtain ILQ's legal answer to the NFA, rebuffing the allegations and accusing the regulator of making illogical demands and biased judgments.

In its complaint the NFA alleges that Institutional Liquidity LLC, or ILQ, and two of its executives, Mark Krier and Jason Tanner, failed to cooperate in a timely manner with an investigation. An additional allegation was made against James Pieron for failure to supervise in order to assure cooperation in an NFA investigation.

In a rare move for American FX brokers, the accused in the complaint tried to stand up to the NFA. In a powerful message to the regulator, the respondents call for the dismissal of the case as all the charges are baseless and the allegations are contrary to both fundamental legal principles and common sense. Additionally, Mr. Krier and Mr. Tanner, both former employees of the NFA, accused the agency of trying to make scapegoats out of them.

According to the legal answers of ILQ and the three other respondents, obtained by Forex Magnates, a very dark image of the NFA as a ridiculous Kafkaesque institution is painted. The case revolves around the NFA's demand for the financial information of Harrison Associates and HMcP. Harrison is an owner and principal of ILQ, and HMcP in turn owns Harrison and is therefore a principal of ILQ.

ILQ and the respondents did not have access to confidential financial information of HMcP as it was an investor in ILQ, not the other way around. When asked to produce the financial information of ILQ and HMcP, the respondents filed their firm's information within twenty four hours and contacted HMcP's senior executive, Craig Mawdsley, with the knowledge that the NFA would ask him to comply with the demands.

Despite ILQ's repeated attempts to convince him, Craig Mawdsley was hesitant to release certain documents he believed were irrelevant to the investigation and would expose the private and personal affairs of HMcP. According to the legal answers, a considerable amount of time was lost due to delays caused by NFA staff unavailability. Eventually, after NFA Associate General Counsel, Ronald Hirst took up direct negotiations with Mr. Mawdsley himself, the required information was produced.

Once all the financial information was turned over to the NFA the objectives of the investigation were fully met, according to the respondents. The inquiry established that there was no undisclosed party associated with HMcP as principals of ILQ. HMcP has the financial capabilities to fund ILQ, and there was no suspicious activity in connection with HMcP’s capital infusions into ILQ and HMcP has never had any relationships with Trevor Cook, David Smith or the Martinez family as was alleged.

Regardless of the outcome of the investigation, the NFA chose to accuse ILQ for its own failure to obtain the financial information in the time frame it was expected to. The legal answers explain that it is absurd and does not make sense as the respondents were not employees of HMcP, did not have the information or access to it, and therefore can not be expected to produce it.

Additionally, the respondents claim the agency tried to tarnish their reputations by making irrelevant allegations, saying that the NFA’s alleged suspicions regarding Trevor Cook, the Martinez family and David Smith lack credibility and are superfluous, and that the NFA knows that to be the case.

The most compelling evidence for the respondents' allegation that the NFA is trying to use them as scapegoats comes from Mr. Tanner's answer. It is stated that at about 4:00 p.m. on January 10, 2014, Tanner spoke by telephone with NFA Associate General Counsel, Ron Hirst. He agreed that Tanner and Krier had done everything in their power to facilitate the production of the requested documents relating to HMcP. Hirst went on to say to Tanner: “. . . you are between a rock and a hard place . . . there was little you could control . . . the action is aimed at the guys in the Bahamas . . . Mark (Krier) and you should receive $50,000 bonuses for taking the bullet on this . . . .,” or similar words to the same effect.

All four legal answers (in word docx format):

ILQ NFA ANSWER 2 18 14

KRIER NFA ANSWER 2 18 14

PIERON NFA ANSWER 2 18 14

TANNER NFA ANSWER 2 18 14