Proposed NFA Capital Requirement

I wrote about this in my column last February and then followed it up in the March issue of Euromoney. This is from the column:


Brand new thing

Reputational risk is something that is undoubtedly hard to quantify. But make no mistake, once a reputation gets tarnished, it’s hard to buff it back to a glistening shine again. Last week, I got an email from my muckers at Tradex Capital Markets, an established and reputable company based in Greenwich, Connecticut. It had the words urgent notice in the subject line and warned “friends and investors” to: “Please be advised that there is absolutely no relationship, direct or indirect, between the expelled entity “Tradex Group” and our company, Tradex Capital Markets” (their italics).

The company has found itself inadvertently caught up in the woes of the similarly named Tradex Group, which will be barred permanently from carrying out activities in the US by the National Futures Association (NFA) from February 15. The action was taken because Tradex Group had been, according to the NFA: “allegedly soliciting retail investors to trade off-exchange foreign currency futures and options with its parent company, Tradex Handel & Beratungs.”

The NFA added: “The Commodity Exchange Act explicitly prohibits the offering of forex transactions to retail investors, unless the counter-party is a regulated entity as defined in the act. Tradex AG was not registered as a counter-party. In addition to the permanent ban, Tradex was also ordered to pay $22,000 in restitution to its customers in the United States.”

Tradex Capital’s email told investors: “Our CFTC Registration and NFA membership (NFA No. 0299045) are current and in good standing, and we have a spotless compliance and regulatory record. As our investors know, we do not and have never offered any retail currency products or services. We have never been involved in any regulatory action, NFA arbitration, or CFTC reparations proceedings. All our principals and officers are also registered and in good standing.”

There’s more to say about Tradex Group. I’ve spoken to three individuals connected to the company and there’s a lot of mud-slinging and accusations being made, which I shall report in March’s issue of Euromoney.

Tradex Capital will ultimately be unaffected by the shenanigans at the now barred Tradex Group. Its track record is sound and older readers will remember its legendary chairman Rony Schläpfer from his role in the 1980s documentary Billion dollar day. Last November, I joked with a mate at the company that it should rebrand because it was easy to see how investors got it confused with the other mob. This incident shows how fragile a reputation is and how it can be potentially damaged even when there is no actual connection between two companies.
 
Nations LLC Goes Bankrupt

I hate to say I told you so, but, I told you so. Nations LLC has posted on their website that they are officially bankrupt and that “it does not appear likely that there will be sufficient funds to pay all claims of creditors and customers in full.” This is precisely what I have been warning about. When you trade with a poorly capitalized firm you are at much greater risk of losing your money because in the forex industry poorly capitalized firms have a terrible track record (this year alone over a dozen have gone out of business.) This is precisely why the NFA has raised capital requirements to $5 million. And as with One World Capital I put out a warning on Nations well before they started taking customer funds hostage.

Here is what I said on July 19, 2007:

“The order holds Labell and WWF (Worldwide Forex) jointly and severally liable to pay WWF's customers restitution in the following amounts: WWF $3.1 million and Labell $1.5 million. The order also imposes civil monetary penalties of $126,000 against Labell and $3.1 million against WWF. Finally, the order permanently prohibits defendants from engaging, directly or indirectly, in any commodity-related activity.”
http://www.cftc.gov/opa/enf07/opa5341-07.htm

End of story right? Not in the domestic retail forex industry where the shysters rise from the grave like the flesh eating zombies from 28 days later. Nope, what really makes this story juicy is the fact that refugees from Worldwide apparently migrated over to another firm, a dead forex firm walking, by the name of Nations Investments LLC. ($1,699,000 in net capital).
http://www.nfa.futures.org/BasicNet/Details.aspx?entityid=0358507&rn=Y

In fact, Nations even has the same address as did Worldwide!

1700 NW 64TH ST. SUITE 100
FT. LAUDERDALE, FL 33309

Anyone want to make odds on how long it will be before Nations gets shuttered? Perhaps the folks over at Intrade can add a dead forex firms expiration date contract to their prediction market. If so, I’m going long on Nations going under. And I ain’t worried about a margin call…

Then on July 24, 2007 the NFA closed Nations:
So what happened at Nations? Why was the NFA forced to take an "emergency Action" and shut them down? Well, because it was basically one of the industry's worst nightmares come true. An undercapitalized firm suffered massive losses and was forced to cover them with customer funds. Here is what the emergency action states:

"On Saturday, July 21, 2007, Nations sent to NFA, via e-mail, notice that it had fallen under the minimum required adjusted net capital."

On Monday, July 23, 2007, NFA sent a letter to Nations notifying the firm that as it was unable to demonstrate compliance with the minimum requirements Nations was to cease doing business. That same day, NFA received another notice from Nations representing that the firm had fallen under the required minimum "due to losses in the forex markets." This letter also indicated that Nations was attempting to raise $5 million "to make customers whole." (YIKES! "make customers whole?!" Who on Earth is going to give Nations $5 million?! While nations has been successful at making a fool of their customers they certainly won't be making them whole.)

Nations also provided NFA with a Form 1-FR as of July 20, 2007, which indicates that Nations owes customers trading in on-exchange futures more than $3 million and customers trading Forex more than $5 million. (Wow. What an implosion. They are $8 million in the hole? What the hell were they doing over there going to Vegas and playing craps with customer funds?)

This looks like another messy court case. With financials like this I expect the creditors will be coming out of the woodwork laying claim to what's left of Nations. If they're lucky they might be able to seize a fax machine or two, but as for customer funds, well, looks like some stripper in Vegas got her hands on that money first...

On September 6, 2007 the CFTC then Dropped the Hammer on Nations:
In July I put out an alert to the FX Community about Dead Pool Member Nations Investments, LLC. Well, shortly there after the NFA went in and closed them down. Now it appears the CFTC has stepped in to collect their pound of flesh. Nations was hauled into court by the scruff of their neck by the Feds and a court receiver has now taken over the defunct firm. Have customers lost money? I'll keep everyone informed.
http://www.cftc.gov/newsroom/enforcementpressreleases/2007/pr5380-07.html

U.S. Commodity Futures Trading Commission Files Action Against Futures Commission Merchant Nations Investments, LLC, for Failure to Maintain the Minimum Amount of Net Capital Required by Federal Law

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) announced today the filing of a complaint in the U.S. District Court for the Southern District of Florida against Nations Investments, LLC (Nations) of Fort Lauderdale, Florida, a futures commission merchant (FCM) registered with the CFTC.
The complaint alleges violations of the minimum net capital requirements of the Commodity Exchange Act and Commission regulations. More specifically, according to the CFTC complaint, as of July 21, 2007, and perhaps earlier, Nations’ net capitalization was below the adjusted net capital required by the Act and a Commission regulation. As of July 20, 2007, the complaint charges, Nations’ adjusted net capitalization remained below the required adjusted net capital with Nations’ total liabilities equaling $5 million while its assets were less than $2 million.

This week this statement appeared on Nations Website
www.nationsllc.com

Notice to Customers and Creditors of Nations Investments, LLC

On July 24, 2007, the National Futures Association ('NFA') issued a Member Responsibility Action against Nations Investments, LLC ('Nations' or the 'Company'), which among other things, directed the Company to close all open positions of forex account customers by July 25, 2007 at 5:00 p.m. (EDT). At the same time, the NFA authorized the bulk transfer by the Company of all the accounts of its on-exchange customers to Open E Cry, LLC, another Futures Commission Merchant. Accordingly, this Notice (and the administration of the receivership) is primarily for the benefit of the former Nations forex customers. (Former Nations on-exchange commodities account customers may contact Emily Stephens concerning their account at Open E Cry, LLC, telephone: (800) 920-5808.)

On July 30, 2007, the Commodity Futures Trading Commission ('CFTC') filed a Complaint against Nations in the United States District Court for the Southern District of Florida (the 'Court'). On August 7, 2007, the Court entered an Order pursuant to which the Court appointed Bruce H. Matson as Receiver for the Company and its assets. A copy of the Order can be viewed on this website.

The Receiver currently is attempting to determine the extent of the customer account balances and the other liabilities of the Company. He has taken possession and control of the assets and records of the Company. The Receiver also is attempting to identify what additional assets may be available to make payment to customers and creditors. The goal of this process is to (i) identify accurately all of the unpaid account balances of the Company's customers as of July 25, 2007, (ii) identify all other creditor claims, (iii) identify and collect any and all assets of the Company (including the possibility of asset recovery actions against third parties), (iv) distribute monies recovered pro rata to customers and creditors; and (v) provide the Court with a final accounting of the Receiver's activities. The Receiver is making every effort to seek cost efficient avenues to recover assets for the receivership and complete the claims process. The claims process, however, requires the identification of customers (and other creditors) and a determination of the validity and amount of their claims. This process is likely to take a number of months. If appropriate the Receiver will consider making an interim distribution to customers and other creditors. Customers also should be advised that, at the present time, it does not appear likely that there will be sufficient funds to pay all claims of creditors and customers in full. The CFTC complaint states that there are in excess of $5 million of customer liabilities and less than $2 million of cash assets remaining. Although it is much too early to predict, the recovery for customers may well be less than fifty percent (50%) of account balances as of July 25, 2007.
The Court directed the Receiver to file a report sixty (60) days from entry of the Order, the first to be filed by October 8, 2007. At that time, the Receiver will provide access to that report on this website. Finally, customers and creditors should refer back to this website from time to time for any updates.

Specific inquiries should be directed to the Receiver, Bruce H. Matson at LeClair Ryan at (804) 343-4090 or to Katherine M. Mueller at (804) 916-7117.

Real people have lost real money, not because they took trading losses but because they invested their money in a firm that was poorly capitalized. Don’t make the same mistake they did. Don’t trade with a poorly capitalized firm.
 
Quote from MrAngry:



Reputational risk is something that is undoubtedly hard to quantify. But make no mistake, once a reputation gets tarnished, it’s hard to buff it back to a glistening shine again. Last week, I got an email from my muckers at Tradex Capital Markets, an established and reputable company based in Greenwich, Connecticut. It had the words urgent notice in the subject line and warned “friends and investors” to: “Please be advised that there is absolutely no relationship, direct or indirect, between the expelled entity “Tradex Group” and our company, Tradex Capital Markets” (their italics).

One good reason to ensure your name is not used by others. Which was formed first? If so, they should have considered a legal challenge to another firm for using so similar a name in a similar industry.

Think Motorola would go after another company in the electronics industry that called themselves something like Motorola Radios?

World Wrestling Federation had to change to WWE, after the World Wildlife Fund won the right to sole use of WWF...
 
NFA Bounces the Rubble

The National Futures Association appears to be chucking a couple final spears into the bloated carcasses of two former dead pool brokers (Trend Commodities Limited Partnership and the Bacera Corporation.)

Trend Commodities has been permanently shut down and banned from NFA membership (http://www.nfa.futures.org/basicnet/Case.aspx?entityid=0358048&case=07BCC00033&contrib=NFA) while the Bacera Corporation was fined $50,000.

Of interest in the Bacera case was this statement, "The Committee found that Bacera failed to maintain required adjusted net capital, failed to give required notice of being below its minimum net capital requirement, and failed to take required capital charges and maintain accurate records." (http://www.nfa.futures.org/news/newsRel.asp?ArticleID=1960)

Again, it's all about capitalization. Firms that have adequate capital don't run into these kinds of problems. Firms that are poorly capitalized continually run into these kinds of problems and often times go out of business, in some cases taking customers down to the bottom of the ocean with them. It's that simple.
 
At risk of being called a shill I'll admit they're the only ones I know of.

I asked GFT this one time and they acted like they didn't know what I was asking.
 
lol.

does Alpari UK offer them? I'm not sure how the FSA regulation works, maybe someone more experienced with the UK/FSA can chime in here.
 
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