Analysis: Why don't regulators care about conflicts of interest in FX? - FinanceFeeds

Analysis: Why don’t regulators care about conflicts of interest in FX?

Andrew Saks

CySec last week issued a fine and marked one of the reasons down as conflicts of interest, but did not elaborate. We expose the incestuous web of deceit that surrounds the FX firm in question. It is time regulators did their investigations more thoroughly

FX industry experts have all seen it many times.

The dubious practice in which companies whose core business activity is providing services, be they liquidity, brokerage solutions or market integration services to retail FX brokers and then open a retail FX brokerage with an MetaTrader 4 off-the-shelf solution under a different name.

This is a classic case of conflict of interest, as it positions a vendor in direct competition with its own clients, as well as giving them a potential edge over their own clients due to the access to brokerage databases, business models and customer pipeline which could easily be fed to their own retail entity, which under a different name and jurisdiction, would likely go unnoticed by any regulator or unsuspecting brokerage which entrusts its valuable intellectual property with its vendor.

Here we are, several years after Israeli brokerage solutions provider Leverate’s ill-fated venture into the realms of competing with its own customers by establishing the now-defunct and appropriately named LegacyFX under common shareholding, and this practice has not exactly been consigned to the history books.

LegacyFX was founded in 2015 with some commonality in shareholders with broker technology solutions provider Leverate, which , at the time of inception, considered that there was potential in a merger of a brokerage and the implementation of the full arsenal of technology and services that Leverate offers, with LegacyFX company providing services directly to retail clients from its base in Limassol, Cyprus, using the license of LFS (Leverate Financial Services), which is under the auspices of CySec.

Legacy FX let all of its staff go before closing its doors on May 9, 2016.

A faux-pas that large was noticed by astute professionals in the FX industry at the time, and it is very likely that pressure from within the FX industry, including brokerages which used the Leverate solution voting with their feet and going elsewhere as a result of questioning the motives of the firm, led to the short lived attempt at chancing it with owning a retail brand on this basis.

Yes, Leverate did the right thing… however CySec had allowed this license to be granted in the first place, with no questions asked. This is taken advantage of very often by less conscientious firms.

Whilst all this is common knowledge, and widely understood in the FX business, it has been clear over the years that regulatory authorities, even those which oversee the largest FX centers in the world such as London, Limassol, Sydney and Singapore, have no idea what this means or how such a devious structure even matters.

Or so we thought. There are still individuals and companies who represent the depths of depravity, who are simply getting away with conflicts of interest.

Last week, it became clear that one particular regulatory authority does understand this type of practice, and rather surprisingly, it is CySec.

Indeed, Cyprus, of all places, whose sleepy regulator is notorious for protectionism rather than stringent regulation, and whose practices are often on the agenda at parliamentary meetings within the European Union for what is politically correctly described as ‘non compliance’ when what is really meant is allowing all kinds of non-entities from all over the world to set up in Cyprus and do whatever they like whilst promoting that they are ESMA regulated and aligned with European Union nations in terms of recourse.

Whilst CySec should perhaps be applauded for investigating these matters, the regulator’s non-transparent method of reporting them continues to ensure that absolutely nobody is the wiser.

Last week, the more observant among FX industry professionals may have noticed that Cyprus-based relative newcomer EuropeFX had been on the receiving end of a regulatory fine by CySec amounting to 370,000 euros for a few breaches of CySec rules, one of which was ‘conflict of interest.’

The fine was issued to MAXIFLEX LTD, which is the parent company of retail FX brand EuropeFX, and in the first point stated by CySec in its announcement last week relating to a CySec board decision dated October 5, 2020, it is documented that EuropeFX breached rules relating to conflicts of interest, however as is usually the case with CySec, it was not revealed as to what these conflicts are.

Had this been a censuring in North America by the NFA, there would be a full report available for public viewing, demonstrating every aspect of conflict of interest and detailing it in full, including all parties with which the company concerned is accused of sharing a conflicted interest, and would list every individual concerned and their background.

Not in Cyprus, however!

It would not even be that difficult, especially given that there is pretty much no other industry in Cyprus apart from tourism and retail FX brands with their offices elsewhere, often structured in a ‘layered’ format with several shell companies, holdings firms and brands.

It is not the US or Europe, with diversified industry bases, huge populations and a variety of areas of global importance. It is a small island, largely barren, with no diversified industry base, a large no-questions-asked banking sector and a lot of tourists.

Given that CySec presides over the largest number of retail FX firms in the world, far more than regulators in developed nations with vast financial markets economies, and that retail FX is one of Cyprus’ main revenue generators, it would surely be easy to do a bit of simple research and then point out to potential clients what conflicts of interest exist.

Good quality, well established FX companies do not have ‘alias’ companies, or register themselves as different entities and offer marketing via a brand name which bears no similarity to the owning entity. IG Group is IG Group PLC. Hargreaves Lansdown is Hargreaves Lansdown PLC, FXCM is FXCM Inc, Saxo Bank is Saxo Bank A/S … and so on, and so forth.

It is only dodgy Israelis operating from Cyprus that layer their companies in this way, and one has to wonder why?

Just a few years ago, former US secret agent Haggai Carmon, an Israeli citizen, told FinanceFeeds that the way that binary options fraudsters structure their businesses, that being shell companies providing services to other shell companies, entities in various offshore jurisdictions owned by entities that are holdings companies and then using a series of smoke and mirrors to deflect the authorities and any recourse reminds him of “a sophisticated espionage or terror organization.”

Mr Carmon then used his skills to locate those behind the layered firms and recover substantial amounts of client losses, returning them to those who had been defrauded.

Today, it appears that no progress has been made.

So, given the structure of the entity in question, MAXIFLEX, which operates EuropeFX, has its director listed as Roy Almagor.

Mr Almagor is an Israeli citizen, who has operated many firms of this nature in the past, and in the mid to late 2000s, was employed by Yossi Herzog at Dealserv, the holdings company that owned defunct FX brokerage Forex Place.

Forex Place was an unregulated firm that closed down, running away with client money, and now Mr Herzog is on the run from the FBI who are seeking to arrest him and try him for binary options fraud. His sidekick, Lee Elbaz, languishes in jail in the United States.

Ms Elbaz had worked alongside Mssrs Herzog and Almagor at Forex Place, also known as 4XP, two of the Dealserv brands.

Back in 2009, Dealserv,  the company which provided services to retail forex brand 4XP (formerly Forex Place) looked to establish a regulated presence in a jurisdiction with a high quality regulatory structure. Initially, London was chosen, and the firm rented an office on Bishopsgate, in the City of London, and obtained a license from the Financial Services Authority (now the Financial Conduct Authority) in London.

The company employed a compliance officer, and operated the firm with skeleton staff for a number of months until its management, led by Yossi Herzog, decided to move the operations to Australia and hand responsibility to Yossi Ashkenazi, a former salesman for Herbalife who has been in serious trouble with Australian authorities recently and is banned from the FX industry.

The firm opened operations in Melbourne, renounced its FSA license in London and gained an ASIC license. Mr. Ashkenazi worked very closely with the management team at 4XP and Dealserv during that particular time.

Just a matter of months later, Dealserv recruited Jonathan Frankenstein as Chief Compliance Officer, based in Israel at Dealserv’s head office. In 2011, Dealserv established SkyFX under the commercial name of Trademarker, in Limassol, Cyprus, and appointed Mr. Frankenstein as CEO.

Mr. Frankenstein reported directly to 4XP management until such time that 4XP and Dealserv ceased its operations, owing several million dollars to clients, at which point FXTG and SkyFX were purchased by convicted Israeli criminal Aviv Talmor, owner of UTrade.

Mr. Talmor appointed Stavro D’Amore as CEO of FXTG whilst Mr. Frankenstein remained CEO of SkyFX until May 2015, when he left to become Executive Director of AJF Financial Services in Cyprus. Mr Talmor was arrested on entering Israel a few years ago.

Israeli Securities Authority (ISA) audit revealed that since the ISA banned the brokerage from signing new clients last May, it nonetheless acquired 44 new clients, pouring $3.5 million into UTrade Premium’s bank account.

“We suspect UTrade Premium investors’ funds were transferred from the company’s account for other purposes than the agreed upon,” an ISA report noted. “In addition, we suspect that UTrade Premium is looking for new investors, though the company will not be able to restore investors’ funds out of known insolvency” said ISA.

Mr. D’Amore left the firm resigned from his position as CEO in April 2015, the firm bringing in an interim CEO by the name of Elias Morales who stayed less than a month. Recently, Mr D’Amore has been featured in mainstream Australian newspapers as a muscle-bound scammer who drives a flash car and rips off investors.

He went on to operate Berndale Capital in Sydney, alongside a pseudo-mafia cartel called the Carlton Crew. Berndale went west, and did a runner with client money earlier this year, with Australian authorities saying it would be unlikely that any investors would see their funds returned.

After the redundancy of most of the staff at FXTG, which included PR Director Tanya West and six account managers, Global Vice President Rafael Bar-Lev was pegged to relocate to SkyFX in Cyprus, however very little information had been forthcoming with regard to this.

In 2018, SkyFX, unsurprisingly operated under another holdings firm in the name of Trademarker, was closed down and liquidated, its CEO Jonathan Frankenstein, a former colleague of Yossi Herzog and Roy Almagor at 4XP, moving to binary options provider O-Systems, which has also subsequently closed down.

Mr Almagor went on to establish Maxigrid Ltd, which was set up as a CySEC-regulated investment firm. Despite the regulation, Maxigrid has supported scams like RoyalsFX or LincolnFX as a payment processor according to the information available to FinTelegram. Payments from client-victims of the scams were made via the Lithuanian GlobalNetint (GNI), among others. Allegedy, GNI terminated the bank accounts of Maxigrid, Roy Almagor, and related entities.

The termination of the accounts was said to affect not only Maxigrid Ltd and Roy Almagor, but also his offshore companies Ministro Ltd and Pallino Ltd. We have received information from a reliable source that the Bank of Lithuania has until recently conducted an audit of GNI. However, the report is not yet available and the nervousness at GNI is said to be accordingly high.

MaxiGrid however, still exists and trades as AGM Markets. Who should be the principal there? Yes, you guessed it. Yossi Ashkenazi.

In April 2020, Bruc Bond (formerly Moneta International) owned by Israelis Eyal Nachum and Tamir Zoltovsky lost its license due to serious and systematic violations of regulatory requirements and problems with money laundering. Shortly thereafter, the two renounced the license of their International Fintech and intend to wind up the entity. It seems that the Israeli FinTech hub in Lithuania – and thus in the EU – is in trouble because of the scam facilitating and money-laundering activities.

In June this year, MAXIFLEX LTD, and Mr Almagor’s other company MaxiGrid, along with its AGM Markets brand, all under Roy Almagor’s directorship, were banned from operating in the United Kingdom.

AGM Markets, which had in February been banned from operating in Australia, following an ASIC investigation into the companies following a large number of complaints from retail investors who described being subjected to high pressure sales tactics and misleading statements about the potential profitably of entering particular trades.

Sound familiar? All of the entities in this article, with all their incestuous ownership by the same semi-literate con men have displayed exactly the same traits, and when caught, simply morph into something else.

CySec last week issued a 370,000 Euro fine, which is piffle, especially considering the redistribution of data between this network of donkey jacket-wearing Middle Eastern ne’erdowells that has been going on for well over a decade and a half. That amount could easily be recuperated in just one client acquisition, given that these entities ‘share’ data and do not need to invest in marketing.

CySec’s anodyne notice which doesn’t point any of these important matters out, is equally of little use.

Perhaps what CySec also don’t realize is that EuropeFX in Cyprus was operated by MAXIFLEX, EuropeFX’s Australian arm was a tied agent of USGFX which is now bankrupt, and had operated under USGFX’s license until recently. USGFX’s bankruptcy was scandalous and has been a moot point among regulatory officials in Australia who see it as a blot on the copybook of the country’s reputation as a retail FX center.

Going back to the situation with LegacyFX, at least Leverate pulled it before it became a larger issue. The company told FinanceFeeds in 2016 With regard to the decision to close Legacy FX, the investor explained “One of the shareholders got to understand the level sensitivity of Leverate’s vested interest in a retail brokerage among our commercial clients. The results we got back from testing generated positive outcomes in most cases, and we considered that as far as user experience is concerned with our broker solution, we are going in the right direction, however bearing in mind the sensitivities that had been raised, we concluded that maybe the time has come not to pursue that particular avenue any further.”

Maybe there are those who think the NFA’s overly elaborate reporting is too draconian, but in cases like this, it shows that a global adoption of such practice would be useful.

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