CFTC wants Tallinex to pay $10.3 million in restitution over US fraud

Maria Nikolova

The US regulator estimates that 711 customers are still owed $10,289,391 from their investment with Tallinex.

The United States Commodity Futures Trading Commission (CFTC) is seeking a Court Order that will direct retail Forex broker Tallinex a/k/a Tallinex Limited to pay a civil monetary penalty and restitution, with the latter to exceed $10 million.

On Friday, July 6, 2018, the US regulator filed a Motion for a Default Order against Tallinex at the Utah District Court. The proposed default judgment includes civil injunctive relief, equitable relief in the form or restitution, and civil monetary penalties.

The Commission’s Complaint alleges that between at least September 2012 and at least September 2016, Tallinex, an Estonian company registered and doing business in St. Vincent and the Grenadines, solicited and accepted orders from US retail customers in connection with leveraged or margined forex transactions and offered to be the counterparty to these transactions. Tallinex’s solicitation and acceptance of forex transactions from U.S. retail customers without being registered as an RFED violated the Commodity Exchange Act and Commission Regulations.

The Commission’s Complaint also alleges that in the course of soliciting U.S. customers Tallinex engaged in fraudulent and deceptive business practices which violated anti-fraud and other provisions of the Act and Regulations, including misrepresenting and omitting material facts and failing to disclose risk and other information mandated by the Commission.

In particular, Tallinex designed its website specifically to attract U.S. customers. The website stated, “Tallinex welcomes residents of the U.S. . . . and provides them with the same leverage and hedging facilities as non-U.S. . . . residents.” Tallinex’s online application contained a drop-down menu for the applicant to select his or her “country” and the U.S. was one of the choices. The online application also allowed a customer to select a base currency for transactions in his or her account and the U.S. dollar was one of two (the Euro being the other) available currencies.

Once the customers completed their online applications, Tallinex typically instructed them to send their funds to Tallinex’s bank account in Sofia, Bulgaria. Tallinex then transferred the customer funds to various other Tallinex foreign bank accounts in the Czech Republic, Georgia, and Estonia.

Tallinex’s fraudulent and deceptive acts and practices included misrepresenting that it was lawfully doing business in the US, misrepresenting the likelihood of profits and risk of loss involved in trading forex contracts, and misrepresenting the safety of customer funds and how customer funds were being used.

Tallinex’s website claimed that money managers made profits of between 162.29% and 1301.10% trading forex contracts for customers.

Finally, Tallinex claimed that it kept customer funds “separated from company funds” in “segregated,” “off-balance-sheet accounts,” and that, “Tallinex is unable to use client funds for company expenses.” The CFTC explains that Tallinex customers do not have their funds “separated,” “segregated” or “off” of Tallinex’s “balance sheet.” Rather the customers’ funds are the very funds Tallinex, as counterparty to the customers’ trades, uses to enrich itself.

The broker was properly served with a summons and a copy of the Complaint on August 15, 2017, and the answer was due on September 5, 2017. Tallinex, however, has failed to file an answer or otherwise respond to the CFTC Complaint.

Tallinex’s efforts to solicit U.S. customers were successful. From September 2012 to September 2016, 1,450 U.S. customers invested at least $12,346,423 with Tallinex, the CFTC estimates. Taking into account the repayments by Tallinex to its customers, the 711 customers are still owed $10,289,391.44 from their investment with Tallinex.

The Commission requests that the Court enter a judgment for a civil monetary penalty in the amount of $681,888, with post-judgment interest thereon. Under the proposed order, Tallinex shall pay restitution in the amount of $10,289,391, plus post-judgment interest. With prejudgment interest, the amount rises to $12,578,781.

To effect payment of the Restitution Obligation and the distribution of any restitution payments to Defendant’s customers, the Court is advised to appoint the National Futures Association (NFA) as Monitor.

The case is captioned Commodity Futures Trading Commission v. Tallinex et al (2:17-cv-00483).

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