CySEC suspends license of AFX Capital Markets

Maria Nikolova

The Cyprus investment firm license of AFX is suspended due to alleged violations of investment services laws, as well as non-compliance with the Directive about the safeguarding of clients’ funds.

The Cyprus Securities and Exchange Commission (CySEC) has earlier today announced that the authorisation of AFX Capital Markets Ltd is suspended in whole.

The suspension of the Cyprus Investment Firm (CIF) license of AFX is pursuant to section 71(6)(c) of Τhe Investment Services and Activities and Regulated Markets Law of 2017 and section 10(1) of Directive DI87-05 for The Withdrawal and Suspension of Authorisation (‘DI87-05’), as there are suspicions of an alleged violation of section 22(1) of the Law due to the company’s possible non-compliance at all times with the authorisation condition in section 17(9) (organizational requirements) of the Law, as specified in paragraphs 4, 6 and 9 of Directive DI87-01, regarding the safeguard of clients’ funds.

The aforementioned alleged violation sparks concern about the risks relating to the protection of the Company’s clients or of the investors and constitutes a threat to the orderly operation and integrity of the market.

Within 10 days, AFX has to take actions in order to comply with the aforementioned provisions.

While the suspension of the authorisation is in force, the company is not permitted to:

  • Provide/carry out investment services/activities.
  • Enter into any business transaction with any person and accept any new client.
  • Advertise itself as a provider of investment services.

AFX, provided this is consistent with the wishes of its existing clients, may proceed with:

  • Completion of all its own transactions and those of its clients which are before it, in accordance with client instructions.
  • Returning of all funds and financial instruments which are attributable to its clients.

AFX Capital is currently a defendant in a lawsuit in the United States launched by the Chapter 11 trustee of the estates of Gallant Capital Markets and Avenica. According to the Complaint against AFX, throughout 2015 and 2016, Gallant deposited approximately $2.35 million (for its benefit) into a Gallant account maintained at AFX. Within the two-week period prior to Gallant’s commencement of its bankruptcy case, there was a balance of approximately $2.4 million in the Gallant account at AFX. Around that time, Gallant made multiple demands upon Defendants for the turnover of Gallant’s funds—all of which were disregarded.

Nevertheless, AFX withdrew the remaining balance, without authorization and without basis, on the Filing Date—in violation of the automatic stay. This case involves core issues whereby the Trustee is seeking a turnover of Gallant property and recovery of assets of the Gallant estate, and enforcement of the automatic stay.

In May 2019, the Trustee and the AFX Defendants entered into a Stipulation of Settlement resolving the Adversary Proceeding. Under the terms of the settlement, the defendants agreed to pay the sum of $830,000 in full and final satisfaction of any and all claims the Trustee and the Debtors’ estates have or may have.

In accordance with paragraph 1(a) of the Stipulation, the Deposit in the amount of $230,000 was due to be paid into the attorney escrow account of the AFX Defendants by May 30, 2019, which, at the request of the AFX Defendants, was later extended to June 20, 2019 by the Trustee.

When the Deposit was not paid by the extended date, on June 25, 2019, the Trustee sent another demand to the AFX Defendants and asserted that the AFX Defendants were in default of the Stipulation. Despite the default, the Trustee allowed the AFX Defendants until June 26, 2019 at 4:00 pm to provide to Deposit to their attorney’s escrow account. In fact, days before that, counsel for the AFX Defendants provided a written email representing that the “We were told by the client the money was coming and we are waiting for confirmation.”

In the latest status update, the Trustee says the AFX Defendants have been in default under the Stipulation and remain in default.

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