The dog that didn’t bark – FXCM and the regulators

Maria Nikolova

“It’s not my burden to put in evidence that regulators sat by idly,” FXCM attorney says.

More than two weeks have passed since the latest US regulatory action against Forex Capital Markets LLC has prompted its exodus from the US retail FX market, due to the fact that the broker got prohibited from NFA and CFTC membership.

One of the consequences from the settlements between FXCM and US regulators was a hit on investors’ confidence in the broker and the FX industry in general, as well as a steep price drop of the shares of FXCM Inc, which is now named Global Brokerage Inc (NASDAQ:GLBR). Shortly after the US regulatory findings into FXCM’s practices were published, invitations to join class action lawsuits against the broker and its principals started piling up.

This reminded us of the situation from January 2015 when such lawsuits were launched against FXCM following (again) a steep drop in the share price prompted by a heavy loss triggered by the SNB decision to unpeg the CHF.

Interestingly, it is one of the legal cases against FXCM linked to January 2015 events that raised a very important question that has resurfaced again in February 2017. That is: Why were the regulators silent for such a long time?

The question was not initially raised by FinanceFeeds. It was raised by Vice Chancellor Sam Glasscock III at a Delaware Chancery Court in February this year, according to a report by Law360. The case (number 11812) is Brett Kandell v. Dror Niv et al., and concerns whether the broker’s directors were aware of regulatory violations when the company’s capital fell below necessary levels in January 2015.

Here is how the dialogue between the Vice Chancellor and FXCM’s attorney Kenneth J. Nachbar of Morris Nichols Arsht & Tunnell LLP went, according to Law360:

“Asked by the vice chancellor to cite evidence that regulators never flagged the company for its advertising practices and investor assurances of loss limits, Mr Nachbar said, “It’s the dog that didn’t bark.”

“It’s not my burden to put in evidence that regulators sat by idly,” he said.”

Now, this is a heavy accusation, referring to the famous Sir Arthur Conan Doyle and his short story “Silver Blaze,” where Sherlock Homes solves the mystery because he notices that no one he spoke to in his investigation mentioned that they had heard barking from a watchdog.

Dogs don’t bark at those they know and trust.

It is weird, indeed, that for so many years the US financial watchdogs were silent about what was going on at FXCM. Yes, the regulatory announcements refer to FXCM having made misleading statements to NFA staff. But this continued for at least five years, with no one having checked that earlier.

The silence (the lack of barking) of non-US regulators at this point is also alarming, because traders are now suspicious of FXCM non-US activities and have only the official corporate press releases to get information from.

In the US, according to data sourced from Law360 database, there are at least three cases against FXCM Inc after the February 6th, 2017 events – each of the three cases cites FXCM Inc, Dror Niv and Robert Lande as defendants, with the motions brought up in the New York Southern Court by the Rosen Law Firm, Pomerantz LLP and Levi & Korsinsky.

It is obvious that while FXCM Inc considers its US regulatory obligations settled, the legal fights are just beginning.

More interestingly, we have yet to see whether there will be changes to US Forex regulations following the recent revelations regarding FXCM. The SNB event and the consequences for what was one of the biggest retail FX firms in the US forced regulators to reconsider margin requirements. What’s next? Moreover, to whom will any new regulations apply, given the tiny number of FX market participants left in the US?

Read this next

Retail FX

Banxso announces 8.7% interest rate on deposits in South Africa

“With Banxso, they can enjoy the benefits of both worlds – earning competitive interest and having the freedom to trade, all within the same platform.”

Industry News

FINRA to publish transaction details in U.S. Treasury securities

“Consistent with our longstanding practice, FINRA is introducing greater transparency in a calibrated and careful manner, benefiting liquidity and resilience in this critical market while also mitigating potential information leakage concerns.”

Institutional FX

OpenYield launches “cheap and easy” fixed income trading for brokers

“We’re on a mission to make bonds cheap and easy to trade, and are excited about the opportunity to build generational capital markets infrastructure.”

Digital Assets

Sumsub and Mercuryo publish a guide for VASPs: “Mastering Travel Rule Compliance”

“At Sumsub, we’ve concentrated our efforts on filling the gap in understanding the complexity of Travel Rule regulation and helping organizations find the best solution to stay safe and compliant while minimizing costs and avoiding potential risks of non-compliance. This guide we created with Mercuryo, our trusted partner, is the ultimate navigation tool all VASPs can consult.”

Digital Assets

Bitget Wallet Leads with Record Swap Volume & New Crypto Innovations

This week, Bitget Wallet achieved a milestone by surpassing Metamask with a record 388,757 Swap order transactions, securing the global lead. The significant 7-day trading volume, almost 68,000 more than its rival, underscores its liquidity and user trust. This robust activity signals Bitget Wallet’s prominent role and reliability in the dynamic crypto market.

Digital Assets

Embarking on a Digital Currency Journey

Imagine you’ve stumbled upon a treasure map, leading you to untold riches hidden in the vastness of the internet. Instead of gold coins and jewel-encrusted goblets, this treasure comes in the form of digital currencies, the modern-day loot coveted by many.

Reviews

Traders Union Experts Share The Trading Analyst Review For 2024

Navigating options trading in rapidly shifting markets poses a considerable challenge. This is where options trading alert services become invaluable. They aid traders in keeping abreast of evolving opportunities and market trends. In this assessment, Traders Union experts scrutinize The Trading Analyst alert service to ascertain its efficacy. 

Digital Assets

BlockDAG’s Presale Achieves $9.9M: Aiming For A 5000-Fold ROI As Cardano’s Price Rises And Fantom Launches Sonic

Explore Cardano’s surge, Sonic’s efficiency, and why BlockDAG’s growth makes it the top crypto choice. A deep dive into the future of blockchain investments.

Digital Assets

US, UK probe $20 billion Tether transfers tied to Russian exchange.

U.S. and UK authorities are investigating the movement of $20 billion in the USD-pegged stablecoin tether (USDT) through Moscow-based exchange Garantex.

<