IronFX and the institutional corruption at CySec and government level revealed

IronFX and the institutional corruption at CySec and government level revealed

Sources close to the matter have provided information that demonstrates that the CySec investigation into 1,000 complaints about the missing $176 million in client funds was not conducted by independent body but instead by an IronFX UK lawyer, and that only 20 cases were used as a sample. The conflict of interest renders the entire audit null and void

The question in the minds of pretty much every retail FX industry professional in the world, in all capacities ranging from brokerages to IBs, is often “How on earth is IronFX still in business?”

Despite worldwide allegations of withholding of customer and IB withdrawals, spanning over a three year period, the firm retains its CySEC license, and continues to operate.

These allegations range from high profile Chinese police and media investigations into the firm’s Chinese operations resulting in an exit from China, a litany of complaints directed at regulatory authorities ranging from the FCA in Britain to CySec in Cyprus, and black and white statements that demonstrate that the firm has outstanding tax liabilities and has been embroiled in litigation concerning non return of client funds and the application of dubious bonus terms which make it impossible for clients to access their capital.

Additionally, it has been stated by various commercial entities wishing to attract business that ongoing class action lawsuits are in progress, however caution should be exercised when looking at this, as class action lawsuits are not enforceable in Cyprus.

Only individual actions are accepted, as confirmed by a number of commercial litigation specialists that we have spoken to. For this reason the Chinese filed 160 individual actions. The announcements by any law firm that state that there is a class action law suit in progress represents a marketing tool, which should not be supported, since these law firms, according to our research, are trying to profit on damaged clients, without being able to file an action in Cyprus.

Despite this, regulatory intervention has been minimal indeed, yet smaller firms have had their CySec licenses removed for far smaller abuses of the license terms and far less widespread foul play toward customers.

In May last year, whilst in Cyprus, FinanceFeeds discovered that a senior Cypriot government official, Andros Kyprianou, leader of the opposition AKEL party, had written a very strong letter to the central government urging them to do something about the tide of complaints that IronFX was the subject of, yet still the firm continues to operate.

Today, FinanceFeeds has become privy to information provided by sources internally that demonstrate the absolutely corrupt nature of the circumstances that surround the entity.

In 2016, The Audit Office of the Republic of Cyprus received a series of complaints from clients of IronFX, most of which referred to the continual refusal of the company to approve client withdrawal requests.

The government’s Audit Office report stated at the time that these clients blamed CySec for not taking adequate investor protection measures and for taking decisions under political pressure.

The first complaints were filed to the CySEC in December 2014 and were followed by further complaints by embassies and other foreign financial regulators.

By July 2015 the complaints had risen to over 1000 (according to the CySEC, there were duplicate claims). At that time, the company responded to the CySEC that the terms and conditions that were accepted by the complainants gave it permission to withhold funds from clients that it considered to have abused of its bonus promotions.

Since then, IronFX has actually taken clients to court for defamation, on the basis that some clients took to social media channels in order to rally attention to their inability to withdraw, thus stating that IronFX was effectively ‘stealing’ their money, when in actual fact, the terms and conditions of the bonuses were clearly stated in the contract signed by customers, thus FinanceFeeds had at the time sufficient cause to consider that these cases may be won by IronFX, regardless of the improper nature of such a situation.

Having spoken to a commercial litigation expert in London, FinanceFeeds is now of the opinion that any court would examine the terms of the bonus, and consider that not enough clarity surrounded it and that the terms are banal, thus a court would potentially encourage IronFX to settle. This is still extremely ambiguous, however, and thus for a retail client with limited resources, not a route that should be recommended.

So, thus far, the Audit Report from CySec just makes some noises yet does not provide any framework for action, as the damage to the industry at large which has been created by IronFX’s widely alleged conduct continues to prevail.

Unlike the NFA or ASIC in North America and Australia, CySec does not have criminal prosecution or restitution powers, and cannot actually close down and liquidate the assets of companies which do not return client assets, however CySec does have the power to suspend and remove licenses, yet this has not been done.

And here is why….

In early June 2015 the CySEC Board requested the company to seek independent legal advice from legal counsel (who would be approved in advance by the CySEC) regarding the compatibility of the terms and conditions that were signed by the company’s clients with the European Directive 2004/39 / EC (MiFID) and also asked the company to appoint external auditors to investigate the complaints that had not yet been settled.

The company made a counterproposal in order to appoint independent external experts (instead of external auditors) to investigate all complaints that had not yet been settled, which the CySEC Board accepted.

Then the company suggested appointing its UK lawyers as independent experts, in order to investigate the complaints. It noted that in February 2015, these lawyers had given instructions to a third party to issue an opinion on whether the company had the right to withdraw or withhold part of the bonus (opinion issued in March 2015 and, as mentioned above, submitted to the CySEC during the preliminary inspection).

The competent CySEC officers who examined the company’s proposal requested the lawyers to provide a certification that they had no professional / client relationship or no other relationship with the company, which could lead to a potential conflict of interest.

In December 2016, it transpired that IronFX had a $176 million client fund deficit, and the astonishing aspect in addition to the client funds is that CySec moved only after receiving 1,000 complaints and decided not to examine all complaints, but a sample of 20 complaints.

According to a source very close to the matter who has taken this up with commercial lawyers, the 20 complaints were not examined by independent auditors as stipulated in the audit report, but by IronFx UK lawyers. It is alleged by our sources that these lawyers were not able to submit the independence certification that was required by CySEC supervisors, thus the outcome of their examination is void.

Another aspect is the conflict between CySEC supervisors and CySEC board. The board rejected all recommendations of the supervisors.

According to the minutes of the session of the CySEC Board, the Chairman of the CySEC informed the members that the company had appointed an independent expert to investigate all clients complaints, however the expert’s name was not mentioned in the minutes, to speed up the process and that, from the information given, the expert had initially made a sampling of complaints to investigate the methodology used by the company in connection with the terms and conditions signed by the clients.

On June 3, 2016, the Securities and Exchange Commission (SEC) in the United States, whose approval would be required in order for Nukkleus to proceed with any acquisition of IronFX assets (which will never happen), was made aware in writing, and has subsequently included in the regulatory documentation relating to this case, that IronFX Global Limited is a party to the civil actions no. 204-368/2015 pending before the District Court of Limassol.

The said civil actions were filed by Chinese clients of the Company on 22 January 2015. The said clients who have been identified as abusive traders are claiming against the Company damages for breach of contract for the total amount of $1,258,457.30.

It should be noted that the clients filed their statement of claim late in 2015 (more than 10 months after the proceedings were filed). Early in 2016, 72 clients out of 165 sent instructions to their attorney to withdraw the proceedings they filed against the Company. The total amount claimed by the clients who have sent such instructions amount to $564,849.54.

The SEC is also aware that IronFX Global Limited reached a settlement with a major institutional liquidity provider following proceedings that were issued as a result of the SNB event of January 2015 by virtue of which IronFX agreed to pay the liquidity provider the amount of £2,500,000 in twenty five equal instalments of £100,000. The remaining outstanding amount stands at $1,575,000.

Additionally, IronFX has employment-related tax obligations with the Cyprus Tax Authorities of approximately $1.6 million, including a tax settlement agreement, which is also an aspect that the SEC has knowledge of.

The saga continues….

#client funds, #CySec Audit, #investigation, #Iron FX, #IronFX UK lawyer, #Missing client monies

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