Practice what you preach: NFA puts a stop to absurd claim of 457% return on FX managed accounts, bans perpetrator

The United States is world renowned for its all-encompassing consumer protection laws, and this week’s decision by the National Futures Association (NFA) to ban McElhannon Group permanently from membership, and subsequently from operating a as a regulated financial services entity in the United States underlines this line of thinking.

Ensuring that promotional material used to entice new customers is accurate and does not seek to deceive or make false promises is paramount in the Land of the Free, with Philip M Worley, principal of McElhannon Group, Inc having felt the long arm of the law this week.

Defrauding customers by using misleading promotional material

In May this year, the NFA filed a complaint against Mr. Worley and McElhannon Group, claiming that Mr. Worley and his company, McElhannon Group were collectively using misleading and deceptive promotional material. NFA reviewed some of the McElhannon Group’s promotional material available on its website, and noted that the McElhannon Group claimed that from 2001 to 2013, its managed account program had experienced a 457% rate of return by trading the forex markets.

The McElhannon Group also claimed that its managed account program had only experienced one annual negative return during this thirteen-year period the McElhannon Group’s claimed rates of return. Given these concerns, NFA started an examination of the firm on February 25,2015. NFA attempted to contact Mr. Worley by phone and email.

The NFA considers this to be an attempt to defraud and cheat customers by way of using misleading material, and states as such in its decision.

Mr. Worley did not call NFA back, but did respond by e-mail claiming he was out of town and could not meet with NFA. At that time, through a request for information to NFA’s futures commission merchants (FCMs) and Forex Dealer Members, NFA learned that Mr. Worley and the McElhannon Group had power of attorney (POA) over two customer trading accounts held at an NFA Member FCM that had a combined value of approximately $57, 000.

Non-cooperation is a no no: No answer is considered an admission

The NFA reiterated to Mr. Worley, through e-mails and voicemails, that he needed to make himself available to NFA immediately so NFA could question him regarding the firm’s promotional material and the two customer accounts over which he had POA. However, Mr. Worley repeatedly claimed in e-mails to NFA that he was out of town and unable to speak with NFA by phone or meet with NFA in person. It is widely understood that the NFA does not take kindly to non-cooperation.

Due to the McElhannon Group and Mr. Worley’s failure to cooperate with the NFA throughout its attempted examination, the NFA was unable to verify their performance claims. Accordingly, NFA’s Executive Committee issued a Member and Associate Responsibility Action (MRA/ARA) against the McElhannon Group and Worley on March 5,2015.

The Committee finds that the McElhannon Group was duly served the Complaint but that it failed to answer the Complaint. Therefore, pursuant to NFA guidelines the McElhannon Group is deemed to have admitted the facts and legal conclusions alleged in the Complaint and to have waived its right to a hearing.

Accordingly, the Committee finds that the McElhannon Group failed to cooperate promptly and fully with NFA during the course of its examination and investigation of the firm; failed to comply with the terms of the MRA issued against it by NFA’s Executive Committee; and used false and misleading promotional material, in violation of various NFA Compliance Rules as per the official conclusion.

The McElhannon Group’s willful refusal to cooperate with NFA during its examination of the firm prevented NFA from completing the examination and determining if the firm was in compliance with NFA’s requirements. Such conduct on the part of the McElhannon Group strikes at the heart of NFA’s examination function which depends upon the full cooperation of NFA Members in order to operate effectively.

The McElhannon Group also failed to comply with the terms of the MRA issued by NFA’s Executive Committee which constitutes a further serious breach of its duty, as an NFA Member, to abide by NFA’s rules and procedures, and Executive Committee orders. By breaching these fundamental obligations, the McElhannon Group forfeited the privilege of NFA membership. Accordingly, the Committee permanently bars the McElhannon Group from NFA membership and from acting as a principal of an NFA Member.

Here signals the end of the road for another FX entity in North America whose transparency was questionable, further alluding to the notion that the US would like to see all FX head onto exchanges, where prices are central and transparent, and no false claims can be made.

For the complete case history, click here.