Wolf of Wall Street-like FX broker banned for 10 years by ASIC

Rick Steves

“Forex CT’s trading floor culture […] had been likened by former account managers to The Wolf of Wall Street, where a bell or a gong was rung when clients deposited funds of certain amounts into their trading accounts and account managers could participate in incentive ‘games’ such as ‘wheel of fortune’, roulette tables and dice games to win cash if certain client deposit targets were met.”

Could ASIC ban CFD trading in Australia?

ASIC has announced a ten-year ban for Shlomo Yoshai, the chief executive officer, responsible manager and sole director of Forex Capital Trading.

The regulator found Mr. Yoshai’s disregard for compliance was so serious it justified the 10-year ban from providing financial services.

Forex CT’s breaches of the Corporations Act included “failing to do all things necessary to ensure the financial services
are provided efficiently, honestly and fairly” and conflicts of interest.

The broker’s commission structure even entitled team leaders and account managers to a percentage of client “net deposits” (deposits less withdrawals).

ASIC found Mr. Yoshai put pressure on account managers to implement high-pressure sales tactics, encourage deposits with incentives, recommending trading strategies for higher exposure to the market, and pressuring clients to deposit funds and delay/cancel withdrawals.

“Forex CT’s trading floor culture […] had been likened by former account managers to The Wolf of Wall Street, where a bell or a gong was rung when clients deposited funds of certain amounts into their trading accounts and account managers could participate in incentive ‘games’ such as ‘wheel of fortune’, roulette tables and dice games to win cash if certain client deposit targets were met”, the statement said.

ASIC also banned former team leaders Jarrod Popuard (six years), Benjamin Esler(4.5 years), Huy Minh Hoang (5 years), and Andrew Tran (3 years). They were found to contribute to “The Wolf of Wall Street” culture.

In making the banning orders, ASIC found all five men are not fit and proper persons to provide financial services.

ASIC first canceled Forex Capital Trading’s AFS license on 28 May 2020. At the time, the regulator found Forex CT’s financial services business model disregarded key AFS licensee obligations and resulted in unconscionable, misleading, and deceptive conduct.

“The size of the Australian market for OTC retail derivatives has grown considerably over recent years. With that growth, there has been a dramatic increase in complaints to ASIC in relation to conduct within the OTC retail derivatives market. ASIC has and will continue to take strong regulatory action to protect consumers of these products”, the official statement said.

In addition to stricter measures to ensure brokers and traders comply to the law, ASIC went further and followed the steps taken by ESMA and the FCA and restricted leverage on FX and CFD products.

ASIC new rules on CFD products will come into effect from 29 March 2021 and will include negative balance protection and ending inducements in the sale of CFDs and standardizing margin close-out arrangements.

These restrictions were introduced based on ASIC reviews in 2017, 2019 and 2020. These have found that most retail clients lose money trading CFDs. The retail clients of a sample of 13 CFD issuers made a net loss of more than $774 million in the most volatile five-week period of the pandemic (March and April 2020).

Much has been said about what CFD trading brokers would do amid the profound impact that leverage restrictions will have on business operations. Some brokers have decided to cancel their ASIC license and go offshore. Others are reacting to the expected drop in volumes and revenues by expanding to other markets.

Natalia Zakharova, Head of Business Development at FXOpen, is confident about the future of CFD trading in Australia. “The whole industry saw ASIC’s new regulations coming so it wasn’t a surprise. I think Australian brokers had a good ride for 2.5 years almost exclusively offering high leverage and trading in the regulated environment.

“Now they will have to learn to adapt to new rules, new trading volumes, and potentially new profits. However, there is still an option to classify certain clients as professional or sophisticated investors and continue offering them 1:500 leverage.

“The clients will have to demonstrate their understanding of financial markets, prior trading experience, and/or income/net worth. AU brokers always projected a certain image and targeted high-quality clients, therefore, I believe that an important part of clients will be able to upgrade their accounts to pro status”, Ms. Zakharova stated.

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