US Retail Forex Firm's Assets Frozen; 3,800 Clients Cold By Dan Molinski
OF DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--A retail foreign exchange trading company has had its
assets frozen after failing to meet minimum net capital requirements, and its
3,800 day-trader customers might have trouble getting their money back.
The action by a U.S. District Court judge comes came after it was discovered
that
Forefront Investments Corporation, which also goes by the name
CFG Trader,
had liabilities of $8 million but assets of just $6.8 million. Rules require
such firms to maintain assets of $1 million more than their liabilities.
The Commodity Futures Trading Commission, a government watchdog, said Tuesday
it filed an official complaint against the Richmond, Va.-based company, charging
it with "undercapitalization by more than $2.2 million and record-keeping
violations."
The complaint seeks a "permanent injunction against the defendant, monetary
penalties and other relief," said the CFTC, which monitors futures trading and
retail forex markets and market participants.
The U.S. District Court judge who froze Forefront's assets March 21 also
prohibited it from destroying documents or denying CFTC staff access to books
and records, the CFTC said in a statement.
Paul Hayeck, associate director of enforcement at the CFTC, said about 3,800
retail forex customers have accounts with Forefront. The CFTC is hoping that by
freezing Forefront's assets, customers' investments may be protected, he said.
Working alongside the CFTC on the case is the National Futures Association, a
self-regulatory agency that also serves as a watchdog for U.S. futures trading.
Larry Dyekman, the NFA's director of communications and Education, said that
during the past month it repeatedly sought to reconcile the problems with
Forefront, but without success.
A document from the NFA posted on Forefront's Web site details those efforts,
which began with an audit on March 5.
According to the eight-page document, Forefront's accounting consultant,
Richard Lani, said at one point that it would be "a fair statement to say that
the firm does not know (its) financial status."
Dyekman said the case highlights the dangers lurking for individual investors
who decide to participate in retail foreign exchange trading.
"It's a perfect example of what we've been telling people ... their funds (in
spot retail forex trading) are not protected," Dyekman said.
It wasn't clear how much of Forefront's $8 million in liabilities were owed
directly to customers.
No one was immediately available for comment at Forefront, which began
operations in 2003. But a notice on the company's Web site Thursday said: "In
the next 24 hours,
CFG Trader (Forefront's retail name) will be making an
announcement regarding the status" of clients' accounts.
The number of retail foreign exchange firms has exploded to about 37 firms
from three five years ago, the NFA's Dyekman said. The NFA is considering
bumping up the minimal capital requirements to provide more protection to
customers, but Dykeman urged investors to do their homework on forex trading
companies before placing any investments.
The NFA official said he could recall other instances of retail firms not
meeting net capital requirements for a few days - the NFA performs weekly checks
- but he said: "This is the first major case of a company being seriously
undercapitalized" over an extended period of time.
The NFA had ordered Forefront to liquidate all its open positions by March 21.
On the Web:
http://www.cfgtrader.com http://www.cftc.gov http://www.nfa.futures.org
