The website My Forex Funds said it wanted to find profitable, successful foreign-exchange traders and split profits with them in long-term partnerships. But regulators in the United States and Canada allege it was all a fraud, and a receiver will now take control of $90-million held by the company’s Toronto-area founder and chief executive officer as the matter is tested in courts on both sides of the border.
In late December, the Ontario Securities Commission obtained a court order to freeze the assets of Canadian and U.S. corporations behind My Forex Funds, both named Traders Global Group Inc., and their sole owner, Murtuza Kazmi. The OSC argued that the $90-million in frozen funds won’t come close to covering the US$310-million regulators allege Traders Global fraudulently collected in just under two years.
The OSC, which was brought into an investigation by the U.S. Commodity Futures Trading Commission (CFTC) in 2022, has not launched a formal fraud case against Mr. Kazmi or Traders Global, which is based in Vaughan, Ont. The CFTC filed a civil case in August that alleged that “Traders Global is a fraud.” The allegations have not been proven in court.
The company’s website has been down since the CFTC lawsuit and may never return, according to lawyers for the company and Mr. Kazmi. The CFTC used its lawsuit and restraining order to “functionally destroy” the company and “ruin Mr. Kazmi’s reputation,” they say in a response to the CFTC in U.S. courts.
The lawyers for Traders Global argue in court filings in both countries that no customer “invested” money in an account with the company, so there was no risk of loss, and the customers are not parties to any foreign exchange or commodity contracts. The transactions between My Forex Funds and its customers fall outside the scope of the anti-fraud provisions in U.S. law, the company’s lawyers argue.
And no My Forex Funds customers are known to have complained, they say.
In a prepared statement, Mr. Kazmi told The Globe and Mail his company is “proud” to be an industry leader and every customer “received every dollar they were entitled to.”
“We built a successful business by treating our customers as a community,” he wrote, adding “we look forward to gaining a better understanding of the Commission’s concerns.”
Traders Global, through its My Forex Funds website, was one of a number of internet-based foreign exchange proprietary trading firms. It charged customers introductory account fees in the hundreds of dollars for what it said was a chance to trade the firm’s money in the currency and commodities markets.
Most customers opted for an “evaluation” plan in which they knowingly signed up for “demo” or simulated trading. They paid fees from US$49 to US$1,389 for “trading capital” from US$5,000 to US$300,000.
During Phase 1, traders needed to reach a profitability target of 8 per cent within 30 days to move on. In Phase 2, traders needed to reach a profit target of 5 per cent within 60 days. Traders could not lose more than 5 per cent of their available capital in a single day, or 12 per cent of their starting capital over 30 days. If they failed in any of these measures, My Forex Funds deactivated their account.
If they met Phase 1 and Phase 2 hurdles – and just 8 per cent of them did – they moved on to what the company called “live trading,” with special payments and profit-sharing for performance.
Except the CFTC and the OSC allege Traders Global rarely sent the trades to any outside firm. Instead, the “live” trading customers continued in an internal, simulated trading environment in which if customers won, Traders Global lost – and paid out “trading profits” from the fees collected from the people who never made it out of the evaluation phase.
U.S. District Judge Zahid Quraishi, in a November ruling, said from Nov. 1, 2021, through Oct. 14, 2022, Traders Global had at least 135,000 unique customers, and about 24,000 of those customers were trading so-called “live accounts.” Of those, no more than 100 had a single trade order executed against an external counterparty.
“Traders Global assured customers that it only made money when customers made money, that it lost money when customers lost money, and that its interests were generally aligned with customers,” Justice Quraishi said. “The record supports that these statements were false and misleading.“
The CFTC also alleges Traders Global used various devices to minimize the likelihood of profitable trading by customers, including delaying execution of customer orders or executing the orders at worse prices than appeared to the customer at the time an order was sent. Lawyers for the defendants say Traders Global’s practices in the simulation mirrored real-life trading and helped stop abusive trading by its customers.
During the nearly two-year period, Traders Global collected more than US$310-million in fees from customers and paid at least US$159-million to its successful customers, leaving US$151-million as the difference.
Judge Quraishi felt, however, that the only aggrieved customers were the 8 per cent who believed they were doing live trading. So, he terminated the prior appointment of a U.S. receiver and ordered the freezing of just 8 per cent of the US$151-million, or US$12.08-million.
The OSC, concerned about the new, lower amount, sought an order appointing Grant Thornton as receiver in Ontario. Justice Jessica Kimmel agreed in December, saying Ontario law establishes different conditions for a receivership than the U.S. statute.
The OSC contends that Traders Global committed its alleged fraud against all its customers, successful and unsuccessful, at the time they paid their registration fees on the basis of the representation that they could eventually qualify to trade on a live platform.
If the OSC succeeds with that argument, the entirety of the US$310-million in registration fees paid could be subject to disgorgement under Ontario law, which allows for the collection of “any amounts obtained as a result” of non-compliance with Ontario securities laws.
In an Ontario court filing, Traders Global’s lawyers say there are only 100 to 200 “live accounts” in Ontario, providing less than $50,000 a year of revenue.
With files from Shane Dingman
David Milstead