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ASIC sues Forex Capital for unconscionable conduct and conflicted remuneration

Chris Hamblin, Editor, London, 23 July 2020

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The Australian Securities and Investments Commission has embarked on civil penalty proceedings in the Federal Court of Australia against Forex Capital Trading Pty Ltd (which offered clients opportunities to trade in contracts for differences and margin foreign exchange contracts) and Shlomo Yoshai, its sole director.

ASIC alleges that Forex CT; used high pressure sales tactics, offering incentives (credits and rebates) to encourage clients to transfer more money to it; recommended trading strategies that were inappropriate for its clients; made misleading statements to clients; set up a trading-floor culture that tried to maximise trading volumes and clients' deposits rather than promote a culture of compliance with the law; established incentives for clients to deposit funds in their trading accounts and disincentives for them to withdraw funds; and failed to comply with financial services laws.

The alleged "unconscionable conduct," as ASIC calls it, attracts a maximum civil penalty of A$420,000 for an individual and A$2.1 million for a body corporate.

ASIC further alleges that Forex CT:

  • contravened a ban on "conflicted remuneration" as defined by the Corporations Act (which it is ASIC's job to enforce) by paying account managers bonuses that it based primarily on clients' “net deposits” (total deposits minus withdrawals); and
  • failed to act in the best interests of clients when giving personal advice, as required by the Corporations Act.

These alleged contraventions attract a maximum civil penalty of $1 million for a body corporate.

ASIC also alleges that Mr Yoshai failed to exercise his powers and discharge his duties as a director in accordance with s180(1) Corporations Act, a contravention that attracts a maximum civil penalty of A$200,000.

ASIC wants the court to declare that Forex CT engaged in misleading or deceptive conduct and, as the holder of an Australian Financial Services (AFS) licence, broke s912A Corporations Act by not providing services efficiently, honestly and fairly.

ASIC cancelled Forex CT’s AFS licence once it had conducted an investigation. On 19 March last year, it obtained orders in the Federal Court that restrained Forex CT from transferring any property, including clients' money, overseas. These orders were subsequently amended to require Forex CT to seek ASIC’s approval in writing before making any overseas payments and extended by consent until 5pm on 24 July 2020.

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