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US regulatory body seeks court order over suspected forex fraud

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A major American financial regulatory body has announced that it will issue a legal challenge against an international forex broker suspected of committing widespread fraud against American investors.

The Commodity Futures Trading Commission (CFTC), a US-based body which provides oversight of the country’s buoyant options and futures markets, is seeking a court order against a retail foreign exchange broker called Tallinex.

According to documents filed at Utah District Court, Tallinex targeted US-based customers with leverage-based forex products without having the appropriate permissions or licences. The company is alleged to have failed to carry out a Retail Foreign Exchange Dealer (RFED) registration, which meant it was in contravention of the Commodity Exchange Act, as well as some of the CFTC’s regulations.

Tallinex claimed that it kept all of its customers’ funds separate from its own company cash, which is a common safeguarding measure taken by many forex platforms. However, the CFTC alleges that this did not actually happen, and that customer deposits were mixed in with company funds.

In addition to these allegations, Tallinex also stands accused of misrepresentation in regard to the likelihood of profits, as well as the risk of forex trading contract loss, among others. According to documents, it approached customers in the USA as part of its business strategy, which is another key point of contention.

The United States has a large market for forex trading, and it appears that Tallinex capitalised on this through its marketing strategy. “Tallinex welcomes residents of the US… and provides them with the same leverage and hedging facilities as non-US… residents,” its website stated.

According to CFTC estimates, this strategy resulted in a high sign-up rate. In the four years between September 2012 and the same month in 2016, for example, the firm saw almost 1,500 American customers sign up and invest $12m – or possibly more – in total.

The firm was believed to have used the allure of very high potential profits in order to persuade people to invest. Marketing materials on the company’s website said that those who managed forex deals on behalf of clients were earning profits of three to four figures, specifically, between 162.29% and 1301.10%

Press reports over the weekend revealed that the CFTC had sought the order on Friday. This is almost a year after the process first began: Tallinex was provided with the details of the accusation and issued with a summons in August of last year, and the deadline for a response from the firm was September last year.

However, no answer was received – hence the issuing of the order last week.

If granted, the order is likely to allow the CFTC to levy a civil monetary penalty as well as a restitution fee. It is believed that Tallinex’s final bill may be over $10m.

Tallinex has a complicated background. It is believed to be Estonian in origin, and it shares part of its name with the country’s capital Tallinn. It is technically registered, though, in St Vincent and the Grenadines, a country in the Caribbean.