ASIC has commenced civil penalty proceedings in the Federal Court of Australia against Forex Capital Trading Pty Ltd (Forex CT) and its sole director, Shlomo Yoshai.
ASIC alleges Forex CT engaged in a system of unconscionable conduct, which was aided by Mr Yoshai, including by:
- using high pressure sales tactics, such as offering incentives (credits and rebates) to encourage clients to transfer more money to Forex CT;
- recommending trading strategies that were inappropriate to clients;
- making false or misleading statements to clients;
- implementing and encouraging a trading floor culture that was directed towards maximising trading volume and client deposits rather than promoting a culture of compliance with applicable legal requirements;
- establishing and implementing incentives for clients to deposit funds and disincentives for clients to withdraw funds from their trading accounts; and
- failing to ensure compliance with financial services laws.
The alleged unconscionable conduct attracts a maximum civil penalty of $420,000 for an individual and $2,100,000 for a body corporate.
ASIC further alleges that Forex CT:
- contravened a ban on conflicted remuneration under the Corporations Act by paying account manager bonuses primarily based on client “net deposits” (total client deposits less withdrawals); and
- failed to act in the best interests of clients when giving personal advice, as required under the Corporations Act.
These alleged contraventions attract a maximum civil penalty of up to $1,000,000 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 s.180(1) of the Corporations Act, a contravention that attracts a maximum civil penalty of $200,000.
ASIC seeks declarations that Forex CT engaged in misleading or deceptive conduct and, as the holder of an Australian Financial Services (AFS) licence, contravened its obligations under s912A of the Corporations Act. This includes failing to do all things necessary to ensure that the financial services covered by the AFS licence were provided efficiently, honestly and fairly.
A date for the first case management hearing is yet to be set.
Background
Forex CT offered clients opportunities to trade in contracts-for-difference (CFDs) and margin foreign exchange contracts (FX Contracts).
ASIC cancelled Forex CT’s AFS licence after its investigation found Forex CT’s financial services business model disregarded key obligations of an AFS licensee and resulted in unconscionable conduct, misleading and deceptive conduct and a failure to manage conflicts of interest.
On 19 March 2019, ASIC obtained orders in the Federal Court restraining Forex CT from transferring any property, including client money, overseas. The orders restraining Forex CT from transferring property overseas were subsequently amended requiring Forex CT to seek ASIC’s approval in writing prior to making any overseas payments and extended by consent until 5pm on 24 July 2020.
ASIC is considering feedback on its proposals in Product intervention: OTC binary options and CFDs (CP 322). ASIC consulted on making market-wide product intervention orders to address concerns about significant detriment to retail clients from trading OTC binary options and CFDs.
The conflicted and other banned remuneration provisions were introduced in June 2012 as part of the Future of Financial Advice reforms, representing the Australian Government’s response to the 2009 Inquiry into financial products and services in Australia by the Parliamentary Joint Committee on Corporations and Financial Services.
ASIC updated its guidance on conflicted and other banned remuneration in December 2017 ().
