ASIC has launched court proceedings against Melbourne-based foreign exchange and derivative trader Forex CT alleging it engaged in unconscionable sales tactics that led to hundreds of thousands of dollars in investor losses.
In proceedings filed Wednesday in Federal Court, the Australian Securities and Investments Commission accuses Forex CT and its director Shlomi Yoshai of engaging in unconscionable conduct by using “high pressure sales tactics” such as giving incentives to clients to encourage them to transfer more money to the firm and offering inappropriate trading advice.
Forex CT is also accused of making false and misleading statements to clients, implementing a trading floor culture that prioritised the maximisation of trading volumes and deposits rather than compliance, and using incentives for clients to deposit funds while having disincentives for withdrawals.
Unconscionable conduct contraventions attract a maximum civil penalty of $420,000 for an individual and $2,100,000 for a body corporate.
The corporate regulator also claims Forex CT paid its account managers conflicted remuneration, which has been banned since June 2012 as part of the Future of Financial Advice reforms, through bonuses primarily based on client “net deposits”, and that the company failed to act in its clients’ best interests.
These types of contraventions attract a maximum civil penalty of up to $1,000,000 for a body corporate.
Yoshai also faces accusations of a failure to properly discharge his duties as director, a contravention which carries a maximum penalty of $200,000.
ASIC also seeks declarations that Forex CT engaged in misleading and deceptive conduct and contravened its obligations under its Australian Financial Services Licence.
In June, ASIC cancelled Forex CT’s AFSL after an investigation found the company had disregarded its licence obligations, engaged in unconscionable conduct, misleading and deceptive conduct, and a failure to deal with conflicts of interest.
“ASIC’s investigation also found that Forex CT lacked sound ethical values and judgement in dealing with clients, failed to ensure its representatives were adequately trained and complied with financial services laws and failed to ensure that financial services covered by its licence were provided efficiently, honestly and fairly,” the regulator said in a statement at the time.
The investigation found that a number of Forex CT’s clients incurred large losses amounting to hundreds of thousands of dollars by investing in the firm’s foreign exchange and CFD products.
“ASIC continues to focus on conduct by AFS licensees who operate business models that harm consumers,” ASIC commissioner Cathie Armour said in June.
Forex CT has been barred from transferring funds in three National Australia Bank accounts overseas since a freezing order was handed down by Federal Court Justice John Middleton in March 2019. These orders have been extended multiple times and, at the time of writing, expired on July 24.
A date for the first case management hearing in the civil penalty proceedings has yet to be set.
Forex CT was established in 2006 and offered clients an online platform for foreign exchange and contracts for difference (CFDs), both complex financial products.
Lawyerly has contacted Forex CT for comment.
ASIC is represented by Norton Rose Fulbright.
The civil penalty case is Australian Securities & Investments Commission v Forex Capital Trading Pty Limited & Anor. The freezing notice lawsuit is Australian Securities & Investments Commission v Forex Capital Trading Pty Limited & Anor.