On Tuesday a court in New Jersey threw out a case against prop trading firm My Forex Funds in a huge loss for the regulator, the Commodities and Futures Trading Commission (CFTC), which brought the legal action against the company in August 2023.
At the time, we wrote that My Forex Funds was toast. And indeed, it’s entirely plausible they would have been.
But that is not what has happened – why?
The CFTC messed up with My Forex Funds
The weird thing about the case is that it was not dismissed for anything to do with the prop operations that My Forex Funds was running. In fact, the judge overseeing the case acknowledged the evidence in this regard was strong enough to bring the case to court.
Instead, the problem was related to an asset freeze that the CFTC got enforced against My Forex Funds as part of its case.
The CFTC justified that request – which was granted – by saying that My Forex Funds would seek to move funds out of the US and prevent authorities from being able to access them.
One of the pieces of evidence it used to make that claim was that the company had transferred CAD 31.5m ($22.5m) to a personal account of Murtuza Kazmi, the owner of My Forex Funds.
That evidence was then used by the court to support an asset freeze on My Forex Funds accounts, as the CFTC argued it showed he had the potential and intent to move funds out of the US.
The CFTC’s claims about My Forex Funds’ payments were inaccurate
Unfortunately for the CFTC, the payments weren’t sent to Kazmi’s own account. They were sent to the Canadian tax authorities to pay My Forex Funds’ corporation tax for its entity in the country.
Not only that, but the CFTC had confirmation of this prior to the asset freeze going into play. In other words, they allowed the asset freeze to happen even though they should have known – and probably did know – that a key reason for its happening was based on a claim that was false.
To top that off, when the mistake came out in court proceedings, they were not forthcoming about it.
Rather than acknowledging it, they did something akin to ‘pork barrelling’ – they put it as a footnote in a larger document, which contained a bunch of other information, rather than putting it as a standalone piece of information.
Once that came out, the My Forex Funds lawyers were able to argue that the case should be dismissed.
The basic problem
In short, the CFTC at best unknowingly made an inaccurate claim to justify the asset freeze. At worst they just lied about it. Rather than quickly admitting they had done so, they continued to double down.
The testimony used to justify the asset freeze was based on inaccurate information, which the CFTC almost certainly knew was inaccurate.
When the opportunity to alert the court to this arose, they didn’t do it. Then in subsequent hearings, the CFTC representatives denied that they had known the information was false, despite strong evidence they did.
To top that off, when they finally did notify the court, they did so in a footnote as a part of wider submission to court.
Then when it was brought up in court, they said their initial claim had not been intended to be evidence of an attempt to move funds out of the country, even though it obviously was.
What is really dumb about all of this is that the asset freeze was fairly insignificant and of little consequence to the wider case. Had they not done this then there is a good chance they would have won the case!
My sense is that they thought they had such a good case that they didn’t really need to bother being diligent. Instead their one mistake meant My Forex Funds will get off Scot-free.
