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I am happy to say – or as they like to say on LinkedIn, delighted to announce – that I have never been to prison before. There have been a couple of close shaves though for Kimbers.
On one occasion I was exploring Addis Ababa and someone was trying to scam me.
So I walked over to the nearest military policeman, thinking he’d help. Alas, it soon became apparent that he and the conman were colluding and he said either I had to pay the scammer or come with him to the police station.
Naturally I did what any normal person would do in that scenario – I ran away as fast as possible.
And the reason for that was simple. When you are told by a stern looking man with a Kalashnikov to ‘come police station’, you start to hear the clanking of doors, the turning of keys, and the smell of poor sanitation. You feel a true and abiding love for the word ‘freedom’ and know that no amount of money in the world would be worth trading for it.
One other person that won’t be going to prison and who probably also has a renewed appreciation for the freedom that entails is Murtuza Kazmi, the owner of My Forex Funds.
My Forex Funds was one of the biggest props globally a couple of years ago. Court documents show they made over $300m in the space of about two years.
Then in August of 2023, the Commodities and Futures Trading Commission (CFTC) took them to court, alleging fraud and that the firm had offered unregistered securities in the US.
This week a court official recommended that the case be thrown out. I found this almost unbelievable as I was convinced, as I wrote on TradeInformer at the time, that they were cooked.
But what is crazy about the case is that it was not thrown out for reasons pertaining to any of those allegations.
Instead, it’s all related to an asset freeze that the CFTC requested (and obtained) as a part of its case.
The basic claim they made was that My Forex Funds’ accounts needed to be frozen to stop the owner from transferring money outside of the US and thus beyond the court’s reach. The idea being, as far as I can work out, that they wanted to return funds to customers who had been ‘defrauded’ if their case against My Forex Funds was successful.
As part of that claim, the CFTC used transfers that Kazmi had made previously which totalled CAD 31.5m. The CFTC said these transfers were to Kazmi’s personal accounts and were indicative of a risk he’d do the same thing again if My Forex Fund’s assets were not frozen.
In reality, these funds had not been transferred to Kazmi’s own accounts, they’d been used to pay Canadian tax authorities.
What is weird is that the CFTC either knew, or should have known that this was the case. And when it came out later, they basically obfuscated that fact, then denied that they’d ever wanted to use it as evidence that funds would be transferred out of the US. Derp.
“In multiple instances, with full knowledge of the error in a sworn Declaration submitted to the Court, rather than be upfront, direct and transparent, the CFTC took deliberate steps down a path of obfuscation and avoidance,” wrote Jose Linares, a court official overseeing the case.
The My Forex Funds case tells us nothing about US regulation
The weird thing about this case is that it will probably allow Kazmi to escape but then tells us nothing about what the actual regulatory situation for props is in the US.
The reason for that is obvious. Because all the focus of the case ended up being on this asset freeze, the investigation into the claims the CFTC had made about My Forex Funds’ activities seems to have never really taken place.
In fact, the case file notes that the allegations were legitimate and strong enough to bring the case to court.
If you actually look at what My Forex Funds did and what the CFTC’s allegations were, my reading of it was that they were primarily using live accounts and ‘instant funding’ as a way to go after the company. Although the CFTC mentioned the demo accounts frequently in their initial filing, it was never clear to me that they’d be able to use those as part of their case or that they intended to.
As a result, we still don’t know exactly what the regulator could have gone after My Forex Funds for and whether they would have actually won in court had they done so.
Many props will probably celebrate the case but if there is no clarity on what you can get wrecked for, so should they be doing that? The odds are this will make regulators more cautious about pursuing a case but that doesn’t mean they won’t do it.
And that takes us back to the initial point I was making. Many people I speak to about the US will say ‘yea but there are a lot of clients so it’s worth it’.
Wrong. If you can still get cooked for doing it, no amount of money is worth it. Of course, if ‘a lot of clients’ means $300m in two years, that’s probably easier said than done. What to do?
