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Screenshot of a breaking news alert e-mail from Q2 2017
LeapRate Exclusive… Retail forex broker GCMFX, whose parent company Gallant Capital Markets Ltd filed late last week for bankruptcy, has issued a statement on its website stating that the reason for the filing was an “inability to withdraw funds from one of its regulated counterparties in order to meet liquidity demands“.
After reviewing the statement (see full text below) from Gallant, which is based in the British Virgin Islands but filed for Chapter 11 bankruptcy in New York, some key questions remain. Mainly, why would “regulated counterparties” not allow the company to withdraw its funds? Unless there’s a really, really good reason, “regulated counterparties” cannot just decide to not free up a company’s funds, just like a regulated broker cannot withhold client funds.
Clearly, the company is giving us only half (or less) of the real picture.
And the real picture is, we believe, a lot more complicated than that.
Over the past 48 hours, a number of Czech media outlets have reported that a man named Jiri Kubicek was placed in handcuffs and taken away by Czech police in Prague, connected to investigations of his company WSM Investments. According to the website of Czech news radio service iROZHLAS, Czech police have frozen Jiri Kubicek’s assets, as they investigate suspicions of fraud and money laundering.
According to iROZHLAS, officers from the police force’s organized crime unit conducted a search at Mr. Kubicek’s house and questioned him. While Mr. Kubicek is not yet formally charged with anything, Czech authorities have frozen his assets as they investigate suspicions of fraud and money laundering connected to his forex robot trading business.
So what does this have to do with Gallant / GCMFX?
Well it turns out that Jiri Kubicek’s WSM was an investor in Gallant. WSM’s website “history” shows that in 2014 it added Gallant Capital Markets Ltd “to its umbrella of companies”. We believe that WSM was either a major or even controlling shareholder at Gallant, alongside Gallant CEO Salvatore Buccellato.
Police apparently suspect that WSM was a pyramid scheme, taking in retail client funds for the stated purpose of forex trading using WSM’s proprietary robot algorithms. However Czech police have found so far no evidence that the money was actually used for forex trading. Rather, police suspect that the money was used to acquire properties, other companies, to pay expenses and to refund other clients’ withdrawal requests.
It is unclear yet if Gallant was involved in the WSM robot scheme, although it looks like the MT4 “broker” with which WSM robot clients supposedly traded, WSM International Broker at website wsmfx.com, was a white label of Gallant. But even if Gallant wasn’t aware of the goings-on at WSM, having Mr. Kubicek’s assets frozen would certainly explain why Gallant’s funds were frozen as well.
We’d note that GCMFX, in its statement, also had the audacity to offer that part of the reason it filed for bankruptcy was in the “best interests of… its clientele”. How outrageous! Even if all client funds were segregated and are accounted for, the bankruptcy filing virtually ensures that GCMFX’s clients will not be seeing their money back for a long, long time. Bankruptcies are very slow-moving beasts. Was GCMFX really interested in the best interests of its clients, it would have simply refunded client money before either shutting down or filing for bankruptcy.
The last missing piece of the puzzle, as we discussed in our original article on the Gallant bankruptcy filing, is FCA licensed GCM Prime Ltd. On its website, WSM calls GCM Prime its “cooperating broker”. It remains unclear how exactly GCM Prime “cooperated” with WSM.
As we see it, the main connections between Gallant and GCM Prime are that Gallant / GCMFX was a client of GCM Prime which provided the now-bankrupt forex broker with liquidity and prime brokerage services. And, GCM Prime’s controlling shareholder is Salvatore Buccellato, the CEO of Gallant / GCMFX. Was GCM Prime the “regulated counterparty” which was forced (or chose) to hold onto Gallant’s cash?
There are clearly still some missing pieces to the puzzle.
The full statement posted on gcmfx.com regarding the “reasons” behind the bankruptcy filing reads as follows:
Important Update Regarding Gallant Capital Markets Ltd.
Gallant Capital Markets, herein referred to as “the Company”, announced on Friday, April 14th, it has commenced a formal proceeding to restructure its balance sheet to better position itself for future opportunities. To facilitate this restructuring, the company filed voluntary petitions under chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court in the Eastern District of New York. While the company regrets having to take such actions, it does so in the best interests of the company and its clientele. The decision to voluntarily file results from an inability to withdraw funds from one of its regulated counterparties in order to meet liquidity demands. The decision to file was not an easy one, and was done only after a comprehensive review of all options available to the company. The firm has notified its regulatory body and will do all it can to provide information in a timely and transparent fashion to its client base as the court allows. We thank you for your continued patience and hope for a quick and satisfactory resolution for our clients and vendors.
Gallant Capital Markets