Polish forex broker XTB claims blackmail, ex-client claims fraud, KNF investigates

A war of words is brewing between Warsaw based X Trade Brokers Dom Maklerski SA (WSE:XTB), a former disgruntled client named Krzysztof Kramarczyk, Poland’s Financial Supervision Authority (Komisja Nadzoru Finansowego, or KNF), and Polish prosecutors with charges of asymmetric slippage, fraud, and blackmail being bandied about.

X Trade Brokers operates Retail Forex broker XTB.com as well as the X Open Hub trading platform.

As we reported back in November, shares of XTB tumbled by more than a third (before being halted outright) after word broke in the Polish press that a lengthy regulator investigation had uncovered years of fraudulent treatment of customers at XTB in the form of asymmetric slippage practices. XTB quickly responded that it had indeed received a decision dated November 14, 2017 from the KNF’s Commission of Supervision
on the initiation of an administrative hearing against the company, but that the infringements identified by the Commission were “unfounded”.

Late last week, Polish business newspaper Puls Biznesu ran a story detailing the claims of one of XTB’s (former) largest clients, Krzysztof Kramarczyk. Puls Biznesu quotes a spokesman for the District Prosecutor’s Office in Warsaw stating (translated from the original Polish):

The proceedings are conducted in several threads, the main one being suspicion of fraud by persons acting on behalf of and for the benefit of XTB. It is about making an unfavorable regulation of the victim’s property by misleading it with the use of the transaction system to purchase and sell financial instruments on the forex market and not informing about changes made to the system’s operation rules, resulting in a change in the content of orders, which resulted in customer damage not less than PLN 7 million.

Mr. Kramarczyk described his side of matters by stating that he initially (2013) achieved very good results, although there were periods when he both made and lost money trading. He apparently became one of XTB’s largest and most active customers, generating in early 2014 nearly 5% of all XTB retail client turnover, with much of that in USDPLN trading. Then, in February 2014 Mr. Kramarczyk claims the “ride” began, when he claims  he began to have various recurring problems – platform jams, system hang-up or logout – and began to suffer losses systematically, regardless of the instrument in which he traded.

Mr. Kramarczyk claims he was told in a conversation with a supervisor from XTB that he was assigned to a group where his transactions were being watched and slowed down. When he heard this, he says he demanded compensation for his losses incurred amounting to approximately PLN 3.5 million. After being refused, he hired a law firm which notified the regulator.

In 2016, Krzysztof Kramarczyk says he learned that the KNF had decided to look into XTB’s practices. And, at the beginning of 2017, he reported on his case to the prosecutor’s office. Eventually, the authorities decided to merge their own case with that of Mr. Kramarczyk, as the regulator looked into whether XTB was engaging in asymmetric slippage.

Asymmetric slippage is the practice of treating market movements after orders are placed, but before they are executed, differently. What XTB is suspected of is executing client orders when the slippage was in its own favor, but cancelling (or repricing) client orders when the slippage was in the client’s favor.

Mr. Kramarczyk says he once again called the company in an attempt to settle his case against them. While XTB agreed to meet, he claims that they refused any compensation.

For its part, XTB issued a statement (full text below) indicating that it believes that Mr. Kramarczyk’s claims are totally unfounded, and the losses sustained by the client were solely due to his “bad investment decisions.” As far as his approaches to XTB to settle the matter, XTB instead says that Mr. Kramarczyk (calling him “the client”) has over the past four years “repeatedly blackmailed the company with a threat of destroying its public image, expecting a payment of PLN 3, 5, 7 and at last 14 million.”

So where do things stand?

According to Puls Biznesu, the regulator and State Prosecutor are indeed investigating Mr. Kramarczyk’s claims against XTB after having found that there exists “reasonable suspicion” that a crime has been committed. However, the authorities are also investigating as to whether or not Mr. Kramarczyk made unlawful threats against XTB representatives. But in the meantime, neither party has yet to be formally charged with any wrongdoing.

We will continue to follow this story as it develops.

XTB’s statement regarding the Puls Biznesu article reads as follows:

Company statement regarding the press publication

In October 2017, the Management Board of X-Trade Brokers Dom Maklerski S.A. filed a criminal complaint with the District Prosecutor‘s Office in Warsaw against a client’s unlawful threats. The client, within the last 4 years, repeatedly blackmailed the company with a threat of destroying its public image, expecting a payment of PLN 3,5, 7 and at last 14 million. In February this year, the Prosecutor’s Office in Warsaw initiated proceedings in response to actions by a client, including unlawful threats against the Company’s executives and attempts to extort money. Despite the proceedings initiated, the client continues its unlawful threats against the Company by blackmailing its executives. The Company has described the incident in its 2017 annual report.

The client’s claims are totally unfounded and the losses sustained by the client were solely due to the client’s bad investment decisions, as unequivocally demonstrated in the presentation during the Financial Supervision Authority’s inspection in 2016, in later documents provided to the supervisor, as well as in the expert opinion prepared by the independent consulting firm Roland Berger that analysed the client’s transactions and investment decisions. The analysis confirmed that the client’s transactions were not delayed, and the execution time of his transactions was faster than the average for other clients.

In relation to media report, the Management Board would like to point out that described by the client actions undertaken by the Company’s former employee who was dismissed on disciplinary grounds do not constitute basis for any claims by the said client. The former employee stated before the court that he had acted in an unprofessional manner and had been manipulated by the client. Earlier, the former employee stated that the client offered him money in return for cooperation to make the Company succumb to a compromise and payment of undue amount. The company denies that the client was offered any settlement offer.

XTB is supervised by the Financial Supervision Authority. Our clients’ funds are kept in segregated accounts and are covered by the compensation system of the Central Securities Depository of Poland. XTB complies with all laws and regulations that are in line with market practice and adheres to the industry’s codes of conduct. Acting in the best interest of the Company and its shareholders and guided by what is good by our clients, the Company is closely working with relevant administrative bodies in order to resolve the subject matter.

X-Trade Brokers Dom Maklerski S.A. Management Board

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