FXCM and CEO Drew Niv kicked out of US Forex market, fined $7 million for defrauding customers


In a fairly harsh and historic move, the US Commodity Futures Trading Commission (CFTC) has banned FXCM Inc (NASDAQ:FXCM) from its home US market, as well as a permanent registration ban for CEO Drew Niv (pictured above).

More details follow. We expect the company to put out a formal statement within about an hour, formally announcing FXCM’s full withdrawal from the US market, and possibly other changes.

In summary:

  • FXCM, Niv, and co-founder William Ahdout are prohibited from registering with the CFTC, acting in exempt capacities or acting as principals, agents, officers or employees of registrants.
  • CFTC’s Order also holds FXCM, Niv, and FXCM Holdings responsible for FXCM’s false statements to the National Futures Association.

FXCM is (or rather, was) the leading market share retail forex dealer in the US, as well as the largest ex-Japan broker worldwide.

The CFTC announced it was settling charges against Forex Capital Markets, LLC (FXCM), its parent company, FXCM Holdings, LLC (FXCM Holdings), and the two founding partners, Dror (“Drew”) Niv, and William Ahdout, who were, respectively, Chief Executive Officer of FXCM and Managing Director of FXCM, (collectively, Respondents). FXCM’s principal place of business is New York, New York; Niv resides in Connecticut; and Ahdout resides in New York.

The CFTC Order finds that, between September 4, 2009 though at least 2014 (the Relevant Period), FXCM engaged in false and misleading solicitations of FXCM’s retail foreign exchange (forex) customers by concealing its relationship with its most important market maker and by misrepresenting that its “No Dealing Desk” platform had no conflicts of interest with its customers. The Order finds FXCM, FXCM Holdings, and Niv responsible for FXCM making false statements to the National Futures Association (NFA) about its relationship with the market maker.

The Order requires Respondents jointly and severally to pay a $7 million civil monetary penalty and to cease and desist from further violations of the Commodity Exchange Act and CFTC Regulations, as charged. FXCM, Niv, and Ahdout agree to withdraw from CFTC registration; never to seek to register with the CFTC; and never to act in any capacity requiring registration or exemption from registration, or act as a principal, agent, officer, or employee of any person that is registered, required to be registered, or exempted from registration with the CFTC.

“The CFTC Is Committed to Protecting Customers from Harm in the Markets It Regulates”

“Full and truthful disclosure to customers and honest discourse with self-regulatory organizations such as NFA are vital to the integrity and oversight of our markets,” said Gretchen L. Lowe, Principal Deputy Director and Chief Counsel of the CFTC’s Division of Enforcement. “Today’s action’s demonstrates that the CFTC is committed to protecting customers from harm in the markets it regulates.”

FXCM is registered with the CFTC as a Futures Commission Merchant and Retail Foreign Exchange Dealer. FXCM has been providing retail customers with access to over-the-counter forex markets through a proprietary technology platform and has acted as counterparty in transactions with its retail customers in which customers can buy one currency and simultaneously sell another. Both Niv and Ahdout were CFTC registrants during the relevant period.

FXCM, under Niv’s and Ahdout’s direction and control, misrepresented to its retail forex customers that when they traded forex on FXCM’s No Dealing Desk platform, FXCM would have no conflict of interest, the Order finds. In addition, according to FXCM’s marketing campaign, retail customers’ profits or losses would have no impact on FXCM’s bottom line, because FXCM’s role in the customers’ trades was merely that of a credit intermediary, the Order finds. FXCM further represented that the risk would be borne by banks and other independent “market makers” that provided liquidity to the platform, according to the Order.

FXCM’s Undisclosed Interest

Contrary to these representations, the Order finds, FXCM had an undisclosed interest in the market maker that consistently “won” the largest share of FXCM’s trading volume – and thus was taking positions opposite FXCM’s retail customers. FXCM, the Order finds, formulated a plan in 2009 to create an algorithmic trading system, using an FXCM computer program that could make markets to FXCM’s customers, and thereby either replace or compete with the independent market makers on FXCM’s “No Dealing Desk” platform. Although FXCM eventually spun off the algorithmic trading system as a new company, in actuality the company remained closely aligned with FXCM, according to the Order. This market maker received special trading privileges, benefitted from a no-interest loan provided by FXCM, worked out of FXCM’s offices, and used FXCM employees to conduct its business, the Order further finds.

The Order finds that FXCM and the market maker agreed that the market maker would rebate to FXCM approximately 70 percent of its revenue from trading on FXCM’s retail forex platform. In total, through monthly payments from 2010 through 2014, the company rebated to FXCM approximately $77 million of the revenue it achieved. However, FXCM did not disclose to customers, among other things, that this company – FXCM’s principal market maker – was a startup firm spun off from FXCM, the Order further finds.

False Statements to the NFA

The Order also finds that FXCM willfully made false statements to NFA in order to conceal FXCM’s role in the creation of its principal market maker as well as the fact that the market maker’s owner had been an FXCM employee and managing director. The Order finds that during a meeting between NFA compliance staff and FXCM executives, Niv omitted to mention to NFA the details of FXCM’s relationship with the market maker.

The Order holds Niv and Ahdout liable for FXCM’s fraud violations as “controlling persons” who were responsible, directly or indirectly, for FXCM’s violations. Niv is also held liable for FXCM’s false statements to NFA as a controlling person who was responsible directly or indirectly for those violations. FXCM Holdings is held liable for FXCM’s fraud and false statement violations as principal of FXCM, the Order also finds.

The CFTC thanks NFA for its assistance in this matter.

The CFTC’s full statement on the matter can be seen here.

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  • CompleteLoser

    Admire the idiot who lead to bankruptcy a multi-million dollar company

  • Frank

    He is not the first one to do this. I can list about 10 others that do the same. All are Cyprus based brokers.

    • Saxo Bank (an investment bank ‘regulated’ in the EU) was allowed to re-quote their entire client base that traded CHF pairs SNBomb 15 Jan 2015. That is the ONLY reason they are still alive today.

      All these distractions about reducing leverage, negative balance protection, etc do not actually promote transparency. TRANSPARENCY and forcing the broker to prove no (or show conflict of interests) is what will allow this industry to move forward. Gain Capital apparently has been more forthcoming with the fact that they are technically a bucket shop, so they are still standing.

      • blair

        How a broker operates behind the scenes is irrelevant, I trade with many broker some I know are taking the other side of my deals but so long as the execution and pricing is good who really cares. Furthemore, there is nothing wrong with re-quoting a price as long as its a fair price and can be benchmarked against 3rd party sources such as EBS….. transparency is irrelevant so long as your happy with your brokers performance and ultimately making money !!

        If you read between the lines this was a great out for FXCM as they US market accounted for only a small part of their business and the regulatory capital was eating into their balance sheet. FXCM are not going down or collapsing, in-fact I believe that this will in-fact help them.

        • There is a HUGE problem with requoting a client AFTER the trade is already executed. This means the price quoted them was never valid in the first place….so then why even offer the quote in the first place? It defeats the entire purpose of streaming quotes. Certainly they had the ability to re-quote or reject the order AT THE TIME. This isn’t primary school where you get a do-over just because you lost.

          Transparency is irrelevant….really? And what has gotten brokers (and traders) into this mess in the first place…..obscuring their scams? If the broker was required to provide full round trip post trade reporting for all transactions done within the last 14 days, we could have caught all of this much earlier.

          FXCM’s reputation has been forever tarnished, and they are downplaying the revenues that US division allows, especially if it affects institutional flow from US.

          defrauding clients scandal + $170+ Million loan = Most likely end for FXCM as we know it. Even if they can payoff $70MM, that’s still $100MM loan outstanding; where will they get the money to pay that off? No debt can be generated from stock anymore as that is worthless without a US CFTC license.

          Not to mention business partners [worldwide] that will distance themselves from the scandal.

  • Fat Lady is Singing

    Doubt that FXCM can recover from this. They were barely scraping by repaying Leucadia. This should finish them off. The US is/was a big chunk of their business, and the reputational hit from this should be huge. Might be time for someone else to try and salvage things for Leucadia.

  • Haroun Kola

    Shady dealings?

  • Sam F

    Think forex also do this with their company “Think Liquidity” who they say does not provide Liquidity but still provides a rebate back to ” Think Forex” in lieu of so called “risk management services”.

    All the sharks are doing this. The “Liquidity” or “Risk management” service provider is usually based in a tax heaven but not operated from there, they do this to hide the true ownership.

  • Bill

    Many retail brokers use FXCM as their hedge counterparty. I wonder what will happen, will they all pull their money? Is FXCM regulated outside of the USA? Is there a wind down period for them to leave the USA?

    • According to the CFTC order, part VII, para C-2 (pg 13), they must wihdraw NFA membership 30 days from date of order (6th Feb 2017); So 08 Mar 2017 is the ‘wind down period’. Para C-1 says that they cannot accept any new [US] retail clients. It is unclear to me if Eligible Contract Participants are exempt. But basically CFTC kicked them out of USA.

      FXCM has regulation in other parts of the world, including UK and Au. While they can technically continue to operate and accept in those regions unaffected, I wouldn’t be surprised if those regulators did not launch their own independent investigations and then either issue their own fines or (worse), suspend their license.

      Then FXCM (or Leucadia) is really faked.

      Their ability to provide as a liquidity provider (e.g. to other retail brokers) should not be affected as long as they have some regulation somewhere.

  • hutu

    odl to fxcm, what do u expect?! thinkmarkets – good luck to them, guess who the directors are……

    • Harold

      Who are the directors?

      • hutu

        please use google… cheers….

  • profit

    Takeover target now perhaps? But then again who would want them with such a terrible loan agreement in place with Leucadia.

  • Guest

    Leaprate, look at the list of regulated brokers which you are affiliates of. Pretty much every single one of them advertises as NDD and if you ask them if they profit from client losses they will tell you they don’t. It is BS.

    Every broker in the world runs some type of B-book while swearing to clients they don’t. Every insider in the industry knows this from brokers to PBs to technology providers.

    As industry insiders you should also know this. FXCM is getting the rap for it (and so they should) – hopefully this spreads to all the other regulators and they enforce rules on brokers to be honest with clients about their trade execution.

    • Fxdigger

      FXCM may not be the only ones who are doing this but they are certainty the ones that put together a plan by creating a “non bank market maker” owned by themselves in an attempt to make their primary business one step removed from their dealing desk operations. Of course this structure allowed them to then market the fact that they don’t have a dealing desk. The whole thing was a deliberate and elaborate scheme conspired by Drew and Co. Other who do this are not as elaborate in their scheme. Don’t get me wrong, they are just as bad but not so elaborate.

      • Guest

        Sure – the intent is still the same though. Might not be as elaborate but a B-book is a B-book when you are telling clients that you are A-book or “ECN”.

  • topesto

    funny, if you check out the LeapRate’s past articles about Dror Niv and FXCM, they have been sucking up to Niv The Crook very aggressively over the years, and IF anyone criticised that fat pig, LeapRate would stuff censor your posts. That brings the question, I wonder if LeapRate was part of Niv’s defraudings , because they have been doing lip service for the FXCM for such a long time, advertising dollars are very sweet I guess

  • topy

    Does anyone know if the FCA will kick them out of the UK now?

  • Andy

    What is the name of the sspun off market-maker?

    • Kabaev

      Effex Capital

  • James

    FXCM and GAIN Capital CEO’s: the REAL Micky Mouses!!!!!!!!

  • Julius

    i really want to high-five-him in the face

  • Phil T

    Didn’t that moron McLeod just name Drew Niv as his Man Of The Year? Moron.

  • ryan banks

    And I thought, FXCM is one of the reputable ones. Also, they kind of were staging a come back from their close brush with bankruptcy

  • Ken

    Where’s the FCA ?? All their biz was executed the same way….

  • Mandy Chen

    Wasn’t it mid- last year that it was reported that the Senior Executives of FXCM carved out a big mega deal for themselves in the event that they were asked to leave ??? What a coincidence!
    Worth some journalistic digging– as it’s a public company.

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FXCM and CEO Drew Niv kicked out of US Forex market, fined $7 million for defrauding customers

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