SEC To Prosecute Defunct Forex Brokerage Over Options Scam

WASHINGTON--The US Securities and Exchange Commission says it is planning to sue Currency Trading International, a defunct California forex brokerage, for fraud in the sale of foreign currency options. The SEC says that CTI illegally took $16 million in commissions between 1994 and autumn 1998. A date for the trial has note yet been scheduled, according to an SEC spokesperson.

The SEC says that it has filed an enforcement action in a federal court in Santa Ana, California against Currency Trading International Inc, its owners Brian Moore, Craig Cunningham and its managers Craig Wiginton, James Kelsall, Christian Weber and Robert Shane Jones. Attempts by FX Week to contact the defendants for comment were unsuccessful.

The SEC alleges that the defendants engaged in the fraudulent offer and sale of foreign currency options in a high-pressure telephone campaign. The SEC says that Currency Trading International told more than 900 investors in California, Ohio, Georgia and Colorado, that they could expect to double or triple their money by investing in FX options, misrepresenting their speculative nature.

The SEC says the high returns promised by the company were unlikely to materialize due to the high commissions charged on the purchase and sale of each option. The company sought to cover its losses by pressing investors to provide further funds.

The SEC alleges that the defendants did not return funds to investors, allow investors to control activity in their accounts or permit investors to sell options positions without buying new positions.

Currency Trading International folded in late 1998 after Bear Stearns, its clearing firm, cancelled its clearing agreement.

The future court case highlights the regulatory problems associated with currency trading in the US which is largely unregulated. This lack of supervision could also be a major factor in hindering the development of retail, internet-based currency trading outfits.

Securities trading, and other areas such equities, bonds and commodities in the US are some of the most heavily regulated markets in the world. However, there is no international body that regulates the foreign exchange markets.

One of the major problems for the US is that banking law is federal law, and therefore country-wide. Regulations outside banking law, however, vary from state-to-state.

Individual US states have state financial comptrollers and enforcement attorneys. However, their regulatory powers are limited to action being taken after the event, rather than stopping fraudulent schemes during their operation.

The SEC says that it is seeking an injunction, civil penalties and disgorgement with prejudgment interest against each of the defendants for violating the anti-fraud provisions under section 17 (a) of the Securities Act of 1933 and section 10 (b) of the Securities Exchange Act of 1934 and rule 10 (b) thereunder.