Takeover of Gain Proceeds: Firm gets Hit by CFTC

It has been a hectic week for Gain Capital, with, just days after 71.2% of its shareholders agreed to the terms of the takeover by INTL FC Stone, the being hit by the US Commodity Futures Trading Commission (CFTC) over client onboarding irregularities at its UK arm.

Just over 85% of the votes cast at the special stockholder meeting were in favour of the takeover, which was announced in February, and the company says it expects the $236 million deal to complete in the third quarter. This week Gain revealed that average daily volume of its OTC products was $8.5 billion in May, below what it was throughout 2018 but up from 2019’s average – it is up 9% year-on-year.

Meanwhile, the CFTC issued an order filing and settling charges against Gain Capital UK for failing to register as a retail foreign exchange dealer (RFED) and for supervision violations related to the handling of a customer account managed by an unregistered commodity trading advisor (CTA).

The order requires Gain UK to pay a $250,000 civil monetary penalty, to disgorge $241,671, and to cease and desist from any further violations of the Commodity Exchange Act (CEA) or CFTC regulations, as charged.

The order finds that from at least February 6, 2014 to March 8, 2019, Gain UK acted as a counterparty to retail FX customers who were located in the US, without registering as an RFED as required by the CEA and CFTC regulations. Gain UK accepted customers who used US mailing addresses in account applications and provided documents such as lease agreements, utility bills, and health-insurance enrolment letters suggesting that they were located in the US. Furthermore, one customer informed a Gain UK employee that she was a student at a US university when questioned about her account application and US mailing address. Nevertheless, Gain UK failed to register as an RFED as required.

The order also finds that Gain UK failed to diligently supervise the handling of the account of a retail FX customer who was located in the US. Specifically, CFTC says Gain UK failed to detect warning signs of the underlying fraudulent conduct by an unregistered CTA who solicited the retail FX customer to open an account with the firm. “For example, a Gain UK employee had extensive communications with the unregistered CTA and was aware that the CTA had been rejected from managing accounts with Gain UK and its affiliates because the CTA may have been soliciting managed accounts through social media and a website without registering with the CFTC,” the Commission says. “Despite the unregistered CTA not being named on any of the account documents, the CTA had extensive communications with Gain UK’s employee about creating the account, directed the trading in it, and refunded commissions to the customer to reimburse significant trading losses. Due to the unregistered CTA’s fraudulent conduct, the customer suffered approximately $280,000 in losses while Gain UK earned $241,671.”

Colin Lambert

Share This

Share on facebook
Facebook
Share on google
Google+
Share on twitter
Twitter
Share on linkedin
LinkedIn
Share on reddit
Reddit

Related Posts in , , ,