|
| <<
< |
1
2
3
| >
>>
|
| 1 Comments / Subscribe To Comments |
| Published: Aug.29.2008 @ 9:56 pm
|
In 198 7, after our attempt to make an actual delivery of Copra (dried coconut meat used to produce coconut/vegetable oil and one of four commodities traded at the defunct Manila International Futures Exchange) was blocked with an offer to withdraw our maturing contracts at a nifty profit, the brokerage house I used to work for decided to close the branch where I was assigned. We were offered two options: resign and get a severance pay or be reassigned to the main office in Makati, the country’s premier financial district. I decided to be reassigned, and you wouldn’t believe what I went through next! Having first-hand knowledge that prices can be manipulated at the exchange, I set out to find  out more about this well-hidden secret. With the help of a friend who used to work at the trading floor of the exchange, I learned the hand signals used at the MIFE trading floor (in contrast to the open outcry system used by established exchanges like CBOT and NYSE). I would visit MIFE’s viewing deck and take down notes. I noted which big broker protects certain price levels in each commodity traded at the exchange. With this knowledge, I would scamper back to the office to place my orders. Guess what? Every time I place a limit order, the price would be off by a pip or two, making me more convinced that indeed I am trading in the right direction. But, my orders were not getting hit (the market wasn’t going to give me a free ride). In the succeeding sessions I decided to put in a market order (at any price order). Usually, this kind of order would be immediately confirmed. But lo and behold, my order for merely 2 contracts moved the price limit up for two consecutive sessions. In a limit up situation your order will not be confirmed even if you place a market order, meaning even if you are willing to take the order at any price. The convenient excuse they gave to justify the situation is that there were more buyers than sellers and so my order cannot be filled! Bullshit my ass, as if I didn’t know that the volume of trade in the exchange is a farce. Anyway, I could sense that I am being watched closely by then. Finally, realizing that I can wreck havoc to the company and to the exchange itself, the head trader (a HK-based Chinese) talked to me and told me outright that if I want to make money I must place my orders with another brokerage house. He told me he would even help me and gave me a list of brokers who are not that closely linked to our company. He gave me specific instructions to open accounts and place orders only with the brokers he had just shortlisted. And sure enough my orders were getting hit and my clients were making money for a while, until it stopped once again. My orders were not getting hit once more. I later realized that this must have been the times when no new orders were coming in to the member brokers of the exchange. Then, one day the head trader approached me and talked to me heart to heart. He asked how many new accounts I could immediately open and when I told him I could open as many as he wanted, he finally made me an offer! He wanted 25% of the profits from my trades in exchange for information he would provide me (when to get in, what commodity to trade, what price to write, what specific session to enter). Not only that, he gave me his own money to open an account for him with another broker and I was to get 25% this time while he gets the rest. I fell for it, besides who wouldn’t? It was sure money for me and my clients. We did make a killing then! Later on, I learned from the guy himself that there was a huge order from China (they were operating sweat shops in China too) and they simply were bucketing this huge placement. We merely took a free ride with them, in the process hitting the other unfriendly, or uncooperative brokers of the exchange. It was all dirty! And, they have been doing this for the past 10 years…milking Philippine investors dry.  I knew then that I needed to stop. Innocent investors were getting duped dry of their hard earned savings. This was not the kind of career path I wanted to take. So, when an offer to work with a forex broker came along, I and my group made a plunge without hesitation, thinking then that the forex market cannot be manipulated as with MIFE. I was wrong because I encountered more surprises after that. In the light of renewed efforts to re-establish the Manila International Futures Exchange by some known figures in the banking industry here in the Philippines, I am compelled by conscience to blog about my real life experiences in this industry hoping that similar pitfalls can now be avoided by both investors and the regulatory authorities alike. Extra effort must be spent to unmask who the real people behind the revival of MIFE are. My blog site shall serve as a watch dog for similar investment undertakings. It shall be a forum to expose those who are out there to scam innocent investors. Big daddy will be vigilant and this is now his newfound advocacy.
|
|
| 0 Comments / Subscribe To Comments |
| Published: Aug.23.2008 @ 10:03 pm
|
One
of the reasons why the Philippines is the favorite milking cow of forex
boiler room operators for more than two decades now is the fact that
the government regulators and legislators here have not taken concrete
steps to plug the loopholes in the Securities Act of the country, not
to mention the fact that some of them can be bribed into complacency
and indifference. Thus, all that these shrewd manipulators need to do
is to let things cool off for a while only to strike again when the
issue has died down. I've seen it happen over and over again! - (chuckle!)
I am posting herewith excerpts from a Public Notice issued by the US Commodity Futures Trading Commission entitled "Proposed Changes to Net Capital Requirements for Forex Dealer Members" ,
datelined July 23, 2008 which I lifted from the web site of the
National Futures Association of the US
(http://www.nfa.futures.org/news/newsNotice.asp?ArticleID=2165).
Notice I-08-20July 23, 2008
Proposed Changes to Net Capital Requirements for Forex Dealer Members
The CFTC Reauthorization Act of 2008
(Reauthorization Act) increases the adjusted net capital requirement
for certain forex counter party Futures Commission Merchants and Retail
Foreign Exchange Dealers to $20 million. This increase is phased in,
with the first increase scheduled for 120 days after enactment or at
such later date as the Commodity Futures Trading Commission (CFTC or
Commission) proposes and finalizes rules regarding retail forex
transactions. If implemented under the 120 day schedule in the
Reauthorization Act, NFA's Forex Dealer Members would be required to
have $10 million as of September 19, 2008, $15 million by January 17,
2009, and $20 million by May 16, 2009.
RAISE THE NET CAPITAL REQUIREMENT! A simple solution to this plaguing problem!
This requirement filters out the scam operators from the ranks of the
legitimate brokers. A surefire measure adapted earlier by the Hong kong
Securities and Futures Commission in the early '90s.
Hong kong
was where most of these scrupulous operators started a long time ago.
So, when these fly-by-night scam artists could no longer operate there
(HK)because of the stringent capital requirement, they farmed out to
the neighboring countries to include the Philippines, Singapore,
Malaysia, Thailand, India, and even Australia. But these countries
except the Philippines, followed Hong Kong's example immediately and
raised the net capital requirements of forex brokers in their own
countries forcing these scam artists to migrate once more elsewhere. A
lot of them tried to operate in the U.S. and for a while they were
sprouting like mushrooms in the West Coast. Everywhere they went in the
"land of milk and honey", they were leaving behind a trail of lawsuits
and a heap of shattered dreams. Now, US authorities are seriously after
them and are constantly making it harder and harder for them to operate
there. This new regulatory requirement and the US authorities'
vigilance on the issue are indeed a welcome break for all forex
investors.
In the meantime, back in the Philippines where they
feel secured behind the protection of corrupt officials, blanketed by a
platoon of known top legal personalities, and fronted by known business
figures, these scam artists continue to stalk Philippine investors,
lurking like hungry vultures waiting for an opportune time to strike
again. Some are still operating in the open seemingly taunting the
helpless authorities. In the meantime, authorities and legislators have
remained complacent to the issue and will only show up in the media
only to grandstand when another scam puts the issue once more in the
limelight. |
|
| 0 Comments / Subscribe To Comments |
| Published: Aug.21.2008 @ 3:00 pm
| Last edited: Aug.31.2008 @ 12:12 am |
(PHILIPPINE BASED PERFORMANCE FOREIGN EXCHANGE CORPORATION IN REVIEW)
Speaking of on-line forex brokers, who can be called “fakes” or “scammers” , and who are not?
A business registration in the country where it holds office surely is
not enough basis for anyone to conclude that a company is operating
above board, or is not engaged with anything illegal. Having several
accounts with prestigious and known banks is also not a guarantee of
one’s business propriety. We’ve seen this happen over and over again in
the past. We’ve seen how PIPC, a duly registered entity established in
the like manner by the same person, and operates in the same way as the
“now-still-existing” Performance Foreign Exchange Corporation, the company which shall be the subject of my critical blog review today.
Many
people would want to invest in the foreign exchange market anonymously
for various reasons of their own. They are those who’d prefer to open
accounts incognito (known only to the servicing company they deal
with). There are also those who invest through the “hard sell” tactics
of some forex brokers who utilize the services of marketing
representatives with well- heeled family and social connections. More
often than not, in their haste to establish foreign currency trading
accounts, and in their effort to keep their identities concealed, they
forget about doing a due diligence on the company at the onset ( a
must-do prerequisite for all prospective investors).
Who then can we call fake forex brokers?
Trust,
more than anything else, is the most important, yet the most abused
word in all business transactions (specially so with on line
investing). It is imperative that trust and confidence is present in
any transaction between the investor and his broker. And, in online
foreign currency trading, it is imperative for the forex broker to go
out of his way to prove the legitimacy of his business through the
published pages of his web site. ( I have always maintained that the
burden of proof always lie in the hands of the soliciting broker.) To
gain the trust and confidence of its prospective investors, an on line
broker must therefore make a full disclosure of all the relevant facts
pertaining to their company and the conduct thereof. All these must be
clearly stipulated and can be easily found in their websites. Pertinent
data such as bank references, accreditations and affiliations with
respectable and acceptable financial institutions must be published
prominently in their web sites. Failure to do so, to me, is intentional
concealment of pertinent facts needed by a prospective investor to make
a fair and square assessment of the company. In my opinion, non
publication of these pertinent data on a website is equivalent to
misleading the public and is no different from the malpractice of
providing false information to their clients.
Bank References
If
a broker deals directly with a bank (meaning if it courses all its
forex transactions directly to a bank), then the broker must publish
verifiable information about his account (and about the bank as well)
in his website. (For all you know, the particular bank may not even
have a foreign currency trading window, or, the account opened is not a
trading account but merely a standard depository account.) Should
issues of confidentiality be raised, the least that the broker must do
is to publish a statement in the web site stipulating that such
documents are available on request. Given this, prospective investors
will have the chance to fairly decide whether to take the risk or not
with the broker.
Verifiable Accreditation
Brokers, by
definition are intermediaries. They act as agents of certain financial
institutions such as banks, currency exchanges, large financial
investment houses. Also, they often are required to submit to the
jurisdiction and supervision of regulatory agencies in such established
countries like in the U.S., Australia, Great Britain, Germany,
Singapore, Malaysia, and Hongkong. Legitimate on line brokers must
surely have at least one such verifiable affiliation, membership, or
accreditation. Those without should be suspects and immediately
discarded from your list. Those who make false claims can now be more
easily exposed and avoided.
IN FOCUS:PERFORMANCE FOREIGN EXCHANGE CORPORATION-A critical review of the website http://www.eforex-asia.com/
If
I were to invest money on online foreign currency trading and PFEC
happens to be one of the many brokers I am considering, this is how I
shall assess their website http://www.eforex-asia.com/:
Pros: 
- Has an attractive, professional looking web-site (makes you stay longer and do a deeper snooping of the site)
- Offers practically all the necessary tools and services an investor needs to be able to manage his own account.
- easy to navigate website with a fast download link to its user friendly trading platform interface
Cons 
- misleading claim #1: “PERFORMANCE
FOREIGN EXCHANGE CORPORATION (PFEC) was registered with the SEC on 23
June, 1998 primarily to operate as an agent between market participants
in transactions involving but not limited to foreign exchange, deposit,..”
Due diligence would easily ferret out the truth that this company is
registered as as information, service and facilities provider only and
not as a broker.(I still don’t know how they got away from with these
with the SEC when the website clearly states they are engaged in
brokering services (a business activity requiring a different licensing
requirement)
- misleading claim #2:Testimonials“The
following are testimonials of clients of Performance Foreign Exchange
Corporation or any of its country affiliates/subsidiaries. As a rule
these testimonials are unsolicited gratis from people we do business
with.” Easily, one will sense a deliberate ploy to mislead readers
here with the inclusion of its “affiliates and subsidiaries. The
testimonials may be from other sources and not theirs but the inclusion
of such rejoinder is a ploy to be able to publish favorable
testimonials from other sources and make it appear as their own.
- misleading claim #3: PFEC has claimed affiliation with this company “SolidGold
Financial Services, Inc. (U.S.A.) , Registerered: Futures Commision
Merchant, Commodity Trading Pool Operator, Commodity Trading Advisor.”
The claim is false! No record of this company exists with the CFTC or
with NFA. Anyone can easily get this information from the websites of
both agencies.
I still have much more to discuss, but
again because of limited space, I need to end this blog for now.
Besides, if I were the investor, what I have so far discussed is enough
for me to decide not to deal with a company that deliberately mislead
its prospective clients and make false claims about its accreditation.
(This is my opinion. What is yours? Please feel free to post your comment below.)
|
|
| 0 Comments / Subscribe To Comments |
| Published: Aug.19.2008 @ 12:13 am
| Last edited: Aug.18.2008 @ 11:19 am |
If
you try to do a google or a yahoo search for “forex trading” you’d be
swamped with a search result spanning several pages and containing
hundreds (perhaps even thousands) of companies offering on line forex
trading services, all purporting to be legitimate forex brokers. But
how would you really determine who is legit and who is not? Retail
spot foreign currency trading (as it is officially termed in the U.S.)
or forex as it is commonly known here and about, started from the need
of some major participating financial institutions to spread out the
entailing risks of rapid and wide foreign currency exchange
fluctuations among a wider base of participating investors. (It should
be noted that foreign currency trading used to be the exclusive turf of
huge banks and large financial institutions since transactions here are
in volumes impossible for the ordinary investor to manage.) The
introduction of the leveraged trading system (or margin trading) to the
interbank spot foreign currency market opened the doors of the once
exclusive foreign currency trading to ordinary individual investors.
With the use of modern, internet based technology, linkages between the
individual investors and participants of the interbank currency market
were established using duly designated financial intermediaries such as
brokers and investment houses. However, taking advantage of the
same, readily available technology and operating incognito through well
designed and user-friendly web sites, boiler room operators continued
to ply their trade facelessly, bleeding unsuspecting investors dry.
These “scammers” uses trading platforms that simulates actual interbank
trading linkages which were even designed by known software developers.
The ordinary users of these trading platforms will really have no way
of knowing whether or not their orders were actually executed with a
participating bank or institution in the interbank currency market. For
all you know, the orders may have ended up in a secretly guarded link
in Macau while the invested funds remained in the hands of these
scrupulous sweat shop operators. (As early as1990, the HK based company
I used to work for and the other scam operators like the Solidlink
Group - now SolidGold - to which the Infamous Michael Liew belonged,
had set up a computerized trading network (which simulates the
interbank currency market) based in some fancy office in the Portuguese
Colony. At this point, you may want to ask: 
So
what if it is not bank based as long as the reference rate of exchange
on which a particular trade is “executed” is based on the spot market
rates? True. True enough. However, the risk of
investing money with a scam operator is not with the seemingly real
trading being done using their platform but with the fact that they can
always ran away with your money anytime and you will be left holding an
empty bag with no clue as to how and where you can seek redress, as in
the case of PIPC in the Philippines.  How
then can we avoid these? How would we know who is a legitimate forex
broker and who is not when the only information we have is what we get
from their web pages? Precisely, never trade through a broker who does not provide you with the necessary information about their company.
But what information about the broker must I have to know if my money would be safe to invest through them? Among
other things (like length of existence as a broker, licenses and
certifications collected from legitimate financial institutions and
known clients) you must also demand to know if the company or the
company it is affiliated with is a member of the US National Futures
Association and is registered with the US Commodity Futures Trading
Commission. If they are not US based, they must instead provide you
information and proof of their trading linkages with a prestigious bank
or financial investment house. Make it a general rule not to deal with
internet based forex broker who does not provide these information on
their web pages. But they can always falsify these information?
you can easily check them out with NFA. Accredited members of NFA
proudly display their membership id in their web sites. Whether they
provide you with the id or not, you can always check on them easily at
the NFA website (http://www.nfa.futures.org/basicnet/welcome.aspx).
Again, if they or their affiliate is not US based, they must provide
you with verifiable documentation of their bank or financial
institution’s linkages.
|
|
| 0 Comments / Subscribe To Comments |
| Published: Aug.17.2008 @ 2:47 am
|
In the old days, “boiler rooms” referred to the back room operations
of scrupulous brokers. So called “boiler rooms” because they are
usually found in the cramp, secluded, steaming hot back rooms of small
offices to keep their illegitimate operations away from the prying eyes of
authorities. In Hongkong, they were called sweat shops. Through the
years the term boiler room became synonymous with scams and swindling
operations. However, they now operate in style from well furnished
offices situated in prime business districts. The boiler rooms of the
old were usually situated in some obscure addresses.
Today, as if flaunting their ill gotten capital from extended years
of scamming operations, they set up fully equipped plush offices, and
this was for good measure - to hoodwink clients into believing their
businesses are legit. Where did these people come from? And how are
they able to operate almost anywhere with impunity?
Hong Kong and Macau were the centers of their scam operations
before. Starting out with commodity futures trading they soon shifted
to the much bigger foreign exchange market after the world embraced the
open trade policy in early-1990’s.
During that time international foreign currency cash transactions
were done only through big banks, and between and among the central
banks of different countries, huge multi national corporations and
giant insurance companies whose global operations were liven up by the
open market policies embraced by almost all nations at that time. The
transactions were usually in large volumes hardly imaginable by
individual investors. Forwards or currency futures contracts were then
traded through established exchanges like the International Monetary
Market (IMM) of the Chicago Board of Trade and the London International
Financial Futures Exchange. As global trade increased, so did the
volume of foreign currency transactions which also brought about rapid
and frequent swings in the rates of exchange of the different
currencies. Entities involved in cash transactions found it necessary
to hedge their risks with currency futures. Currency futures brokers on
the other hand found it necessary to source their requirements for
maturing obligations from the cash market. And that developed the
linkages between the two markets - one , an informal network consisting
of banks, multinational companies, and insurance giants linked
electronically with each other, the other the established financial
futures exchanges around the globe.
The increasing risks from exchange rate fluctuations forced some of
the smaller banks dealing in spot cash transactions to find a way to
spread out the risks. They needed volume. They needed more participants
to partake the risks. So they adopted the leveraged trading system
(margin trading) of the financial futures exchanges. Retail, off
exchange foreign currency trading was thus born,
The boiler room operators were quick to identify this evolving
opportunity for them in the rapidly changing financial market place.
Leveraged trading was their forte and by experience, they knew that the
unlearned investors would easily fall prey to another get-rich-quick
scam specially so if they can easily pass it off as being bank-based!
But are they?
One clear cut difference between a legitimate broker dealing in
retail foreign currency trading (leveraged forex trading) and the forex
boiler room operator is the fact that legitimate brokers are accredited
investment intermediaries of either a bank or a member broker of an
established currency futures exchange, while the boiler room operator
operates on his own, faking off the linkages to the legitimate currency
market participants with the use of sophisticated trading software and
subscription to live market data feeds from legitimate sources.
A system to stream live the actual spot foreign currency
transactions of various major participating banks, financial
institutions and currency futures exchanges worldwide was developed by
both Dow Jones and Telerate years before they merged. Anyone may
subscribe to these services for a fee. And true enough, these services
were used to the hilt by boiler room operators world wide using their
own trading platforms which simulates actual trading in the interbank
spot currency market. However, the funds invested through them were
never really coursed to the inter-bank spot currency network, much less
to a bank or an exchange. the money was simply bucketed!
Performance Foreign Exchange Corporation uses the eForex Asia
trading platform the parent company of which Michael Liew also helped
establish. Why didn’t the authorities then push on the investigation
all the way to eForex Asia. This would have shown that neither PFEC nor
eForex Asia have legitimate linkages to the forex market place. This
would have proven PFEC is indeed selling the investing public short.
This would have proven that online forex trading through PFEC is no
different from the online casinos you see sprouting everywhere. |
|
| 2 Comments / Subscribe To Comments |
| Published: Aug.16.2008 @ 2:38 pm
|
The SEC had been ineffective in going after Performance Foreign
Exchange Corporation which has remained operational up to now despite
the numerous complaints filed against the company by many of its
disgruntled investors, and inspite of successive raids made by the
National Bureau of Investigation (the local counterpart of the US’ FBI)
into their offices. PFEC even challenged the cease and desist order
issued by SEC against it all the way up to the Supreme Court and won.
How can this happen? How can the SEC be rendered useless by a forex boiler room operator?
In my opinion, SEC’s helplessness in the issue of PFEC was its own making.
- First, it failed to keep up with the many changes happening in the
financial markets specifically in the foreign exchange markets towards
the turn of the century. It failed to notice that with the advent of
advanced computer technology, a parallel market to the established
interbank foreign currency trading network was fast evolving.
- Second, the Philippine’s SEC was playing to the hilt its assumed
role of being a copy cat of its US counterparts. Online foreign
currency trading in the US is considered as commodity futures trading
and falls under the jurisdiction and oversight functions of CFTC
(Commodity Futures Trading Commission), an independent entity
established through an act of the US Congress to regulate commodity
futures trading in that country. Why under the CFTC? Well, in the US
there are commodity exchanges like the Chicago Mercantile Exchange
which deals on financial instruments such as currency futures. Spot
currency trading then used to refer to and was limited to the buying
and selling of the spot month (current month) currency contracts in
these exchanges. Control and oversight functions for spot foreign
currency trading were therefore under the jurisdiction of CFTC.
However, US authorities were also quick enough to notice the advent of
and the proliferation of online, off exchange, spot currency currency
trading done electronically through banks with networks that spans
every corner of the globe. And so the US congress,on the recommendation
of CFTC passed “The Commodity Futures Modernization Act of 2000
(CFMA) which made clear that the CFTC has jurisdiction and authority to
investigate and take legal action to close down a wide assortment of
unregulated firms offering or selling foreign currency futures and
options contracts to the general public. ( Please refer to my earlier blog entitled Foreign Currency Trading Update, August 15, 2008.)
The Philippines SEC was lifting off and adopting policies and
opinions from its US counterparts without studying its own local
scenario falling into the age old colonial mentality of embracing the
belief that “whatever it is that holds true in the US must hold true
also in the Philippines. And so when SEC went up against PFEC in the
courts of law, it was rebuffed by the highest court in the land (the
Supreme Court) because it tried to pin down PFEC with the charge that
it was illegally engaging in commodity futures transaction. (See my
blog on this HANGING BY A THREAD (PART2 ) - (SEC BLUNDERED AND PFEC GOES SCOT FREE)•August 13, 2008 and HANGING BY A THREAD (PART1 ) - (OR HOW PFEC MANAGE TO REMAIN AFLOAT)•August 12, 200 
The funny thing is from the advent of commodity futures trading in
the Philippines in 1985 to its closure in 1997 which was followed by
the influx of forex boiler room operators, the SEC was swamped with
mounting complaints from forex investors. And take note, the revised
Securities Regulatory Act of the Philippines was enacted in the year
2000, the SEC could have recommended revisions to the securities code
as early as then but they didn’t.
Now, two years after the PIPC scam, it has not made any move at all
to recommend revisions in the code which must incorporate clarificatory
provisions that will define SEC’s jurisdiction and oversight functions
over unregulated firms dealing with the buying and selling of spot
currency contracts to include firms offering subsidiary forex services
such as consultancy services, research, and forex trading platforms.
The US made its move in the year 2000 to regulate on line, off
exchange spot currency trading. What has the Philipines’ SEC done?
|
|
| 0 Comments / Subscribe To Comments |
| Published: Aug.16.2008 @ 2:14 am
|
Two years after the PIPC scam and still no concrete steps have been taken by
the SEC and the members of the Philippine Congress. Are they still
waiting for another scam to blow up in their faces before they take
some really good measures to stop them? See what the US-CFTC is doing
with forex scams in their country.
Release: 5530-08
For Release: August 11, 2008
CFTC Announces Formation of Retail Foreign
Currency Fraud Enforcement Task Force
Washington, DC— The Commodity Futures Trading
Commission (CFTC) has formed a special task force charged with
investigating and litigating fraud in the off-exchange retail foreign
currency (forex) market.
The creation of the task force within the Division of Enforcement
comes in the wake of Congress’ passage in June 2008 of “The Food,
Conservation, and Energy Act of 2008” that clarified and strengthened
the CFTC’s jurisdiction over this market. The task force will focus on
fraud in the retail forex market and will work cooperatively with other
federal and state regulatory and criminal authorities.
“The formation of the CFTC’s new Forex Enforcement Task Force
reaffirms our agency’s commitment to stopping unscrupulous individuals
working in this space. Not only do forex fraudsters prey upon
unsuspecting citizens, but their illegal activities taint the
reputations of those working honestly in the futures industry,” said
CFTC Commissioner Michael Dunn, head of the agency’s Forex Education
and Outreach Task Force. “This announcement sends a clear signal that
the CFTC is on the beat, and that our continued and increased
cooperation with law enforcement authorities will help put these forex
dealers where they belong – in jail.”
“Forex fraud impacts investors of all stripes,” CFTC Acting Director
of Enforcement Stephen J. Obie said. “With the creation of the retail
forex task force, the CFTC has committed the resources necessary to
expand its efforts to identify and prosecute those who commit fraud in
the retail forex market.”
Since enactment of the Commodity Futures Modernization Act in 2000,
the CFTC has filed nearly 100 enforcement actions against firms and
individuals selling illegal forex futures and option contracts. To
date, the CFTC has obtained judgments in these enforcement actions for
civil monetary penalties of approximately $560 million and restitution
of investor losses totaling $450 million.
Last Updated: August 8, 2008
|
|
| 0 Comments / Subscribe To Comments |
| Published: Aug.16.2008 @ 1:33 am
|
I picked up this all important update from the website of the U.S. Commodity Futures Trading Commission (http://www.cftc.gov/customerprotection/fraudawarenessandprevention/forex/index.htm).
The Philippine’s Securities Exchange Commission and the Philippine
Congress must take the cue from this if they want to put a stop to the
likes of Michael Liew in the country: Learn from the past and learn
your lessons well.
 UPDATE:
On May 22, 2008, the Congress passed H.R. 6124, the Food, Conservation,
and Energy Act of 2008 (also known as “the Farm Bill”) which contains
several amendments to the Commodity Exchange Act (“CEA”). In
particular, Title XIII of the Farm Bill (1) clarifies that the CFTC’s
anti-fraud authority applies to certain retail off-exchange foreign
currency transactions, (2) creates a new registration category for
retail foreign exchange dealers, (3) requires registration for those
who solicit orders, exercise discretionary trading authority and
operate pools with respect to retail off-exchange foreign currency
transactions, and (4) imposes minimum capital requirements for futures
commission merchants and retail foreign exchange dealers that act as
counterparties to such transactions. Parts of the legislation,
particularly those confirming the Commission’s anti-fraud authority,
were effective upon passage. Other parts of the legislation, such as
those requiring the registration of parties engaged in these
transactions and minimum capital requirements, will only be effective
upon the Commission’s issuance of final regulations. Any such changes
to the information below will be accomplished through notice and
comment rulemaking and will be made available in the Federal Register
section of CFTC.gov.
A complete description of the amendments to the CEA effected
by Title XIII of the Farm Bill can be found in the Joint Statement of
Managers, pp. 291-299, which can be accessed through the House
Agriculture Committee’s Farm Bill Homepage. Interested parties should monitor the Commission’s website as well as the National Futures Association’s website, for developments.
The CFTC has witnessed increasing numbers, and a growing complexity,
of financial investment opportunities in recent years, including a
sharp rise in foreign currency (forex) trading scams.
The Commodity Futures Modernization Act of 2000 (CFMA) made clear
that the CFTC has jurisdiction and authority to investigate and take
legal action to close down a wide assortment of unregulated firms
offering or selling foreign currency futures and options contracts to
the general public. The CFTC also has jurisdiction to investigate and
prosecute foreign currency fraud occuring in its registered firms and
their affiliates. The CFTC issued an advisory in 2001 that discussed these CFMA amendments to the Commodity Exchange Act (CEA), 7 USC 1, et seq.
The Division of Trading and Markets (now Division of Clearing and Intermediary Oversight, or DCIO) issued an advisory in 2002 concerning foreign currency trading by retail customers
(PDF). The advisory affirms that off-exchange trading of foreign
currency futures and options contracts with retail customers by a
counterparty that is not a regulated financial entity as set forth in
the CFMA is unlawful. The advisory further states that, if there is a
lawful counterparty to the transaction, such as a person registered as
a futures commission merchant, the persons acting as intermediaries to
such a transaction, that is, in the manner of an introducing broker,
commodity trading advisor or commodity pool operator, would not need to
register under the CEA if that is their only involvement in futures or
option transactions.
DCIO issued an additional advisory in 2007 concerning foreign currency trading by retail customers
(PDF). The DCIO Advisory addresses the following issues: (1)
registration requirements for associated persons of firms registered as
introducing brokers (IBs), commodity trading advisors, and commodity
pool operators that are involved in forex transactions; (2) the
permissibility of certain unregistered affiliates of a futures
commission merchant (FCM) to act as proper counterparties in forex
transactions; (3) claims that forex customer funds are segregated; (4)
introducing entities acting as FCMs; (5) the applicability of the IB
guarantee agreement to forex transactions and prohibiting guaranteed
IBs from introducing forex transactions to an FCM that is not its
guarantor FCM; (6) prohibiting forex account statements of an FCM’s
unregistered affiliate from being included in the FCM’s account
statements to its customers; and (7) prohibiting retail customers from
acting as counterparties to each other in forex transactions.
|
|
| 0 Comments / Subscribe To Comments |
| Published: Aug.16.2008 @ 12:45 am
|
  
I
started out as a commodity futures trader in 1986. I was recruited and
trained by the staff of a member-broker of the now defunct Manila
International Futures Exchange for two weeks. After which, the company
already let me out to solicit clients. I still had a basket full of
questions that were left unanswered after the training so I had to
content myself to doing a lot of research on my own to fully equip
myself. Afterwards, I immediately called on close acquaintances,
personal contacts, and family friends as I thought that one or two may
dabble into this because of personal cognizance. And true enough, one
of our family friends did! In fact, the guy was already trading in
Copra futures (dried coconut meat from which coconut oil is extracted).
He happened to be trading with another company ( also a member broker
of MIFE) and was losing heavily. Knowing me personally, he decided to
open up an account with me to try me out. We sold the 6 month forward
contract of Copra futures and immediately we got caught up in a losing
position. We sold the contracts at Php10 at that time when the current
price of Copra was only Php6 in the real market. Both the guy and I
were baffled by the way the prices at the exchange were moving…they
were going up while the actual market price as well as the price of the
end product (coconut oil) in the world market were going down. We went
through a series of successive margin calls specially when the contract
month of our holdings got nearer. What the people at the headquarters
did not know was my guy was “loaded” and can absorb the uncanny rise of
prices in the exchange. But the most important bit of information the
headquarters did not know about my client was the fact he was one of
the biggest copra trader in southern Philippines and supplies copra to
large multinational companies in Manila. When the contracts we
were holding for six months became spot month, the price went all the
way up to Php18 (while the actual market price was only Php5). My
client and I already sensed that something was amiss. It was as if the
market was doing all it can to break our resolve and get us out of the
market and take our loss. So, the last time I went to my client to
collect the required deposit to cover the full amount of the contracts,
we both decided we will deliver. And when I served notice to the
company that my client will deliver, it practically got everyone in the
exchange truly worried. I received successive phone calls from my own
manager asking me to discourage my client because of “the many
obstacles we needed to hurdle to get our deliveries accepted by the
exchange.” However, I made it very clear to my manager that my client
was unwavering on his decision to make the deliveries. It didn’t make
sense then to decide not to deliver because doing so will mean taking a
whooping loss. Besides, the price of copra in the world market dropped
to only Php5, and if we deliver to the exchange, we will get paid with
the contract price of Php10 ( a reasonable profit for the 6 month
ordeal the exchange made us go through, so we thought). My
manager decided to visit my client personally. I didn’t know what they
talked about since they had a one-on-one session while I was sipping
coffee at the hotel lobby. But after their talks, my client gave me
specific instructions not to liquidate our positions without a
reasonable profit. In the next few days after that, I saw an
unbelievable reversal in the price of the spot month of copra futures.
From Php18 it went down to Php12. My manager started calling me again
to liquidate our positions. My client and I stood firm. When the price
reached Php8, my manager called me again and was practically begging me
to liquidate. Sensing the utter desperation in him, I called up my
client and we liquidated all our positions. What a nerve racking
experience it was for a neophyte trader like me. It was quite revealing
though. I found out so early in my career as a commodity futures trader
that prices in the Manila International Futures Exchange could be
manipulated. I got the chance to find out how extensive their
scam operations were when I was transfered to the main office after
they decided to close the branch I was working in. I shall share them
with you in my next blog. (Watch out for my succeeding blogs as they will be more revealing.) 
|
|
| 0 Comments / Subscribe To Comments |
| Published: Aug.15.2008 @ 1:07 am
|
(A DETAILED ACCOUNT OF HOW THE MANILA INTERNATIONAL FUTURES EXCHANGE DUPED THE INVESTING PUBLIC FOR MORE THAN A DECADE)
You must have read or heard of a news
story somewhere about a young, innocent girl being conned by a group of
men into going with them to party all night with sweet promises of
gifts and money. The innocent girl, enticed by their promises, went
with them - her penchant for the promised rewards overshadowing her
fear for her own safety. She ended up being locked up in a house for a
long time and gang-raped over and over and over again!
This is the best way I can vividly picture to you the scam
operations perpetrated by the defunct Manila International Futures
Exchange from its inception in 1985 until it was finally issued a cease
and desist order by the Securities and Exchange Commission in 1997.
The MIFE was established and headed by a Hong Kong-based British
National who came to the Philippines touting the credentials of having
headed the Hong Kong Commodity Futures Exchange sometime ago in the
past. The Philippine authorities, mesmerized by the seemingly
impeccable record of the foreigner, forgot all about conducting due
diligence. They fell into the trap and approved the creation of a
commodity futures exchange in 1985. The authorities were made to
believe that the exchange will benefit Philippine farmers who are
producers of copra, coffee, sugar, and soybeans, the four commodities
to be traded in the new exchange. And so, the “rape” began!
Very few people knew the following details:
- That the Briton was actually a henchman of a group of Chinese
businessmen-brokers who pulled a similar scam at the Hong Kong Futures
Exchange (the Carrian Caper) in the past.
- That all the member brokers of MIFE were all inter-linked with each
other and their operations were all funded by the same Chinese group
- That the Manila International Futures Clearing House which was
supposed to be an independent entity in charge of clearing and auditing
exchange transactions was actually owned by the same group and that the
Filipino directors of both the exchange and the clearing house were
mere dummies who never knew what was really going on (They were there
just for the fee to put some semblance of credibility to the operations
of both the exchange and the clearing house.
- That the SEC personnel tasked to monitor the daily activities in
the trading floor were also under the payroll of the exchange, and for
more than ten years they were there every single day but never really
knew what their tasks were much less what they were supposed to monitor.
- That the volume transactions being reported by the exchange were
all scam transactions and the supposedly actual trading being done
daily by Filipino floor traders were actually being orchestrated by the
Chinese dealers of each member broker shooting out instructions to
their floor traders by phone all through out the trading sessions.
- That these Chinese dealers maintained phone hot lines connected to
each other so they can manipulate the prices in all the four daily
trading sessions of the exchange. They dictate how far the price must
go up or down for each trading session.
What I have enumerated above are not mere allegations but first hand
knowledge based on the personal contacts I had while working as an
employee of some of the key players in this scam. For lack of space, I
shall end my blog at this point with a promise that I shall share with
you the details, and I mean the real details, on how this scam was
pulled through. These series of revelations are actually meant to
provide you with a better understanding of how forex scam operators
conduct their business because spot foreign currency trading in the
Philippines was an offshoot of the closure of MIFE.
|
|
|
|
out more about this well-hidden secret. With the help of a friend who used to work at the trading floor of the exchange, I learned the hand signals used at the MIFE trading floor (in contrast to the open outcry system used by established exchanges like CBOT and NYSE). I would visit MIFE’s viewing deck and take down notes. I noted which big broker protects certain price levels in each commodity traded at the exchange. With this knowledge, I would scamper back to the office to place my orders. Guess what? Every time I place a limit order, the price would be off by a pip or two, making me more convinced that indeed I am trading in the right direction. But, my orders were not getting hit (the market wasn’t going to give me a free ride). In the succeeding sessions I decided to put in a market order (at any price order). Usually, this kind of order would be immediately confirmed. But lo and behold, my order for merely 2 contracts moved the price limit up for two consecutive sessions. In a limit up situation your order will not be confirmed even if you place a market order, meaning even if you are willing to take the order at any price. The convenient excuse they gave to justify the situation is that there were more buyers than sellers and so my order cannot be filled! Bullshit my ass, as if I didn’t know that the volume of trade in the exchange is a farce. Anyway, I could sense that I am being watched closely by then. Finally, realizing that I can wreck havoc to the company and to the exchange itself, the head trader (a HK-based Chinese) talked to me and told me outright that if I want to make money I must place my orders with another brokerage house. He told me he would even help me and gave me a list of brokers who are not that closely linked to our company. He gave me specific instructions to open accounts and place orders only with the brokers he had just shortlisted. And sure enough my orders were getting hit and my clients were making money for a while, until it stopped once again. My orders were not getting hit once more. I later realized that this must have been the times when no new orders were coming in to the member brokers of the exchange. Then, one day the head trader approached me and talked to me heart to heart. He asked how many new accounts I could immediately open and when I told him I could open as many as he wanted, he finally made me an offer! He wanted 25% of the profits from my trades in exchange for information he would provide me (when to get in, what commodity to trade, what price to write, what specific session to enter). Not only that, he gave me his own money to open an account for him with another broker and I was to get 25% this time while he gets the rest. I fell for it, besides who wouldn’t? It was sure money for me and my clients. We did make a killing then! Later on, I learned from the guy himself that there was a huge order from China (they were operating sweat shops in China too) and they simply were bucketing this huge placement. We merely took a free ride with them, in the process hitting the other unfriendly, or uncooperative brokers of the exchange. It was all dirty! And, they have been doing this for the past 10 years…milking Philippine investors dry. 
I knew then that I needed to stop. Innocent investors were getting duped dry of their hard earned savings. This was not the kind of career path I wanted to take. So, when an offer to work with a forex broker came along, I and my group made a plunge without hesitation, thinking then that the forex market cannot be manipulated as with MIFE. I was wrong because I encountered more surprises after that. 
