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IB Capital Slammed with Massive Fine by CFTC

November 24, 2016

Foreign exchange broker IB Capital FX, LLC has been slapped with one of the largest fines in recent memory over breaches in the United States regulatory framework for financial services providers. The company was accused of soliciting US customers without being properly licensed, and was ordered to pay back the majority of funds it collected from consumers.

cftc

The penalty easily surpasses that paid earlier in 2016 by binary options giant Banc de Binary, and continues a string of high profile cases against the unregulated derivatives industry, which the US has been aggressively pursuing. Most derivatives in the US can only be traded on regulated exchanges.

The IB Capital case also highlights the dangers of unregulated brokers for consumers. While the company has been forced to pay restitution based on the majority of the funds it collected, the charges were brought after thousands of consumers complained about being scammed or losing their funds. The company is also being prosecuted in the Netherlands for similar fraudulent activities.

Most regulators recommend that customers who wish to trade foreign exchange or binary options stick to those companies that comply with regulations, since these are designed to protect customers first and foremost. When dealing with unregulated brokers, customers cannot expect the same level of protections.

Dropping the Hammer

The US Commodity Futures Trading Commission (CFTC) has succeeded in obtaining a consent order against IB Capital and its principals that forces them to pay a grand total of $35.4 million in restitution and monetary penalties after soliciting thousands of customers in the US. The group is charged with operating in the US without proper accreditation, and selling derivative products off-exchange. The US only allows for futures such as binary options, forex, and CFDs to be traded on regulated exchanges.

The penalty will mostly go towards compensating roughly 1,850 customers who were defrauded of at least $50 million. IB Capital will be required to refund $35 million to customers who signed up for their service. The fees cover the period in question where IB Capital operated without a license. Additionally, the company will have to pay $420,000 in monetary penalties for breaking regulations. To make matters worse, the company’s principals, Michel Geurkink and Emad Echadi are unlikely to be allowed to work for retail derivatives brokers in the future.

The fines mark the latest in a string of successful legal actions against high-profile companies. Earlier in 2016, the CFTC succeeded in fining Banc de Binary for over $11 million for similar charges, and as recently as a few weeks ago, EZTD was slapped with a $1.7 million fine. US regulators have been zealous about protecting customers’ interests against an industry facing increased criticism.

Consumers Lose Big

The case once again highlights the dangers of dealing with unregulated brokers in trading derivatives such as forex and binary options. These financial products carry higher levels of risk than others, and proper regulation is the only way consumers can be certain that their brokers are not acting against their best interests. One of the largest problems is that unregulated brokers do not have to adhere to any restrictions in terms of predatory practices or those of questionable legality. Additionally, many customers have no recourse when they lose their funds, as regulators have few effective means to deal with them.

While the US has tightened its borders to unregulated brokers, other countries are slowly starting to follow suit. However, most still recommend that consumers remain extra vigilant and avoid dealing with any broker or firm that is not properly accredited with a trustworthy agency.