Similar to the SEC’s controversial handling of the Debt Box case, which was eventually dismissed, the My Forex Funds case may exemplify the potential for regulatory overreach and the need for legislative action to ensure that regulatory agencies operate within the confines of U.S. law.
Traders Global Group Inc., the firm behind the proprietary trading firm brand My Forex Funds (MFF) which was recently sued by the CFTC for an alleged $310 million fraud, has filed a motion for sanctions against the CFTC, accusing the regulatory body of a pattern of misconduct.
The alleged CFTC misconduct includes misrepresenting facts to the court and attempting to breach MFF chief executive Murtuza Kazmi’s attorney-client privilege. The motion asserts that the CFTC’s aggressive stance against Traders Global and Kazmi is an attempt to regulate U.S.-based simulated foreign exchange trading without clear legal authority, thereby endangering the due process rights of individuals and companies operating in the U.S.
DebtBox and Coinbase also faced ‘ex parte’ misuse
According to the legal team representing My Forex Funds, the case draws parallels with previous actions by regulatory bodies, notably the Securities and Exchange Commission (SEC), against companies like DebtBox and Coinbase, concerning their handling of cryptocurrency services.
The crux of the issue lies in the CFTC’s alleged misuse of ex parte proceedings to freeze all of Kazmi’s assets, a move that has sparked significant controversy and allegations of due process violations.
The CFTC’s actions have raised alarm over the use of ex parte proceedings, which can be executed without the other party’s knowledge, potentially leading to irreversible damage. Kazmi’s case, initiated with charges of fraud by the CFTC in August 2023, involves allegations of profiting from customer losses in proprietary trading activities.
The regulatory action led to the immediate closure of My Forex Funds and the freezing of Kazmi’s assets, based on what Kazmi’s defense claims were knowingly false statements and misrepresentations by the CFTC. In November 2023, however, the court agreed to unfreeze $100 million in assets.
SEC ruined DebtBox’s image for what?
In August 2023, the SEC obtained a temporary asset freeze, restraining order, and other emergency relief against Digital Licensing Inc., also known as DEBT Box. Jason Anderson, his brother Jacob Anderson, Schad Brannon, and Roydon Nelson, as well as 13 other defendants, were sued by the SEC for an allegedly fraudulent scheme to sell crypto asset securities to hundreds of U.S. investors that raised approximately $50 million and unspecified amounts of Bitcoin and Ether.
The restraining order was later dissolved after Debt Box demonstrated that it hadn’t moved funds outside the U.S. or closed its bank accounts as alleged by the SEC. In December 2023, US court Judge Robert Shelby accused the SEC lawyers of misleading the court with false arguments. The case was later dismissed.
The situation underscores a broader concern within the financial industry about the power of regulatory bodies to impact businesses adversely, leveraging oversight mechanisms that may exceed their authoritative boundaries. Similar to the SEC’s controversial handling of the Debt Box case, which was eventually dismissed, the My Forex Funds case may exemplify the potential for regulatory overreach and the need for legislative action to ensure that regulatory agencies operate within the confines of U.S. law.
As the legal battle unfolds, with the CFTC required to file its opposition to the complaint by March 18, and Kazmi’s reply due by March 25, the financial industry watches closely. The outcome of this case could have significant implications for regulatory practices and the rights of businesses and individuals within the trading sector.