BGC FINANCIAL and GFI SECURITIES, two leading US-based FX options brokerage firms, have agreed to pay penalties totaling $12.5 million to the New York Attorney General’s Office for fraudulent practices. The CFTC found both brokers have engaged in intentionally deceptive conduct and charged them with an additional $12.5 million fine.
Charged for violating the Martin Act, BGC and GFI admitted that between January 1, 2014, and December 31, 2015, they fraudulently solicited and accepted orders from New York traders to buy and sell FX options of emerging currencies. The fake trades, bids, and offers by brokers of FX options were designed to amp up interest from New York traders in largely illiquid emerging market currencies, according to the statement.
This practice is commonly referred to a “printing” a fake trade and both brokers faked trades in EFX options to New York-based traders over the phone, via instant message chats, and on their electronic platform to induce traders to enter into genuine “follow-on” trades for EFX options in order to generate commissions.
“Printing” fake trades is illegal but only since the Dodd-Frank Wall Street Reform and Consumer Protection Act, which required brokers of FX options to retain records regarding their trading activity and communications, that regulators have been able to uncover these practices more easily. Both brokers also “flew” hundreds of thousands of bids and offers for EFX options, creating a false appearance of greater liquidity in the EFX options market.
Letitia James, the New York Attorney General, said: “What happens on Wall Street impacts families on Main Street. That’s why maintaining the integrity of our financial markets is of paramount
importance to my office. Today’s outcomes reflect this commitment to hold institutions that perpetrated fraud accountable for their misdeeds.”
BGC must pay $7.5 million in penalties and GFI must pay $5 million in penalties. The brokers are now required to implement remedial policies and procedures, to provide training to their employees, and to retain an independent monitor for a period of 12 months, who will report its
findings to the Attorney General. BGC and GFI are also prohibited from re-appointing brokers and managers formerly employed on their respective EFX options desks to any supervisory role or any role related to the brokering of FX options for a period of 5 years.
In September 2018, TFS-ICAP LIMITED and TFS-ICAP LLC pleaded guilty for posting fake trades in EFX options and paid a fine of $1.15 million.
