Scams in the spotlight: Why traders can never let their guard down

Scams are an unfortunate and ever-present part of the Forex industry.  No matter where you’re based, you can be sure someone is trying to manipulate Forex traders, both beginners and experienced, into handing over their money using deceit and trickery.

We’ve covered the various iterations of Forex scams multiple times over the years. Most recently, Alison and I discussed some of 2023’s most hair-raising Forex fraud cases on the Let’s Talk Forex podcast. We also do our best to help traders learn how to spot a scam and what to do if they think they have been scammed.

But it’s never enough. There are always going to be traders who don’t heed the warning signs or succumb to greed or naivety.

In recent weeks, there has been a rash of scams in the news, all in different parts of the world and all quite unique. I thought it would be enlightening to look at them in a bit more detail and understand how these scams work and what we, as traders, can do to avoid them.

True Forex Funds: A wider problem for prop trading?

This is an interesting one, and probably not a scam, but maybe the start of something bigger. Prop trading firms are companies which provide Forex traders with money to trade on the companies’ behalf. Generally, traders need to pass a proficiency test first; once the company has deemed a trader suitable, they are provided trading capital and any profits they make are split between the trader and the prop trading firm.

In the episode of Let’s Talk Forex mentioned above, Alison and I covered the downfall of My Forex Funds, an American/Canadian prop trading firm that has been shut down by the US and Canadian regulators. In that case, My Forex Funds allowed traders to skip the proficiency test for a fee and is accused of manipulating those fee-paying traders into losses. Unbeknownst to the traders, My Forex Funds also owned the market maker providing liquidity for the venture, so all losses were profits for the company.

But the case of True Forex Funds is stranger. True Forex Funds is a Hungarian prop trading firm which has been on the CFTC’s “red list” since June (for soliciting/accepting funds from US citizens without a CFTC licence). A few days ago, MetaQuotes, the company behind the popular MT4 and MT5 trading platforms, terminated True Forex Funds’ software licence without warning.

In a statement, Richard Nagy, CEO of True Forex Funds said:

The incomprehensible reason for the termination is using a third-party provider for equity synchronization purposes who has allegedly not connected to MetaTrader’s client terminal in a way that is fully acceptable by MetaQuotes. True Forex Funds has used the mentioned third-party service since 2021 without any complaint from MetaQuotes.

MetaQuotes did not give any prior warning, nor did they provide any chance to replace the unwanted provider, despite it being evident that in no industry is it possible to investigate your partner, provider, or any supplier’s source code to prove their legitimacy.

If this statement is true, it sets a very interesting precedent whereby MetaQuotes is using its market share supremacy to act as a corporate regulator – not unlike Google or Apple in the mobile apps space. There is no evidence that True Forex Funds was operating as a scam, and the only “crime” they seem to have committed is getting on the CFTC’s naughty list – a dubious honour shared by many legitimate firms and brokers.

Some analysts have linked the termination of the licence back to the MT4 and MT5 apps being pulled from Apple’s App Store back in 2022 – before being reinstated in March 2023. In that case, Apple was unhappy that MetaQuotes was providing licences to criminal parties who then used MT4 and MT5 infrastructure to defraud Apple users through the MT4 and MT5 apps.

With this in mind, it’s not surprising that MetaQuotes is very wary of, to quote True Forex Funds CEO, “a third-party provider for equity synchronization purposes who has allegedly not connected to MetaTrader’s client terminal in a way that is fully acceptable…”

In addition, the ongoing My Forex Funds case has placed prop trading firmly in the CFTC’s crosshairs. This is only speculation, but I suspect MetaQuotes pulled the plug on True Forex Funds when faced with the twin concerns of the CFTC’s attention and their place in Apple’s app store.

This is not the only recent drama in the prop trading world. On the 7^th of February 2024, FPFX Technologies – a Florida-based provider of prop trading technology – suddenly pulled the licence of Dubai-based prop trading firm Funded Engineer. Funded Engineer is accused of massive fraud, totalling in the region of $2 million, by using fake accounts to artificially increase their payouts.

So, between the regulatory crackdown and sudden angst among technology providers, is prop trading doomed? Probably not, but the world of prop trading has had a bad reputation for years and I don’t see any harm in the industry and its regulators taking a broom to the darker corners for a cleanout.

Self-Managed Super Fund Scams: ASIC cracks down

Meanwhile, over in Australia, ASIC has cracked down on two so-called Self-Managed Super Fund (SMSF) scams. The first instance was a relatively mundane example of investment/trading fraud. The defendants, Joseph Cullia and Zoran Markovic, are charged with stealing and misusing the licences of two ASIC-regulated companies and using them to create fake websites. These websites used the promise of high returns to lure unsuspecting “investors” into parting with their funds. Both men are facing a range of charges including money laundering, possessing false documents and stealing identification.

In the other SMSF case the defendant, Aryn Hala, is accused of using an unlicenced financial services company to offer “investors” 20% returns on investments in crypto assets. He allegedly encouraged retirement savers to transfer funds to SMSFs under his control. Court-appointed receivers have been unable to recover most investor assets.

The first case is particularly nasty, as the defendants used legitimate licences to make them seem above board. But the important takeaway from both cases is that when a company or person promises you high returns on your “investment”, this is a clear warning sign. There are never guaranteed returns in trading or investing. Whether it’s a 100% return or a 20% return, it’s probably a scam.

If you’re unsure about the legitimacy of a licence, check with your local regulator. Most regulators will keep an up-to-date list of fraudulent companies – called “clone firms” – who steal the licences of legitimate companies to make their services seem legal.

An unholy union: Clone firms and social media

Finally, for today, I wanted to look at a story out of South Africa, where the FSCA has posted a warning about a clone firm taking to social media in an attempt to defraud consumers. In this case, the scammer claimed to be from IC Markets, a well-regulated and highly-rated Australian broker, and approached their victim on TikTok. The scammer promised to invest her money in return for a greater payout, and subsequently requested her to deposit more money to release her investment return.

When the victim realised she had been scammed, she turned to Facebook where another person offered to help her recover the funds. Unsurprisingly, this also turned out to be a scam and the Facebook scammer also demanded more funds.

This is a particularly cruel case, but the main takeaway here, and one that we have been talking about for years, is that you should never (ever) trust anyone on social media who offers to trade or invest money on your behalf. In a study we conducted a few years ago, we discovered that over 50% of Forex scams started on social media. Unfortunately, this statistic has remained relatively unchanged over the years and social media companies should be held responsible for cleaning up this type of activity. But it’s very unlikely that they will be, so in the meantime keep your Forex trading and social media separate.