The CFTC recently won a judgment in a U.S. court against South African currency trader James DeWet and his company, Team Forex, and the case provides as clear an example as any of how regulators and intermediaries around the world cooperate to nail unscrupulous salesmen.
DeWet launched Team Forex in 2000, and by 2002 was soliciting customers in the United States. He traded their accounts on the off-exchange platform set up by New York-based FCM Forex Capital Markets (FXCM), and through the next three years built up a respectable track record — one he claimed had been audited by Price Waterhouse Coopers — and reeled in millions in customer funds.
CFTC lawyers began to question the results in 2005, and after receiving DeWet’s coordinates from FXCM, contacted South Africa’s Financial Services Board (FSB) and learned that DeWet had applied for registration under that country’s Financial Advisory and Intermediary Services Act to advise people there on foreign exchange trading.
“Because of that application, the FSB was eager to assist us and to request information of us that we had developed on DeWet,” recalls David MacGregor, one of the CFTC lawyers who handled the case. “We also found out that he’d never been audited by PricewaterhouseCoopers, or anyone for that matter.”
They also found that DeWet had inflated his returns. January 2003’s 1.2% loss, for example, turned up in the track record as a 15.2% gain; and May 2003’s 3.20% loss turned out to be multiples of that — a whack of -39.8%. Those two key misrepresentations turned a 10.18% losing year into an impressive 55.10% gain.
In 2004, the numbers were less impressively overstate with a 0.37% loss turning up as a respectable 7.1% gain.
As the litigation got underway, DeWet tried to remove roughly $30,000 of his own money from the FXCM account, and the FCM promptly alerted the CFTC, which was able to get a freeze on DeWet’s funds.
In the end, the court decided DeWet had to reimburse his clients to the tune of $828,390 in losses incurred after the baked 2003 and 2004 results, plus $63,070 in account fees, and interest. He was also ordered to pay $120,000 in penalties.The ball is now in South Africa’s court, where another government agency has been charged with enforcing the action.