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My Forex Funds Read the Fine Print: Did the CFTC File One Document Too Many?

My Forex Funds lawyers couldn't believe their eyes. A minute detail in a recent court filing by the Commodity Futures Trading Commission (CFTC) led them to allege that the regulator was aware of its mischaracterization of the payments in the initial allegations against the prop trading firm and its CEO, Murtaza Kazmi. The mischaracterization led to a court order to freeze the assets of both the company and its CEO, which has now been changed by the court.

On Tuesday, the prop trading firm filed a motion highlighting that the CFTC "knowingly included false information in the initial ex parte application for a statutory restraining order (STO)."

"The Court should send a strong message to condemn and deter such conduct by a government agency," the defendants' legal representatives, led by Rob Zink and Avi Perry of Quinn Emanuel Urquhart & Sullivan, LLP, added. Further, the prop trading firm is seeking half the cost of the receivership from the CFTC. According to the defendants' lawyer, the CFTC have to pay half of the cost incurred for receivership as they obtained the STO through false statements.

The Mischaracterization of Tax Payments

The CFTC initially charged My Forex Funds and its CEO with fraud on August 28 and obtained a court order to freeze the company's and the individual's assets. The allegations included that the company illegally transferred funds to Kazmi's personal accounts.

The defendant's lawyers challenged the findings of the CFTC in late September, saying that the agency "recklessly mischaracterized transfers to and from Defendants' bank accounts before the SRO was entered." It was specific to CA$31.5 million, which was, according to My Forex Funds, transferred to the Canadian tax authorities.

In the consecutive court order, the judge accepted the evidence provided by the prop firm and unfrozen Kazmi's assets, leaving only about $12 million frozen after a recalculation. However, the court accepted the primary fraud evidence submitted by the CFTC against My Forex Funds and its CEO on Prima Facie (first look) basis. Earlier, lawyers of My Forex Funds moved to drop the fraud charges, but the court denied its request.

Although the CFTC stressed that its investigator came to know about the mischaracterization of payments after the filing of the SRO, an email exhibit attached by the agency itself in its court filing last week shows that a Canadian regulatory representative confirmed on August 17, before the initial lawsuit was filed, that the CA$31.5 million was indeed paid to the tax authorities.

My Forex Funds Attacks the Regulator

"Until the CFTC's latest filing, the Court and Defendants were under the misimpression that the CFTC only learned of the errors in Mr. [Matthew] Edelstein's [the investigator] declaration after the complaint and initial SRO application were filed," MFF stated in the motion.

"Although this fact was relegated to a footnote in the CFTC's filing (which itself is troubling and inconsistent with the standards expected of federal government counsel) and characterized by the CFTC as 'immaterial'…, the CFTC now concedes that 'the OSC emailed Mr. Edelstein shortly before the filing of the declaration that the transfer was comprised of tax payments'."

The defendant's motion further pointed out that the email from the Canadian authorities was received by the CFTC's lead counsel of the case. Ashley Burden is the Senior Trial Attorney of the CFTC handling the lawsuit against the prop trading firm.

"It knowingly submitted a false declaration to the Court in support of an application to freeze all of Defendants' assets and to impose a costly receivership on Defendants," the defendant's lawyer stated.

Finance Magnates reached out to the CFTC but hasn't received any comment as of press time.

This article was written by Arnab Shome at www.financemagnates.com.