CFTC Case Dismissed: My Forex Funds Controversy Highlights Risks and Best Practices for Prop Trading Firms
The U.S. Commodity Futures Trading Commission (CFTC) faces sanctions in the case of CFTC v. Traders Global Group Inc. (My Forex Funds) for significant misrepresentations during litigation. This article examines the Special Master’s findings and highlights key compliance lessons for proprietary trading firms.
My Forex Funds Case Timeline
On August 28, 2023, the CFTC brought an action against the Defendants Traders Global Group Inc. ("My Forex Funds") by filing a Complaint for Injunctive Relief, an ex parte Motion for Expedited Discovery and a Motion for a Statutory Restraining Order (SRO) and Preliminary Injunction. The Complaint alleged fraudulent activities, including misrepresenting the nature of customer accounts.[i]
My Forex Funds allegedly led customers to believe they were trading real, live accounts against independent third-party liquidity providers. In reality, customers were trading simulated accounts controlled entirely by the firm, with My Forex Funds itself acting as the direct counterparty. The complaint also accused My Forex Funds of employing unfair tactics such as artificial trade delays and manipulated price slippage, to intentionally reduce trader profitability. Hidden commissions and misleading account rules further disadvantaged traders, often leading to unjustified termination of accounts. Ultimately, the CFTC alleged that My Forex Funds structured its operations so profits primarily derived from customer fees rather than successful market trading.
On August 29, 2023, Judge Robert B. Kugler of the United States District Court of New Jersey entered an Order Granting Plaintiff’s Motion for an SRO. This SRO placed the Defendants companies into receivership and suspended all the business of the Defendants and froze their personal assets. During this same period, the Ontario Securities Commission (OSC) had commenced parallel enforcement proceedings against the Defendants.
On March 7, 2024, the Defendants took the unusual step of filing a Motion for Sanctions against the CFTC.
In response, the CFTC admitted making unintentional mistakes. It overlooked information provided by the Ontario Securities Commission before filing its complaint. It also acknowledged an "error in judgment" by not promptly correcting inaccuracies in its Declaration. However, the CFTC argued these errors didn't materially impact its case. It claimed using fraudulently obtained funds for taxes was no more legitimate than any other improper transfer. Lastly, the agency asserted the sanctions motion was improper, as it corrected the Declaration within Rule 11’s 21-day safe harbor period.
On May 13, 2025, the Special Master’s Report and Recommendation advising dismissal of the CFTC’s complaint and recommending further penalties against the CFTC itself was released. It can be read here.
At the heart of the controversy is the CFTC's improper characterization of a CAD $31.5 million transfer. In their motion for the SRO, the CFTC asserted that these funds were moved from a corporate account controlled by the defendant, Kazmi, to one of his unknown personal accounts, suggesting asset dissipation and providing the grounds for their requested ex parte asset freeze and receivership against Traders Global Group. In reality, this transfer represented legitimate corporate tax payments made to the Canada Revenue Agency (CRA).
The CFTC knew at least a week before filing for the asset freeze that the transfers were legitimate corporate tax payments to Canada's tax authority. Specifically, the OSC informed the CFTC by email on August 17, 2023, after extensive prior discussions, that CAD 27 million represented corporate taxes owed, with an additional CAD 4.5 million covering the upcoming year's installment.
The Special Master's report had the following findings:
- Negligent and Intentional Misrepresentation: Despite clear communication from the Ontario Securities Commission confirming the details of the CAD 4.5 million transfer, before the lawsuit was filed, the CFTC persisted with its misleading allegations and delayed clarifying the truth to the court. The special master appointed by the court described the CFTC’s actions as “willful” and “bad faith” efforts characterized by “obfuscation and avoidance.”
- Failure of Duty of Candor: The CFTC repeatedly failed to correct the record timely, especially problematic given the ex parte nature of their restraining order.
- Delayed and Insufficient Corrective Action: Only after extensive internal deliberations, and under external pressure, did the CFTC correct its misrepresentations via a brief footnote rather than a clear, standalone communication to the court.
The Special Master concluded that the CFTC’s conduct met the standards for sanctions under Rule 11 of the Federal Rules of Civil Procedure and the court’s inherent authority. The report emphasizes the need for these sanctions not only as punishment but as a deterrent to prevent future misconduct by a major federal regulatory agency entrusted with substantial power over financial markets.
the Special Master finds that the CFTC in fact acted willfully and in bad faith on several occasions and, therefore, holds and recommends that sanctions are warranted under both Rule 11 and the Court’s inherent authority. The CFTC had ample time and resources to acquire all the necessary facts in order to present a comprehensive, accurate, and ultimately truthful set of facts to the Court, but failed to do so. At multiple points in time, the CFTC also had the opportunity correct the false statements and impressions that had been made, yet it chose to go a different route in violation of its duty of candor to the Court. The effect of the CFTC’s conduct in this case resulted in it gaining a tactical advantage in the litigation by restraining all, or substantially all, of Defendants’ assets and placing Defendant companies into receivership, and likely affected the outcome of the SRO/PI Motion and the PI Hearing. The improper conduct at issue has also triggered approximately one year in litigation and associated expenses. The Special Master finds that specific deterrence is necessary to impress upon the CFTC the significance of its improper conduct and to deter future instances of misconduct.
The recommended sanctions include dismissal of the original complaint, a remarkable and rare outcome reflecting the severity of the CFTC’s misconduct. Additionally, monetary sanctions, potentially including attorney’s fees incurred by the defendants due to the CFTC’s misrepresentations, have been recommended.
While the My Forex Funds case outcome was driven by procedural misconduct, it also highlights broader operational and compliance challenges within the proprietary trading industry.
What is a Proprietary Trading Firm (Prop Firm)?
Proprietary trading firms, often called “prop firms,” are companies that trade financial markets using their own capital, rather than executing trades on behalf of clients. Instead of earning commissions or fees from customers, a prop firm aims to profit directly from market trades made with the firm’s money. In recent years, a new breed of prop firm has emerged that allows individual traders to trade the firm’s funds (often remotely) under a profit-sharing arrangement. In this model, the firm and the trader split any trading profits per an agreed percentage, aligning their interests.
To manage risk, prop trading firms typically require aspiring traders to prove their skills through evaluation programs before accessing substantial capital. For example, a firm may have a simulated trading “challenge” that a trader must pass often by achieving a certain profit target without violating risk limits. Traders usually pay an upfront fee to enter these evaluation tracks, which serves as an entry ticket and covers the firm’s costs. Those who pass the test are offered a funded account to trade real (or sometimes further simulated) capital provided by the firm. Profits earned in a funded account are shared between the trader and the firm, while losses are borne by the firm (up to a defined limit, after which the trader’s account is typically closed). In essence, prop firms let individuals trade the markets with the firm’s capital, in exchange for a cut of the profits. This is a setup that can be mutually beneficial if the trader is successful, but comes with strict rules to protect the firm’s capital.
Currently, proprietary trading firms directed at the public or retail audience occupy a regulatory gray area.
Though the My Forex Funds case was dismissed due to misconduct, there are some lessons and best practices for proprietary trading firms to learn from it.
Key Compliance Lessons for Retail Proprietary Trading Firms
Proprietary trading firms should carefully consider the following compliance lessons based on allegations from the CFTC’s complaint, even though some were not directly addressed in the Special Master's report:
- Misrepresentation of Counterparty Relationships. Firms should clearly disclose if accounts are simulated or live. The CFTC accused My Forex Funds of falsely claiming trades were executed against third-party liquidity providers, while in reality, the firm itself acted as the counterparty. If prop firms do this, they should disclose doing so. If retail traders are not trading real accounts, but simulated or paper trading accounts, they should know this. To not disclose this or hide this, is fraud.
- Unfair Trading Practices: Do not use artificial delays or manipulated slippage. The complaint described My Forex Funds as using software to introduce artificial delays and slippage, disadvantaging profitable traders. This is unethical and fraudulent.
- Hidden Commissions: Always clearly disclose any commissions and fees. According to the CFTC complaint, My Forex Funds allegedly charged customers commissions of $3 per trade, which the firm represented as fees from third-party liquidity providers. However, the CFTC claimed these commissions were not actual third-party fees. Instead, they were undisclosed charges directly imposed by My Forex Funds to reduce customer account balances artificially. These hidden commissions negatively impacted customers by decreasing their account equity, and pushing them closer to termination thresholds.
- Use of Customer Fees for Profit Payouts: The CFTC alleged profits paid to successful traders largely originated from fees collected from other traders, raising concerns of sustainability and transparency. But this is also the business model of many retail prop firms and in well run, adequately capitalized and ethical firms, it can be sustainable.
- Regulatory Compliance and Registration: Stay updated on CFTC and National Futures Association (NFA) regulations to avoid registration pitfalls. The CFTC alleged that My Forex Funds was operating as an unregistered foreign exchange dealer. While there currently is no specific regulatory registration category for retail prop firms operating in the futures markets, these firms must carefully adhere to CFTC rules and regulations to avoid activities that could trigger mandatory registration. Well run prop firms should also pay attention to their marketing and promotional material not just to avoid running afoul of CFTC and NFA rules, but also to avoid civil liability.
There are prop firms that are less than ethical and operate akin to online gambling operations. There are also those that operate sustainably and with candor towards their customers.
The best prop firms offer value to traders such as real education, and transparency in their terms and practices. They can make money from new customers but also become partners with successful traders who trade in funded real accounts, where a trader is entering real orders through a broker. The best prop firms can give aspiring traders a chance to succeed while meeting a demand that is otherwise not met and potentially find and seed successful traders.
The dismissal of the My Forex Funds case is both a rare instance of regulatory misconduct and an example of the importance of rigorous ethical standards and compliance. Prop firms aiming for lasting success should proactively adopt transparent practices and compliance measures to safeguard their operations and reputation. By prioritizing transparency and compliance, prop trading firms can effectively mitigate regulatory risks and foster long-term, sustainable growth.