May this serve as a warning to unsuspecting Forex traders and investors when they encounter too good to be true stories.
ALLEGATIONS
1. At all times relevant to this Complaint, Spaeth was a registered associated person (AP) of the BrokersXpress, LLC (BX) and an NFA Associate. Spaeth was an AP and NFA Associate from May 5, 2010 through December 14, 2010 and worked at BX's branch office located in Lubbock, Texas
BACKGROUND
2. NFA commenced an unannounced audit of the BX's Lubbock, Texas branch office in December 2010 as a result of Spaeth's involvement with International Commodity Advisors (ICA) and Profitstars lntl Corp. (PSI), which NFA had filed Member Responsibility Actions (MRAs) against.
3. The MRA against ICA, which was a commodity trading advisor (CTA) forex-firm NFA Member, was issued in November 2010. The MRA alleged, in part, that ICA failed to maintain adequate books and records and that it was using an unregulated entity, ParagonFX Enterprises, LLC (PGFX), to act as the counterparty to customers’ retail forex transactions.
4. While investigating ICA, NFA learned that PSI, which was a CTA, commodity pool operator, and forex firm NFA Member, was also using PGFX as the counterparty to its customers’ retail forex transactions. Therefore, NFA's Executive Committee also authorized the issuance of an MRA against PSI on December 7, 2010.
5. During NFA's investigation of ICA and PSI, NFA learned that Spaeth was responsible for soliciting a large number of customers who ultimately invested at both ICA and PSI. As a result, NFA deposed Spaeth. Based on this deposition and NFA's investigation and audit of the BX Lubbock, Texas branch office, NFA learned that while soliciting customers, Spaeth used misleading and deceptive promotional material and recommended that prospects open Forex Trading accounts at ICA, PSI and A&J Capital Management, LLC (A&J) without knowing anything about these firms or doing any due diligence with respect to them. In addition, Spaeth also repeatedly misled NFA throughout its investigation.
COUNT I
11. During audit fieldwork, NFA learned that Spaeth's primary means of soliciting clients was through webinars, DVDs and in-person demonstrations.
12. One of the webinars that Spaeth used to solicit customers promoted a computerized forex trading system, known as Tradestar, that the webinar claimed was almost risk-free and consistently profitable. The Tradestar trading system was developed and/or owned by Trade Star Incorporated, a company controlled by a convicted felon named Robert Mihailovich (Mihailovich), who, in July 2010, was charged by the Commodity Futures Trading Commission (CFTC) with fraudulently soliciting over $30 million from customers for forex and futures investments. Despite Mihailovich‘s criminal background and the CFTC Complaint, Spaeth continued to promote Mihailovich‘s Tradestar trading system to customers.
13. The aforementioned webinar downplayed the risk of loss by claiming that the Tradestar trading system would "profit regardless of market sentiment" and "was able to trade both sides so we're trading safer." In addition, the webinar made dramatic profit projections — e.g., "180% return in 2008 on the invested capital;" "phenomenal rate of return... on average, most investors see about a 5% rate of return on a monthly basis;" and "an account with an initial deposit of $500,000 was sitting at a $1.6 or $1.9 million return in 2 years." NFA asked Spaeth for support for these profit claims but he failed to produce any support and admitted he never actually verified these claims prior to showing the webinar.
14. Not only did Spaeth's webinar downplay the risk of loss of trading forex, but Spaeth never provided his customers with additional risk disclosure regarding forex trading — despite the fact that a significant number of his customers used individual retirement account (IRA) monies to fund their forex trading accounts.
15. Furthermore, based on NFA's review of Spaeth's e-mails with his customers, when Spaeth's customers asked about the risks of trading forex, Spaeth would usually respond by ignoring the customer's question or downplaying the risks of trading forex.
16. Overall, Spaeth's sales solicitations to customers as well as his webinars were grossly deficient in that they downplayed the risk of loss, overemphasized profits and included no adequate risk disclosure.
17. By reason of the foregoing acts and omissions, Spaeth is charged with violations of NFA Compliance Rule 2-36(b)(1), as incorporated by and in NFA Compliance Rule 2-39(a).
COUNT ll
19. Spaeth knew little, if anything, about the firms that he recommended to his clients (i.e., ICA, PSI and A&J) or the individuals who operated these firms. Nor did Spaeth conduct any meaningful due diligence with respect to any of these firms to determine if they were appropriate for his customers. Nevertheless, Spaeth recommended these firms to his customers without regard for his customers‘ best interests and out of an apparent desire to personally profit from these recommendations.
20. Initially, Spaeth recommended that his customers open trading accounts at ICA, despite the fact that ICA used an unregulated and unauthorized entity, PGFX, to act as the counterparty to its customers‘ retail forex transactions. After NFA issued its MRA against ICA, lCA's customers had no access to their funds for several months due to the insufficiency of lCA's accounting records which made it extremely difficult to determine what was owed to customers.
