The friction between IronFX and the company's Chinese customers and introducing brokers (IBs) has culminated in a legal case brought against the broker.
Forex Magnates has learned that about 160 complaints against IronFX were filed on January 22nd with the District Court of Limassol.
According to the allegations, IronFX has been denying withdrawal requests to over 150 accounts which the IBs brought onboard with the firm. The total amount of client funds mentioned in the claim is close to $1.25 million.
The case is the latest part of the spat between IronFX and their Chinese IBs. In January, it was reported that Chinese clients stormed and ransacked IronFX’s Shanghai office.
In addition, the broker was the subject of an investigative report by the Chinese media in relation to inappropriate marketing of their financial trading services. Other brokers shared similar fates, as SFX and IFX were featured in a segment on China Central Television, and FXTM faced a filmed protest in a local exhibition.
Withdrawal Issues
In the current claim against IronFX, introducing brokers have alleged in court that since the beginning of October their clients first experienced withdrawal delays. In November, the problem began deteriorating when about 150 customers had their withdrawals denied altogether without a specific explanation.
Such claims of withdrawal delays appear to have widened beyond just Chinese customers, with other customers reporting to Forex Magnates and on trading forums that they are experiencing problems with their withdrawal requests being processed.
Specifically, many clients have received messages stating, “We would like to inform you that your account is under investigation for potential irregular trading activities.”
In the past, IronFX attributed withdrawal problems from China to the presence of abusive traders who the broker believed was taking advantage of their bonus offerings.
"Our fast growth attracts criticism"
In part of a larger interview with IronFX CEO Markos Kashiouris which will be available later this week, Forex Magnates asked about the case and whether it was related to the bonuses. Kashiouris answered, “Indeed this claim is related to the recently identified group of abusive traders that employ an abusive trading strategy to manipulate our promotions.
"This group has been placed under investigation for breach of our trading terms and pending this investigation we have put a limitation on all promotions-related withdrawals from this abusive trading strategy as we are entitled to do.”
In relation to their business in China in general, Kashiouris explained, “We are not doing anything different from other companies in the industry in China. We work via an extensive network of large Introducer Brokers in China, one of them being IGHG. All our affiliated Chinese IBs operations, including IGHG, are operational.”
He added that he believes the broker’s success is a factor in them being targeted, stating, “Our fast growth and our dominance in recent years have naturally attracted criticism from competitions. It is not surprising that our success story and market growth challenges can trigger the interest of the industry and attract attention from various channels and third parties including media.”
In relation to the current case of withholding client funds, Kashiouris concluded by stating, “In our over five-year history, we never received a formal notification or fine from any of the eight regulatory authorities across the globe to which it reports (CySEC , FCA, ASIC, DFSA, FSB, FSP, CRFIN, UCRFIN).”
CySEC Response
Forex Magnates' reporters reached out to the Cyprus Securities and Exchange Commission (CySEC) in order to obtain the regulator's perspective on the issues affecting IronFX. The watchdog informed our reporters that the authorities were aware of the allegations and were going to address the case according to standard procedures.
"CySEC received a formal complaint about the issues raised in your email on Friday 9th of January and will be investigated in time," the regulator said. "In all cases due process has to be followed and if the CySEC Board finds that there has been any wrongdoing on the side of the CIF it decides on the measures to be taken."
At the moment CySEC does not have any authority for the restitution of any loss suffered by clients. However, the supervised entities were informed that should they decide to proceed with the restitution of any losses suffered by their clients it would be taken into consideration when the CySEC Board considers the measures to be pursued (i.e. as a mitigating factor).
The "Under Investigation" Seal
Industry-wide rumors of brokers losing money from last month’s Swiss franc volatility, as well as non-Chinese clients reporting withdrawal delays, hasn’t helped dispel questions about the reasons as to why IronFX has put so many clients "under investigation."
On the other hand, IronFX boasts that it had a sound reaction to the crisis and was named as a potential buyer for the Alpari UK business. If the broker believes customers are in fact acting maliciously against them, it may have triggered a larger withdrawal and customer trading performance review being taken by the broker.
Also, Mr. Kashiouris’ remarks about special attention by competitors and, perhaps, the media cannot be easily dismissed, as they resonate with the company’s marketing strategy. A broker engaging in an expensive sponsoring deal with Barcelona FC or promising to send traders to space would naturally find itself in the public's eye.
One way or another, it would be prudent from the broker's side to provide more details about how traders have been abusing the firm's promotions, as keeping accounts "under investigation" for long may cause more confusion and raise more questions.
As the company's aggressive bonus promotions have hit the Chinese market, some depositors might have developed a certain "expert adviser" which allows them to quickly achieve the requirements for withdrawing their bonuses.
IronFX is a market-making broker and the firm is using the bonus program as a way to attract more customers, providing more funds for margin trading. However, bonus-withdrawal conditions are strict - the client can only withdraw funds once a certain trading volume threshold is reached.
While these programs are devised so they can be adequately managed automatically, some traders could have uncovered a way to meet the trading-volume requirements using expert advisers, enabling them to withdraw their bonus funds from the broker rather quickly.
