Well we all know that many market makers have been accused of cheating clients and most deny it and say that it is the clients' fault becaue they did not read the fine print in the application forms. Well I wonder how Gain will account for this NFA case and findings against them:
FILED
NATIONAL FUTURES ASSOGIATION
BEFORE THE
BUSINESS CONDUCT COMMITTEE JUN 3 O 2OIO
NATIONAL FIJTT]RFS ASSOCIATION
In the Matter of: LECAL DOCKETING
GAIN CAPITAL GROUP LLC
(NFA lD #339826),
ano
GLENN H. STEVENS
(NFA lD #310776),
Respondents.
NFA Case No. 10-BCC-015
COMPLAINT
Having reviewed the investigative report submitted by the Compliance
Department of National Futures Association ('NFA"), and having found reason to
believe that NFA Requirements afe being, have been or are about to be violated and
that the matter should be adjudicated, the Business Conduct Committee ("BCC" or
"Committee") issues this Complaint against Gain Capital Group LLC ("Gain") and Glenn
H. Stevens ("Stevens").
ALLEGATIONS
JURISDICTION
1. At all times relevant to this Complaint, Gain was a futures commission merchant
Forex Dealer Member (.'FDM') of NFA located in Bedminster, New Jersey.
Gain's principal business is retail forex.
2. At all times relevant to this Complaint, Stevens was the chief executive officer
('CEO") and a listed principal and associated person ("AP") of Gain and an NFA
Associate.
BACKGROUND
3. Gain has two divisions - Gain Capital and Forex.com. Gain Capital services
larger clients such as commodity trading advisors, fund operators, money
managers, and professional traders. Forex.com, on the other hand, services
smaller retail investors who have the option of opening a standard account with a
minimum investment of $2,500 and hading leverage of up to 100:1. Or a "micro
account" with a minimum investment of $250 and trading leverage of up to 200:1 .
(Prior to the amendment of NFA Financial Requirements Section 12(b), which
became effective November 30, 2009, Gain was exempt from the minimum
security deposit requirements under NFA Financial Requirements Section 12(a)
and, therefore, was allowed to offer 200:1 leverage since it consistently
maintained adjusted net capital of at least 150% of its required amount.)
4. In 2009, Gain earned over $150 million in gross revenue from its forex activities
and net income of about $42.5 million. As of May 31, 2009, Gain had roughly
60,000 retail customers - approximately 34,000 of whom were U.S. retail
customers - with total equity of approximately $136 million. Gain has two branch
offices, one in Jersey City, New Jersey and one in New York City. Gain also has
one guaranteed introducing broker, and approximately 200 domestic and foreign
unregistered sales solicitors.
5. Gain was the subject of a Complaint issued by this Committee in 2006, which
charged the firm with failing to adequately review the websites of its unregistered
solicitors to ensure that such websites did not contain materially misleading
information and failing to establish and implement an adequate anti-money
6.
laundering program. Gain settled the 2006 Complaint by agreeing to pay a fine
of $100,000.
NFA conducted an audit of Gain in July 2009 which again found that Gain failed
to adequately review the activities of its unregistered solicitors. However, the
2009 audit also uncovered even more serious problems at Gain, the most
troubling being Gain's abusive margin, liquidation, and price slippage practices
that benefited Gain to the detriment of its customers. In addition, the 2009 audit
found that Gain failed to maintain records for all unfilled orders placed prior to
May 2009; respond promptly and fully to all inquiries and requests made by NFA
during the audit; or supervise the firm's operations. These deficiencies are
alleged in greater detail below.
APPLICABLE RULES
NFA Compliance Rule 2-5, in pertinent part, requires NFA Members to respond
promptly and fully to all inquiries and requests made by NFA during the course of
an NFA audit.
NFA Compliance Rule 2-36(bX1) provides that no FDM or Associate of an FDM
engaging in any forex transaction shall cheat, defraud or deceive, or attempt to
cheat, defraud or deceive any other person.
NFA Compliance Rule 2-36(bX4) provides that no FDM or Associate of an FDM
engaging in any forex transaction shall engage in manipulative acts or practices
regarding the price of any foreign currency or a forex transaction.
NFA Compliance Rule 2-36(c) provides that FDMs and their Associates shall
observe high standards of commercial honor and just and equitable principles of
trade in the conduct of their forex business.
7.
8.
9.
10.
11 NFA Compliance Rule 2-36(e) requires, in pertinent part, that each FDM shall
diligently supervise its employees and agents in the conduct of their forex
activities for or on behalf of the FDM.
12. NFA's Interpretive Notice for NFA Compliance Rule 2-36(e) requires that every
FDM diligently supervise the trade integrity of its platforms which includes
ensuring that all customer orders experience slippage when prices move in their
favor just as often as when prices move against them.
COUNT I
VIOLATION OF NFA COMPLIANCE RULE 2-36(c): FAILING TO UPHOLD HIGH
STANDARDS OF COMMERCIAL HONOR AND JUST AND EQUITABLE
PRINCIPLES OF TRADE BY ENGAGING IN DECEPTIVE MARGIN AND
LIQUIDATION PRACTICES.
13. The allegations contained in paragraphs 1 , 3 through 6 and 't 0 are realleged as
paragraph 13.
14. NFA's 2009 audit of Gain found that the firm engaged in leverage and margin
practices that were harmful to its customers. For example, Gain adopted a policy
whereby, every Friday, it lowered the leverage for all of its accounts that were
allowed to trade at 200:1 leverage - which included the micro accounts - to a
100:1 leverage. The effect of this weekly adjustment was to increase the margin
requirement on these accounts from 0.5% to 1%.
15. As a result of Gain's practice of adjusting leverage/margin levels on Fridays, the
accounts of many of its customers became under margined - even though they
were adequately margined prior to the leverage adjustment. In order to bring the
under margined accounts back into compliance with the higher margin
requirement, Gain would liquidate the largest losing position in these accounts.
However, sometimes the losing position that Gain liquidated contained multiple
4
16.
contracts and the liquidation of only a portion of the losing position would have
been sufficient to satisfy the new margin requirement. Nevertheless, Gain would
arbitrarily liquidate the whole position which would not only result in the account
being over margined but preclude the customer from possibly realizing a
potential gain on that portion of the position the forced liquidation of which was
unnecessary to satisfy the higher margin requirement.
Gain did not disclose to its customers - either in account opening documents, on
the firm's website, or through any other means - that, if their accounts traded at
200:1 leverage (which included all the micro account customers), they would be
subject to these routine weekly leverage/margin adjustments.
Gain claimed that it provided e-mail notifications to its customers every Friday
informing them of the leverage/margin adjustments to their accounts. Yet, Gain
was unable to show that all affected customers received these e-mails.
Gain justified the Friday leveragelmargin adjustment as a means of reducing
weekend market risk for accounts trading at 200:1 leverage - which included all
micro account customers. However, while promoting micro accounts to small
investors and the 200:1 leverage that the micro accounts enjoyed, Gain failed to
give micro account customers adequate disclosure of the higher risk associated
with the 200:1 leverage - which Gain, ltsell acknowledged by adopting its
practice of adjusting leverage/margin every Friday for accounts trading at these
leverage levels.
In addition to Gain's weekly practice of routinely adjusting leverage/margin for
accounts trading at 200:1 leverage, when Gain anticipated a significant market
move over the weekend due to some important weekend event or potential
17.
18.
't 9.
20.
development, Gain further adjusted the leverage for its customers' accounts to
50:1 , which increased the margin requirement for these accounts to 2%. This
occurred on three occasions in 2008 and 2009 - on Friday, December 19, 2008,
in anticipation of the potential weekend bankruptcy of GM; on Friday, March 13,
2009, in anticipation of a G-20 meeting that was scheduled for the weekend; and
on Friday, June 12, 2009, in anticipation of a G-B meeting that was scheduled for
the weekend. In all three instances, Gain had ample advance notice of the event
in question but failed to provide customers with any advance notice of the margin
change.
Most of the positions that Gain liquidated on the aforementioned three dates - in
anticipation of adverse market moves over the weekend - would have
experienced minimal gains or losses if they had remained open over the
weekend instead of being liquidated. However, because of the liquidations that
occurred on these dates, affected customers realized overall losses totaling
nearly $425,000.
One of Gain's foreign customers, Liviu Adrian lrimia ("lrimia") had her margin
requirement adjusted lo 2o/o on Friday, June 12,2009, prior to the weekend's G-B
meeting. Gain then liquidated the largest open losing position in lrimia's account
at a loss of over $25,000. lrimia received no prior notice from Gain that it was
increasing her margin requirement and liquidating her positions on June 12. Had
lrimia received prior notice of the margin increase, she would have sent
additional funds to Gain to satisfy the higher margin requirement eliminating the
need to liquidate positions in her account.
21 .
o
22. U.S. customer, Jim Jian Chen ("Chen"), had the margin requirement for his
account increased f rom 0.5o/o to 2o/o on Friday, December 19, 2008, supposedly
in anticipation of the potential weekend bankruptcy of GM. Gain then liquidated a
number of Chen's open positions to meet the increased margin requirement,
without giving Chen prior notice of these liquidations. As a result of Gain's
actions, Chen's account suffered a loss of nearly $15,000.
23. Another troubling aspect of Gain's practice of adjusting leverage and margin
levels on Fridays, whether as a routine matter or for special circumstances, was
that it would wait until late in the day to make the adjustment. As a result,
customers would acquire positions on Fridays, at one leverage/margin leve.,
unaware that hours and, in some cases, only minutes later that same day, the
margin required to maintain open positions over the weekend would be
increased.
24. Gain's practice of routinely and repeatedly adjusting leverage and margin
requirements on Fridays, without giving affected customers adequate prior notice
of the adjustment, denied customers the opportunity to deposit additional funds
to maintain their open positions or, at the very least, select which positions to
liquidate, and caused them to experience significant losses in their accounts. As
such, Gain breached its obligation to uphold high standards of commercial honor
and just and equitable principles of trade.
25. By reason of the foregoing acts and omissions, Gain is charged with violations of
NFA Compliance Rule 2-36(c).
COUNT II
VIOLATION OF NFA COMPLIANCE RULES 2-36(bxl) AND (4), 2-36(c) AND
2-36(e): ENGAGING lN MANIPULATIVE ACTS OR PRACTICES REGARDING
PRICES RECEIVED BY CUSTOMERS ON THE METATRADER TRADING
PLATFORM; FAILING TO SUPERVISE THE TRADE INTEGRITY OF THE
METATRADER PLATFORM TO ENSURE THAT ALL CUSTOMER ORDERS
EXPERIENCED SLIPPAGE WHEN PRICES MOVED IN THEIR FAVOR JUST AS
OFTEN AS WHEN PRTCES MOVED AGAINST THEM; AND FAILING TO MAINTAIN
RECORDS FOR ALL UNFILLED ORDERS PLACED PRIOR TO MAY 2OO9 ON THE
''INSTITUTIONAL SERVER" OF THE METATRADER PLATFORM.
26. The allegations contained in paragraphs 1, 3 through 6 and 8 through 12 are
realleged as paragraph 26.
27. Gain used the MetaTrader trading platform with two servers - a retail server and
an institutional server. The retail server was used by retail customers who
maintained self-directed accounts while the institutional server was purportedly
used primarily by money managers who had underlying retail customers. Gain
used an add-on tool to the MetaTrader trading platform - called the Virtual
Dealer Plug-ln - for both its retail and institutional servers. The Virtual Dealer
Plug-ln allowed slippage tolerance to facilitate the execution of orders.
28. Gain established the following slippage parameters for the Virtual Dealer Plug-ln
used for its retail server:
Delay:
Maximum Volume:
Maximum Losing Slippage:
Maximum Profit Slippage:
Maximum Profit Slippage Volume:
1 second
50 contracts
2 pips
2 pips
5 contracts
29. The above delay setting allowed for a one-second delay before a customer's
order on the retail server was filled and the maximum volume setting blocked an
30.
order from being filled if it exceeded 50 standard contracts (five million in notional
value). The maximum losing slippage setting represented the maximum
permissible slippage of the market price to the client's detriment and the
maximum profit slippage represented the maximum permissible slippage of the
market price in the client's favor. The setting for "maximum profit slippage
volume" dictated that if the volume of a customer's order exceeded five standard
contracts and the market moved in favor of the customer after Dlacement but
before execution of the order, then the customer's order would be requoted. The
Virtual Dealer Plug-ln did not have a maximum losing slippage volume setting
and, therefore, if the market moved against a customer and in favor of Gain two
pips or less (the maximum losing slippage setting), the customer's order would
be executed up to 50 contracts (the maximum volume setting).
Gain's slippage parameters dictated whether, and at what price, a customer's
"market order" would be filled depending on the size of the market move that
occurred after placement but before execution of the order. ("Market orders" on
certain forex trading platforms, including the MetaTrader platform used by Gain,
are not market orders in the traditional sense of that term but more akin to limit
orders and must be executed immediately or cancelled.) With Gain's slippage
parameters, if a customer placed an order at X price and before the order was
filled the market price moved within two pips of X, then the customer's market
order would get filled at X, not the prevailing market price. On the other hand, if
the market moved greater than two pips, then the customer's orderwould be
rejected.
31 For the three months of trading that NFA tested as part of its 2009 audit (viz.,
May, June and July 2009), it does not appear that the Virtual Dealer Plug-ln's
slippage parameters negatively impacted customers' trades on the retail server,
overall. However, orders involving greater than five standard contracts were
blocked when the slippage was favorable to the customers but filled when the
slippage was unfavorable to the customers and favorable to Gain. As a result,
from May 1, 2009 through July 31, 2009, customers trading greater than five
standard contracts on the retail server experienced $169,502 in losses due to
unfavorable slippage, yet never received any gains when favorable slippage
occurred. Thus, the Virtual Dealer Plug-ln's "maximum profit slippage volume"
parameter only negatively impacted customers but never benefitted them.
Gain's institutional server was purportedly for money managers who traded
underlying retail customer accounts. However, during testing of this server, NFA
also discovered that there were approximately 800 individual retail customers
that used this server.
Gain established the following slippage parameters for the Virtual Dealer Plug-ln
used for its institutional server:
Delay:
Maximum Volume:
Maximum Losing Slippage:
Maximum Profit Slippage:
Maximum Profit Slippage Volume:
1 second
1 00 contracts
20 pips
3 pips
5 contracts
Like the retail server, the institutional server also limited profitable slippage
(slippage favorable to the customer) to five standard contracts while negative
32.
34.
10
slippage (slippage unfavorable to the customer) was allowed on order sizes up to
100 contracts by default (the maximum volume setting). However, unlike the
retail server, the institutional server had asymmetrical seftings for maximum
losing and maximum profit slippage and allowed for negative slippage up to 20
pips before the customer would be requoted. Therefore, customers were far
more likely to have their orders filled when there were large market movements
unfavorable to them as opposed to when they were favorable to them.
Customer orders on the institutional server were negatively affected by slippage
due to the "maximum profit slippage volume" setting (i.e., greater than five
standard contracts). From May 1, 2009 through July 31, 2009, customers
ordering greater than five standard contracts on the institutional server
experienced almost $100,000 in losses due to unfavorable slippage when the
market moved against them, but their orders were rejected when the market
moved in their favor resulting in them experiencing zero gains.
In the order execution section of Gain's customer agreement, Gain stated that "ln
cases where the prevailing market represents prices different from the prices
Forex.com has posted on our screen, Forex.com will attempt, on a best efforts
basis, to execute trades on or close to the prevailing market prices. This may or
may not adversely affect customer realized and unrealized gains and losses."
Although Gain's customer agreement claimed that Gain would make its best
effort to execute trades on or close to prevailing market prices, Gain appears to
have done this only when the market movement was favorable to Gain. This
certainly seemed to be the case for customers trading greater than five standard
contracts.
36.
Jt.
11
38. The slippage settings that Gain established for the Virtual Dealer Plug-ln on the
MetaTrader platform allowed Gain to manipulate the prices that customers
received on their forex transactions and allowed Gain to benefit from order
slippage to the detriment of its customers.
39. Moreover, Gain failed to adequately supervise the trade integrity of the
MetaTrader platform as evidenced by the fact that slippage prices moved against
customers, particularly those who placed orders with greater than five contracts,
far more often than they moved in favor of them. In addition, Gain failed to
maintain records for all unfilled orders placed prior to May 2009.
40. Gain represented to NFA that, as of July 31, 2009, it stopped using the
MetaTrader platform through its U.S. entity since it did not conform to the then
newly adopted NFA Compliance Rule 2-43, which requires that all open
customer positions be offset on a first-in, first-out basis. The Rule became
effective on July 31, 2009. However, Gain continued offering MetaTrader to its
customers through its United Kingdom affiliate, Gain Capital Forex.com UK
Limited. Thousands of Gain's U.S. customers have opened accounts through
Gain's U.K. affiliate and more than $13 million in customer equity has transferred
from Gain to its U.K. affiliate, for which Gain acts as the liquidity provider.
41. By reason of the foregoing acts and omissions, Gain is charged with violations of
NFA Compliance Rules 2-36(bX1) and (4), 2-36(c) and 2-36(e).
couNT lll
VIOLATION OF NFA COMPLIANCE RULE 2-36(e): FAILURE TO ADEQUATELY
REVIEW THE ACTIVITIES OF UNREGISTERED SOLICITORS.
42. The allegations contained in paragraphs 1, 3 through 6 and 11 are realleged as
paragraph 42.
12
43. At the time of NFA's 2009 audit, Gain had 215 unregistered solicitors that
solicited U.S. customers for Gain. NFA reviewed eleven websites of these
unregistered solicitors and found numerous deficiencies in these websites. Gain
had also noted many of these deficiencies during its own review of these
websites and had advised its unregistered solicitors to correct these deficiencies.
However, Gain failed to follow-up with its unregistered solicitors to ensure that
they had taken appropriate corrective action to remedy these deficiencies.
One of the websites NFA reviewed was www.whiteknightfxi.com, the website of
Gain's unregistered solicitor, White Knight Investments ("White Knight"). This
website included oerformance information which boasted of annual returns as
high as 71%.
In April 2008, Gain requested that White Knight provide support for these
performance claims. However, White Knight failed to produce such support until
June 2009, fourteen months after Gain had requested it. Moreover, Gain found
the support that White Knight produced in June 2009 to be inadequate and asked
for additional support. When White Knight failed to produce the additional
support requested by Gain, Gain terminated its relationship with White Knight on
October 2,2009. Yet, Gain continued to do business with White Knight and
accepted customer accounts introduced by White Knight during the many, many
months it waited for support for the questionable performance claims on White
Knight's website.
NFA also reviewed the website of Gain's unregistered solicitor, Equity Research
Services, LLC ('ERS). This website, [www.equityresearchservicesllc. com],
included profitable hypothetical performance results purportedly for ERS's kading
44-
45.
46.
4a
47.
signals but failed to disclose the actual performance results of ERS's managed
accounts, the majority of which had losing performance. As these managed
accounts traded at Gain, Gain was aware that most of them had losing
performance. Yet, when Gain reviewed ERS's website on April 28, 2009, at
which time ERS's managed accounts had already been trading at Gain for over
three months and had already sustained losses, Gain failed to require ERS to
disclose the actual losing trading results for these managed accounts on ERS's
website.
In addition, NFA noted deficiencies in the websites of Gain's unregistered
solicitor, Three D Partners, LLC ("Three D") whose websites, www.tradingfx.com
and www. networkingfx.com, were unbalanced in their discussion of the profit
potential and risk of loss in trading forex and heavily weighted in favor of the
profit potential. Gain had also noted these deficiencies when it reviewed Three
D's websites and communicated its findings to Three D. However, Gain failed to
follow-up to ensure that Three D had corrected these deficiencies.
Gain also failed to adequately review the promotional material of its unregistered
solicitor, Horizon Solutions and Associates ("Horizon"). In January 2009, Gain
received a customer complaint about the promotional material being used by
Horizon. According to the customer complainant, he had received printed
promotional material from Horizon which showed positive trading performance
without a losing month. However, the customer's own trading account managed
by Horizon had experienced trading losses. On receiving the customer's
complaint, Gain asked the customer to send it a copy of the promotional material.
48.
14
The customer never responded to Gain's request and Gain did no further followup
with Horizon to determine what promotional material it was using.
49. As alleged above, Gain was cited in a 2006 BCC case for failing to adequately
review the websites of its unregistered solicitors. In addition, Gain was cited in
subsequent audits for failing to adequately review the websites of its unregistered
solicitors. Despite these clear warnings that its supervisory program for its
unregistered solicitors' websites was inadequate and needed improvement, Gain
failed to take appropriate corrective action to strengthen its supervisory program
as evidenced by its supervisory shortcomings with respect to its review and
follow-up relating to the websites and promotional material of its unregistered
solicitors, White Knight, ERS, Three D and Horizon.
50. By reason of the foregoing acts and omissions, Gain is charged with violations of
NFA Compliance Rule 2-36(e).
COUNT IV
VIOLATION OF NFA COMPLIANCE RULE 2-5: FAILURE TO RESPOND
PROMPTLY AND FULLY TO INQUIRIES AND REQUESTS MADE DURING NFA'S
AUDIT.
51. The allegations contained in paragraphs 1 and 3 through 7 are realleged as
paragraph 51.
52. NFA began its audit of Gain at the beginning of July 2009. NFA's auditors spent
approximately two weeks at Gain's main office. When the auditors left Gain's
offices, they still had many questions and document requests to which Gain had
failed to fully respond. This necessitated a second visit to Gain's offices by the
audit team. Prior to this second visit, the audit team sent Gain a list of all
15
outstanding items and requested that they be made available to the audit team
when they arrived at the firm for their second visit.
53. Gain provided some but not all of the items requested by the audit team when it
made its second visit to the firm, and the items Gain did produce were often slow
in coming. As a result, on October 16, 2009, NFA sent Gain another list of
outstanding items. Again, Gain did not fully respond to this list so, on November
9, 2009, NFA sent Gain a letter reminding it of its obligation, under NFA
Compliance Rule 2-5, to cooperate with NFA during an NFA audit. This letter
demanded that Gain produce all outstanding items to NFA no later than
November 13, 2009. Although Gain did meet this final deadline, priorthereto it
had been extremely recalcitrant in responding to NFA's requests for information
and documents.
54. By reason of the foregoing acts and omissions, Gain is charged with violations of
NFA Comoliance Rule 2-5.
COUNT V
VIOLATION OF NFA COMPLIANCE RULE 2-36(e): FAILURE TO SUPERVISE THE
FIRM'S OPERATIONS.
55. The allegations contained in paragraphs 1 through 6, 11, 14 through 25, 28
through 41, 44 through 50, 53 and 54 are realleged as paragraph 55.
56. Stevens was Gain's CEO and, as such, exercised a controlling influence over the
firm's activities. Stevens was also the AP/principal in charge of Gain's daily
operations and was ultimately responsible for supervising the promotional
material of Gain's unregistered solicitors and the operation of the firm's trading
platforms. Moreover, Stevens had final approval of the leverageimargin
16
adjustments that Gain made each Friday and the liquidations that resulted from
these adjustments.
57 . Gain installed the Virtual Dealer Plug-ln on its MetaTrader platform and set the
slippage parameters for the Plug-ln, which created the asymmetrical slippage
settings that were weighted against customers and in favor of Gain. Gain set the
slippage parameters the way it did purportedly to "reduce a high volume of requotes."
In this regard, Gain represented to NFA that, "in an attempt to fill clients
at their requested rates, we migrated the slippage out to allow more clients the
ability to be filled at their requested rate."
58. Stevens either knew - or as CEO should have known - that the slippage
parameters that Gain set for the Plug-ln favored Gain and had the potential of
negatively impacting customers. Yet Stevens failed to properly discharge his
supervisory responsibilities by leaving the setting of these parameters, which had
a material negative impact on many of Gain's customers, to others or by doing
nothing to rectify this situation.
59. Moreover, In December 2009, Stevens signed Gain's annual certification
attesting to the integrity of Gain's trading platforms and their compliance with the
requirements of NFA's lnterpretive Notice for NFA Compliance Rule 2-36(e)
entitled "Supervision of the Use of Electronic Trading Systems."
60. As evidenced by the numerous violations alleged above, Stevens did not
properly supervise Gain's operations to ensure compliance with NFA
Requirements.
61 . By reason of the foregoing acts and omissions, Gain and Stevens are charged
with violations of NFA Compliance Rule 2-36(e)
17
PROCEDURAL REQUIREMENTS
ANSWER
You must file a written Answer to the Complaint with NFA within thirty
days of the date of the Complaint. The Answer shall respond to each allegation in the
Complaint by admitting, denying or averring that you lack sufficient knowledge or information
to admit or deny the allegation. An averment of insufficient knowledge or information
may only be made after a diligent effort has been made to ascertain the relevant
facts and shall be deemed to be a denial of the pertinent allegation.
The place for filing an Answer shall be:
National Futures Association
300 South Riverside Plaza
Suite 1800
Chicago, lllinois 60606
Attn: Legal DepartmentDocketing
E-Mail: [email protected]
Facsim ile: 31 2-7 81 -1 67 2
Failure to file an Answer as provided above shall be deemed an admission
of the facts and legal conclusions contained in the Complaint. Failure to respond to any
allegation shall be deemed an admission of that allegation. Failure to file an Answer as
provided above shall be deemed a waiver of hearing.
POTENTIAL PENALTIES. DISQUALIFICATION AND INELIGIBILITY
At the conclusion of the proceedings conducted as a result of or in connection
with the issuance of this Complaint, NFA may impose one or more of the
following penalties:
(a) expulsion or suspension for a specified period from NFA membership;
(b) bar or suspension for a specified period from association with an NFA
Member;
18
(c) censure or reprimand;
(d) a monetary fine not to exceed $250,000 for each violation found; and
(e) order to cease and desist or any other fitting penalty or remedial action not
inconsistent with these oenalties.
The allegations in this Complaint may constitute a statutory disqualification
from registration under Section 8a(3)(M) of the Commodity Exchange Act. Respondents
in this matter who apply for registration in any new capacity, including as an
associated person with a new sponsor, may be denied registration based on the
pendency of this proceeding.
Pursuant to the provisions of Commodity Futures Trading Commission
("CFTC) Regulation 1.63 penalties imposed in connection with this Complaint may
temporarily or permanently render Respondents who are individuals ineligible to serve
on disciplinary committees, arbitration panels and governing boards of a self-regulatory
organization, as that term is defined in CFTC Regulation 1.63.
m/rvh/Gain ComDlaint 6-25-10
NATIONAL FUTURES
19
AFFIDAVIT OF SERVICE
l, Nancy Miskovich-Paschen, on oath state that on June 30, 2010, lserved
copies of the aftached Complaint, by sending such copies in the United States mail,
first-class delivery, and by overnight mail, in envelopes addressed as follows:
Gain Capital Group LLC
550 Hills Drive
Suite 210
Bedminster, NJ 07921
Attn: Alex Bobinski, CFO
Glenn H. Stevens
c/o Gain Capital Group LLC
550 Hills Drive
Suite 210
Bedminster. NJ 07921
Subscribed and sworn to before me
on this 30th day of June 2010.
d
oFnc|ALgEa Jirvrmnol
FILED
NATIONAL FUTURES ASSOGIATION
BEFORE THE
BUSINESS CONDUCT COMMITTEE JUN 3 O 2OIO
NATIONAL FIJTT]RFS ASSOCIATION
In the Matter of: LECAL DOCKETING
GAIN CAPITAL GROUP LLC
(NFA lD #339826),
ano
GLENN H. STEVENS
(NFA lD #310776),
Respondents.
NFA Case No. 10-BCC-015
COMPLAINT
Having reviewed the investigative report submitted by the Compliance
Department of National Futures Association ('NFA"), and having found reason to
believe that NFA Requirements afe being, have been or are about to be violated and
that the matter should be adjudicated, the Business Conduct Committee ("BCC" or
"Committee") issues this Complaint against Gain Capital Group LLC ("Gain") and Glenn
H. Stevens ("Stevens").
ALLEGATIONS
JURISDICTION
1. At all times relevant to this Complaint, Gain was a futures commission merchant
Forex Dealer Member (.'FDM') of NFA located in Bedminster, New Jersey.
Gain's principal business is retail forex.
2. At all times relevant to this Complaint, Stevens was the chief executive officer
('CEO") and a listed principal and associated person ("AP") of Gain and an NFA
Associate.
BACKGROUND
3. Gain has two divisions - Gain Capital and Forex.com. Gain Capital services
larger clients such as commodity trading advisors, fund operators, money
managers, and professional traders. Forex.com, on the other hand, services
smaller retail investors who have the option of opening a standard account with a
minimum investment of $2,500 and hading leverage of up to 100:1. Or a "micro
account" with a minimum investment of $250 and trading leverage of up to 200:1 .
(Prior to the amendment of NFA Financial Requirements Section 12(b), which
became effective November 30, 2009, Gain was exempt from the minimum
security deposit requirements under NFA Financial Requirements Section 12(a)
and, therefore, was allowed to offer 200:1 leverage since it consistently
maintained adjusted net capital of at least 150% of its required amount.)
4. In 2009, Gain earned over $150 million in gross revenue from its forex activities
and net income of about $42.5 million. As of May 31, 2009, Gain had roughly
60,000 retail customers - approximately 34,000 of whom were U.S. retail
customers - with total equity of approximately $136 million. Gain has two branch
offices, one in Jersey City, New Jersey and one in New York City. Gain also has
one guaranteed introducing broker, and approximately 200 domestic and foreign
unregistered sales solicitors.
5. Gain was the subject of a Complaint issued by this Committee in 2006, which
charged the firm with failing to adequately review the websites of its unregistered
solicitors to ensure that such websites did not contain materially misleading
information and failing to establish and implement an adequate anti-money
6.
laundering program. Gain settled the 2006 Complaint by agreeing to pay a fine
of $100,000.
NFA conducted an audit of Gain in July 2009 which again found that Gain failed
to adequately review the activities of its unregistered solicitors. However, the
2009 audit also uncovered even more serious problems at Gain, the most
troubling being Gain's abusive margin, liquidation, and price slippage practices
that benefited Gain to the detriment of its customers. In addition, the 2009 audit
found that Gain failed to maintain records for all unfilled orders placed prior to
May 2009; respond promptly and fully to all inquiries and requests made by NFA
during the audit; or supervise the firm's operations. These deficiencies are
alleged in greater detail below.
APPLICABLE RULES
NFA Compliance Rule 2-5, in pertinent part, requires NFA Members to respond
promptly and fully to all inquiries and requests made by NFA during the course of
an NFA audit.
NFA Compliance Rule 2-36(bX1) provides that no FDM or Associate of an FDM
engaging in any forex transaction shall cheat, defraud or deceive, or attempt to
cheat, defraud or deceive any other person.
NFA Compliance Rule 2-36(bX4) provides that no FDM or Associate of an FDM
engaging in any forex transaction shall engage in manipulative acts or practices
regarding the price of any foreign currency or a forex transaction.
NFA Compliance Rule 2-36(c) provides that FDMs and their Associates shall
observe high standards of commercial honor and just and equitable principles of
trade in the conduct of their forex business.
7.
8.
9.
10.
11 NFA Compliance Rule 2-36(e) requires, in pertinent part, that each FDM shall
diligently supervise its employees and agents in the conduct of their forex
activities for or on behalf of the FDM.
12. NFA's Interpretive Notice for NFA Compliance Rule 2-36(e) requires that every
FDM diligently supervise the trade integrity of its platforms which includes
ensuring that all customer orders experience slippage when prices move in their
favor just as often as when prices move against them.
COUNT I
VIOLATION OF NFA COMPLIANCE RULE 2-36(c): FAILING TO UPHOLD HIGH
STANDARDS OF COMMERCIAL HONOR AND JUST AND EQUITABLE
PRINCIPLES OF TRADE BY ENGAGING IN DECEPTIVE MARGIN AND
LIQUIDATION PRACTICES.
13. The allegations contained in paragraphs 1 , 3 through 6 and 't 0 are realleged as
paragraph 13.
14. NFA's 2009 audit of Gain found that the firm engaged in leverage and margin
practices that were harmful to its customers. For example, Gain adopted a policy
whereby, every Friday, it lowered the leverage for all of its accounts that were
allowed to trade at 200:1 leverage - which included the micro accounts - to a
100:1 leverage. The effect of this weekly adjustment was to increase the margin
requirement on these accounts from 0.5% to 1%.
15. As a result of Gain's practice of adjusting leverage/margin levels on Fridays, the
accounts of many of its customers became under margined - even though they
were adequately margined prior to the leverage adjustment. In order to bring the
under margined accounts back into compliance with the higher margin
requirement, Gain would liquidate the largest losing position in these accounts.
However, sometimes the losing position that Gain liquidated contained multiple
4
16.
contracts and the liquidation of only a portion of the losing position would have
been sufficient to satisfy the new margin requirement. Nevertheless, Gain would
arbitrarily liquidate the whole position which would not only result in the account
being over margined but preclude the customer from possibly realizing a
potential gain on that portion of the position the forced liquidation of which was
unnecessary to satisfy the higher margin requirement.
Gain did not disclose to its customers - either in account opening documents, on
the firm's website, or through any other means - that, if their accounts traded at
200:1 leverage (which included all the micro account customers), they would be
subject to these routine weekly leverage/margin adjustments.
Gain claimed that it provided e-mail notifications to its customers every Friday
informing them of the leverage/margin adjustments to their accounts. Yet, Gain
was unable to show that all affected customers received these e-mails.
Gain justified the Friday leveragelmargin adjustment as a means of reducing
weekend market risk for accounts trading at 200:1 leverage - which included all
micro account customers. However, while promoting micro accounts to small
investors and the 200:1 leverage that the micro accounts enjoyed, Gain failed to
give micro account customers adequate disclosure of the higher risk associated
with the 200:1 leverage - which Gain, ltsell acknowledged by adopting its
practice of adjusting leverage/margin every Friday for accounts trading at these
leverage levels.
In addition to Gain's weekly practice of routinely adjusting leverage/margin for
accounts trading at 200:1 leverage, when Gain anticipated a significant market
move over the weekend due to some important weekend event or potential
17.
18.
't 9.
20.
development, Gain further adjusted the leverage for its customers' accounts to
50:1 , which increased the margin requirement for these accounts to 2%. This
occurred on three occasions in 2008 and 2009 - on Friday, December 19, 2008,
in anticipation of the potential weekend bankruptcy of GM; on Friday, March 13,
2009, in anticipation of a G-20 meeting that was scheduled for the weekend; and
on Friday, June 12, 2009, in anticipation of a G-B meeting that was scheduled for
the weekend. In all three instances, Gain had ample advance notice of the event
in question but failed to provide customers with any advance notice of the margin
change.
Most of the positions that Gain liquidated on the aforementioned three dates - in
anticipation of adverse market moves over the weekend - would have
experienced minimal gains or losses if they had remained open over the
weekend instead of being liquidated. However, because of the liquidations that
occurred on these dates, affected customers realized overall losses totaling
nearly $425,000.
One of Gain's foreign customers, Liviu Adrian lrimia ("lrimia") had her margin
requirement adjusted lo 2o/o on Friday, June 12,2009, prior to the weekend's G-B
meeting. Gain then liquidated the largest open losing position in lrimia's account
at a loss of over $25,000. lrimia received no prior notice from Gain that it was
increasing her margin requirement and liquidating her positions on June 12. Had
lrimia received prior notice of the margin increase, she would have sent
additional funds to Gain to satisfy the higher margin requirement eliminating the
need to liquidate positions in her account.
21 .
o
22. U.S. customer, Jim Jian Chen ("Chen"), had the margin requirement for his
account increased f rom 0.5o/o to 2o/o on Friday, December 19, 2008, supposedly
in anticipation of the potential weekend bankruptcy of GM. Gain then liquidated a
number of Chen's open positions to meet the increased margin requirement,
without giving Chen prior notice of these liquidations. As a result of Gain's
actions, Chen's account suffered a loss of nearly $15,000.
23. Another troubling aspect of Gain's practice of adjusting leverage and margin
levels on Fridays, whether as a routine matter or for special circumstances, was
that it would wait until late in the day to make the adjustment. As a result,
customers would acquire positions on Fridays, at one leverage/margin leve.,
unaware that hours and, in some cases, only minutes later that same day, the
margin required to maintain open positions over the weekend would be
increased.
24. Gain's practice of routinely and repeatedly adjusting leverage and margin
requirements on Fridays, without giving affected customers adequate prior notice
of the adjustment, denied customers the opportunity to deposit additional funds
to maintain their open positions or, at the very least, select which positions to
liquidate, and caused them to experience significant losses in their accounts. As
such, Gain breached its obligation to uphold high standards of commercial honor
and just and equitable principles of trade.
25. By reason of the foregoing acts and omissions, Gain is charged with violations of
NFA Compliance Rule 2-36(c).
COUNT II
VIOLATION OF NFA COMPLIANCE RULES 2-36(bxl) AND (4), 2-36(c) AND
2-36(e): ENGAGING lN MANIPULATIVE ACTS OR PRACTICES REGARDING
PRICES RECEIVED BY CUSTOMERS ON THE METATRADER TRADING
PLATFORM; FAILING TO SUPERVISE THE TRADE INTEGRITY OF THE
METATRADER PLATFORM TO ENSURE THAT ALL CUSTOMER ORDERS
EXPERIENCED SLIPPAGE WHEN PRICES MOVED IN THEIR FAVOR JUST AS
OFTEN AS WHEN PRTCES MOVED AGAINST THEM; AND FAILING TO MAINTAIN
RECORDS FOR ALL UNFILLED ORDERS PLACED PRIOR TO MAY 2OO9 ON THE
''INSTITUTIONAL SERVER" OF THE METATRADER PLATFORM.
26. The allegations contained in paragraphs 1, 3 through 6 and 8 through 12 are
realleged as paragraph 26.
27. Gain used the MetaTrader trading platform with two servers - a retail server and
an institutional server. The retail server was used by retail customers who
maintained self-directed accounts while the institutional server was purportedly
used primarily by money managers who had underlying retail customers. Gain
used an add-on tool to the MetaTrader trading platform - called the Virtual
Dealer Plug-ln - for both its retail and institutional servers. The Virtual Dealer
Plug-ln allowed slippage tolerance to facilitate the execution of orders.
28. Gain established the following slippage parameters for the Virtual Dealer Plug-ln
used for its retail server:
Delay:
Maximum Volume:
Maximum Losing Slippage:
Maximum Profit Slippage:
Maximum Profit Slippage Volume:
1 second
50 contracts
2 pips
2 pips
5 contracts
29. The above delay setting allowed for a one-second delay before a customer's
order on the retail server was filled and the maximum volume setting blocked an
30.
order from being filled if it exceeded 50 standard contracts (five million in notional
value). The maximum losing slippage setting represented the maximum
permissible slippage of the market price to the client's detriment and the
maximum profit slippage represented the maximum permissible slippage of the
market price in the client's favor. The setting for "maximum profit slippage
volume" dictated that if the volume of a customer's order exceeded five standard
contracts and the market moved in favor of the customer after Dlacement but
before execution of the order, then the customer's order would be requoted. The
Virtual Dealer Plug-ln did not have a maximum losing slippage volume setting
and, therefore, if the market moved against a customer and in favor of Gain two
pips or less (the maximum losing slippage setting), the customer's order would
be executed up to 50 contracts (the maximum volume setting).
Gain's slippage parameters dictated whether, and at what price, a customer's
"market order" would be filled depending on the size of the market move that
occurred after placement but before execution of the order. ("Market orders" on
certain forex trading platforms, including the MetaTrader platform used by Gain,
are not market orders in the traditional sense of that term but more akin to limit
orders and must be executed immediately or cancelled.) With Gain's slippage
parameters, if a customer placed an order at X price and before the order was
filled the market price moved within two pips of X, then the customer's market
order would get filled at X, not the prevailing market price. On the other hand, if
the market moved greater than two pips, then the customer's orderwould be
rejected.
31 For the three months of trading that NFA tested as part of its 2009 audit (viz.,
May, June and July 2009), it does not appear that the Virtual Dealer Plug-ln's
slippage parameters negatively impacted customers' trades on the retail server,
overall. However, orders involving greater than five standard contracts were
blocked when the slippage was favorable to the customers but filled when the
slippage was unfavorable to the customers and favorable to Gain. As a result,
from May 1, 2009 through July 31, 2009, customers trading greater than five
standard contracts on the retail server experienced $169,502 in losses due to
unfavorable slippage, yet never received any gains when favorable slippage
occurred. Thus, the Virtual Dealer Plug-ln's "maximum profit slippage volume"
parameter only negatively impacted customers but never benefitted them.
Gain's institutional server was purportedly for money managers who traded
underlying retail customer accounts. However, during testing of this server, NFA
also discovered that there were approximately 800 individual retail customers
that used this server.
Gain established the following slippage parameters for the Virtual Dealer Plug-ln
used for its institutional server:
Delay:
Maximum Volume:
Maximum Losing Slippage:
Maximum Profit Slippage:
Maximum Profit Slippage Volume:
1 second
1 00 contracts
20 pips
3 pips
5 contracts
Like the retail server, the institutional server also limited profitable slippage
(slippage favorable to the customer) to five standard contracts while negative
32.
34.
10
slippage (slippage unfavorable to the customer) was allowed on order sizes up to
100 contracts by default (the maximum volume setting). However, unlike the
retail server, the institutional server had asymmetrical seftings for maximum
losing and maximum profit slippage and allowed for negative slippage up to 20
pips before the customer would be requoted. Therefore, customers were far
more likely to have their orders filled when there were large market movements
unfavorable to them as opposed to when they were favorable to them.
Customer orders on the institutional server were negatively affected by slippage
due to the "maximum profit slippage volume" setting (i.e., greater than five
standard contracts). From May 1, 2009 through July 31, 2009, customers
ordering greater than five standard contracts on the institutional server
experienced almost $100,000 in losses due to unfavorable slippage when the
market moved against them, but their orders were rejected when the market
moved in their favor resulting in them experiencing zero gains.
In the order execution section of Gain's customer agreement, Gain stated that "ln
cases where the prevailing market represents prices different from the prices
Forex.com has posted on our screen, Forex.com will attempt, on a best efforts
basis, to execute trades on or close to the prevailing market prices. This may or
may not adversely affect customer realized and unrealized gains and losses."
Although Gain's customer agreement claimed that Gain would make its best
effort to execute trades on or close to prevailing market prices, Gain appears to
have done this only when the market movement was favorable to Gain. This
certainly seemed to be the case for customers trading greater than five standard
contracts.
36.
Jt.
11
38. The slippage settings that Gain established for the Virtual Dealer Plug-ln on the
MetaTrader platform allowed Gain to manipulate the prices that customers
received on their forex transactions and allowed Gain to benefit from order
slippage to the detriment of its customers.
39. Moreover, Gain failed to adequately supervise the trade integrity of the
MetaTrader platform as evidenced by the fact that slippage prices moved against
customers, particularly those who placed orders with greater than five contracts,
far more often than they moved in favor of them. In addition, Gain failed to
maintain records for all unfilled orders placed prior to May 2009.
40. Gain represented to NFA that, as of July 31, 2009, it stopped using the
MetaTrader platform through its U.S. entity since it did not conform to the then
newly adopted NFA Compliance Rule 2-43, which requires that all open
customer positions be offset on a first-in, first-out basis. The Rule became
effective on July 31, 2009. However, Gain continued offering MetaTrader to its
customers through its United Kingdom affiliate, Gain Capital Forex.com UK
Limited. Thousands of Gain's U.S. customers have opened accounts through
Gain's U.K. affiliate and more than $13 million in customer equity has transferred
from Gain to its U.K. affiliate, for which Gain acts as the liquidity provider.
41. By reason of the foregoing acts and omissions, Gain is charged with violations of
NFA Compliance Rules 2-36(bX1) and (4), 2-36(c) and 2-36(e).
couNT lll
VIOLATION OF NFA COMPLIANCE RULE 2-36(e): FAILURE TO ADEQUATELY
REVIEW THE ACTIVITIES OF UNREGISTERED SOLICITORS.
42. The allegations contained in paragraphs 1, 3 through 6 and 11 are realleged as
paragraph 42.
12
43. At the time of NFA's 2009 audit, Gain had 215 unregistered solicitors that
solicited U.S. customers for Gain. NFA reviewed eleven websites of these
unregistered solicitors and found numerous deficiencies in these websites. Gain
had also noted many of these deficiencies during its own review of these
websites and had advised its unregistered solicitors to correct these deficiencies.
However, Gain failed to follow-up with its unregistered solicitors to ensure that
they had taken appropriate corrective action to remedy these deficiencies.
One of the websites NFA reviewed was www.whiteknightfxi.com, the website of
Gain's unregistered solicitor, White Knight Investments ("White Knight"). This
website included oerformance information which boasted of annual returns as
high as 71%.
In April 2008, Gain requested that White Knight provide support for these
performance claims. However, White Knight failed to produce such support until
June 2009, fourteen months after Gain had requested it. Moreover, Gain found
the support that White Knight produced in June 2009 to be inadequate and asked
for additional support. When White Knight failed to produce the additional
support requested by Gain, Gain terminated its relationship with White Knight on
October 2,2009. Yet, Gain continued to do business with White Knight and
accepted customer accounts introduced by White Knight during the many, many
months it waited for support for the questionable performance claims on White
Knight's website.
NFA also reviewed the website of Gain's unregistered solicitor, Equity Research
Services, LLC ('ERS). This website, [www.equityresearchservicesllc. com],
included profitable hypothetical performance results purportedly for ERS's kading
44-
45.
46.
4a
47.
signals but failed to disclose the actual performance results of ERS's managed
accounts, the majority of which had losing performance. As these managed
accounts traded at Gain, Gain was aware that most of them had losing
performance. Yet, when Gain reviewed ERS's website on April 28, 2009, at
which time ERS's managed accounts had already been trading at Gain for over
three months and had already sustained losses, Gain failed to require ERS to
disclose the actual losing trading results for these managed accounts on ERS's
website.
In addition, NFA noted deficiencies in the websites of Gain's unregistered
solicitor, Three D Partners, LLC ("Three D") whose websites, www.tradingfx.com
and www. networkingfx.com, were unbalanced in their discussion of the profit
potential and risk of loss in trading forex and heavily weighted in favor of the
profit potential. Gain had also noted these deficiencies when it reviewed Three
D's websites and communicated its findings to Three D. However, Gain failed to
follow-up to ensure that Three D had corrected these deficiencies.
Gain also failed to adequately review the promotional material of its unregistered
solicitor, Horizon Solutions and Associates ("Horizon"). In January 2009, Gain
received a customer complaint about the promotional material being used by
Horizon. According to the customer complainant, he had received printed
promotional material from Horizon which showed positive trading performance
without a losing month. However, the customer's own trading account managed
by Horizon had experienced trading losses. On receiving the customer's
complaint, Gain asked the customer to send it a copy of the promotional material.
48.
14
The customer never responded to Gain's request and Gain did no further followup
with Horizon to determine what promotional material it was using.
49. As alleged above, Gain was cited in a 2006 BCC case for failing to adequately
review the websites of its unregistered solicitors. In addition, Gain was cited in
subsequent audits for failing to adequately review the websites of its unregistered
solicitors. Despite these clear warnings that its supervisory program for its
unregistered solicitors' websites was inadequate and needed improvement, Gain
failed to take appropriate corrective action to strengthen its supervisory program
as evidenced by its supervisory shortcomings with respect to its review and
follow-up relating to the websites and promotional material of its unregistered
solicitors, White Knight, ERS, Three D and Horizon.
50. By reason of the foregoing acts and omissions, Gain is charged with violations of
NFA Compliance Rule 2-36(e).
COUNT IV
VIOLATION OF NFA COMPLIANCE RULE 2-5: FAILURE TO RESPOND
PROMPTLY AND FULLY TO INQUIRIES AND REQUESTS MADE DURING NFA'S
AUDIT.
51. The allegations contained in paragraphs 1 and 3 through 7 are realleged as
paragraph 51.
52. NFA began its audit of Gain at the beginning of July 2009. NFA's auditors spent
approximately two weeks at Gain's main office. When the auditors left Gain's
offices, they still had many questions and document requests to which Gain had
failed to fully respond. This necessitated a second visit to Gain's offices by the
audit team. Prior to this second visit, the audit team sent Gain a list of all
15
outstanding items and requested that they be made available to the audit team
when they arrived at the firm for their second visit.
53. Gain provided some but not all of the items requested by the audit team when it
made its second visit to the firm, and the items Gain did produce were often slow
in coming. As a result, on October 16, 2009, NFA sent Gain another list of
outstanding items. Again, Gain did not fully respond to this list so, on November
9, 2009, NFA sent Gain a letter reminding it of its obligation, under NFA
Compliance Rule 2-5, to cooperate with NFA during an NFA audit. This letter
demanded that Gain produce all outstanding items to NFA no later than
November 13, 2009. Although Gain did meet this final deadline, priorthereto it
had been extremely recalcitrant in responding to NFA's requests for information
and documents.
54. By reason of the foregoing acts and omissions, Gain is charged with violations of
NFA Comoliance Rule 2-5.
COUNT V
VIOLATION OF NFA COMPLIANCE RULE 2-36(e): FAILURE TO SUPERVISE THE
FIRM'S OPERATIONS.
55. The allegations contained in paragraphs 1 through 6, 11, 14 through 25, 28
through 41, 44 through 50, 53 and 54 are realleged as paragraph 55.
56. Stevens was Gain's CEO and, as such, exercised a controlling influence over the
firm's activities. Stevens was also the AP/principal in charge of Gain's daily
operations and was ultimately responsible for supervising the promotional
material of Gain's unregistered solicitors and the operation of the firm's trading
platforms. Moreover, Stevens had final approval of the leverageimargin
16
adjustments that Gain made each Friday and the liquidations that resulted from
these adjustments.
57 . Gain installed the Virtual Dealer Plug-ln on its MetaTrader platform and set the
slippage parameters for the Plug-ln, which created the asymmetrical slippage
settings that were weighted against customers and in favor of Gain. Gain set the
slippage parameters the way it did purportedly to "reduce a high volume of requotes."
In this regard, Gain represented to NFA that, "in an attempt to fill clients
at their requested rates, we migrated the slippage out to allow more clients the
ability to be filled at their requested rate."
58. Stevens either knew - or as CEO should have known - that the slippage
parameters that Gain set for the Plug-ln favored Gain and had the potential of
negatively impacting customers. Yet Stevens failed to properly discharge his
supervisory responsibilities by leaving the setting of these parameters, which had
a material negative impact on many of Gain's customers, to others or by doing
nothing to rectify this situation.
59. Moreover, In December 2009, Stevens signed Gain's annual certification
attesting to the integrity of Gain's trading platforms and their compliance with the
requirements of NFA's lnterpretive Notice for NFA Compliance Rule 2-36(e)
entitled "Supervision of the Use of Electronic Trading Systems."
60. As evidenced by the numerous violations alleged above, Stevens did not
properly supervise Gain's operations to ensure compliance with NFA
Requirements.
61 . By reason of the foregoing acts and omissions, Gain and Stevens are charged
with violations of NFA Compliance Rule 2-36(e)
17
PROCEDURAL REQUIREMENTS
ANSWER
You must file a written Answer to the Complaint with NFA within thirty
days of the date of the Complaint. The Answer shall respond to each allegation in the
Complaint by admitting, denying or averring that you lack sufficient knowledge or information
to admit or deny the allegation. An averment of insufficient knowledge or information
may only be made after a diligent effort has been made to ascertain the relevant
facts and shall be deemed to be a denial of the pertinent allegation.
The place for filing an Answer shall be:
National Futures Association
300 South Riverside Plaza
Suite 1800
Chicago, lllinois 60606
Attn: Legal DepartmentDocketing
E-Mail: [email protected]
Facsim ile: 31 2-7 81 -1 67 2
Failure to file an Answer as provided above shall be deemed an admission
of the facts and legal conclusions contained in the Complaint. Failure to respond to any
allegation shall be deemed an admission of that allegation. Failure to file an Answer as
provided above shall be deemed a waiver of hearing.
POTENTIAL PENALTIES. DISQUALIFICATION AND INELIGIBILITY
At the conclusion of the proceedings conducted as a result of or in connection
with the issuance of this Complaint, NFA may impose one or more of the
following penalties:
(a) expulsion or suspension for a specified period from NFA membership;
(b) bar or suspension for a specified period from association with an NFA
Member;
18
(c) censure or reprimand;
(d) a monetary fine not to exceed $250,000 for each violation found; and
(e) order to cease and desist or any other fitting penalty or remedial action not
inconsistent with these oenalties.
The allegations in this Complaint may constitute a statutory disqualification
from registration under Section 8a(3)(M) of the Commodity Exchange Act. Respondents
in this matter who apply for registration in any new capacity, including as an
associated person with a new sponsor, may be denied registration based on the
pendency of this proceeding.
Pursuant to the provisions of Commodity Futures Trading Commission
("CFTC) Regulation 1.63 penalties imposed in connection with this Complaint may
temporarily or permanently render Respondents who are individuals ineligible to serve
on disciplinary committees, arbitration panels and governing boards of a self-regulatory
organization, as that term is defined in CFTC Regulation 1.63.
m/rvh/Gain ComDlaint 6-25-10
NATIONAL FUTURES
19
AFFIDAVIT OF SERVICE
l, Nancy Miskovich-Paschen, on oath state that on June 30, 2010, lserved
copies of the aftached Complaint, by sending such copies in the United States mail,
first-class delivery, and by overnight mail, in envelopes addressed as follows:
Gain Capital Group LLC
550 Hills Drive
Suite 210
Bedminster, NJ 07921
Attn: Alex Bobinski, CFO
Glenn H. Stevens
c/o Gain Capital Group LLC
550 Hills Drive
Suite 210
Bedminster. NJ 07921
Subscribed and sworn to before me
on this 30th day of June 2010.
d
oFnc|ALgEa Jirvrmnol
hope that NFA audit all brokers & require screening of software code so there is no hidding plugging in their black boxes. But don't think they will do that 
.
