Union Standard And Partners Accused Of Misleading Traders, Court Reveals
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Defunct CFD broker Union Standard International Group (USG) and its two former partners, TradeFred and EuropeFX, were involved in “systemic unconscionable practices” between 2018 and 2020. This led to a loss of more than AUD 83 million (around USD 51.7 million) for customers, according to an Australian federal court.
The court came to this conclusion after looking at evidence from clients of EuropeFX and TradeFred, who were tricked, misled, and given bad advice by people who were not properly licensed.
The Firms Made Money From Customers’ Losses And Targeted Inexperienced Traders
Although USG had an Australian Financial Services (AFS) license to offer CFDs, TradeFred, run by BrightAU Capital, and EuropeFX, run by Maxi EFX Global, were its representatives. This meant they signed up clients and offered USG’s products.
USG’s problems were revealed in mid-2020 when it went into voluntary administration and lost its license. However, the Australian Securities and Investments Commission (ASIC) acted against EuropeFX and TradeFred in December 2019 by taking steps to protect customers’ funds and starting an investigation.
The recent announcement by the court explained that the companies made money from customers’ losses. They encouraged account managers to push investors to put in more money and targeted new and inexperienced traders who did not understand the risks of trading complicated CFDs.
The companies also took the opposite side of customer trades, a practice known as B-booking, causing losses for 95 to 99 percent of their clients.
Justice Wigney noted that he has no doubt that EuropeFX’s actions were so far beyond what is acceptable that the firm was wrong and should be condemned.
The court also found that USG broke its license rules by offering services to customers in China, where CFD trading is not allowed.
ASIC Warned In 2019 About The Risks Of Offering CFDs To Countries Like China
Although ASIC warned in 2019 that breaking foreign laws could be seen as breaking Australian license rules, this is the first court ruling to confirm that.
ASIC’s Deputy Chair, Sarah Court stated that this decision is an important example for Australian financial services firms offering services like margin forex trading to overseas customers where it is not allowed.
She added that the actions of licensees providing services to overseas clients have been watched closely by regulators worldwide. This ruling is key to protecting the reputation of Australia’s financial services system.
ASIC noted that offering CFDs to Chinese customers could cause legal trouble in China. However, it is important to note that China does not specifically make CFDs illegal or control them. Many brokers, especially those with offshore licenses, continue to offer services to Chinese traders.
ASIC filed a legal case against Union Standard, EuropeFX, and TradeFred in December 2020 for providing services in China. TradeFred went out of business in March 2020, and the regulator suspended EuropeFX’s only director for five years.
