ASIC fine: Forex Capital liquidators eye recovery of $20m payment made day before company collapse

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Neale PriorThe West Australian
Forex Capital Trading website promoting its trading and so-called educatoin services.
Camera IconForex Capital Trading website promoting its trading and so-called educatoin services. Credit: Waybackmachine

The liquidators of Forex Capital Trading are considering litigation to claw back a $20 million fine paid to the Australian Securities and Investment Commission shortly before the investment flogger collapsed last year.

The potential unfair preference claim against the financial services watchdog has been revealed in the Federal Court as the liquidators secured the legal go-ahead to hunt down money for creditors owed more than $77m.

In addition to pursuing a guarantee allegedly given by Forex’s Gilbraltar-based parent, the liquidators from FTI Consulting are getting advice on recovering some or all of a $20m fine pocketed by Federal Treasury last year.

FTI has told creditors the company paid the fine on June 25 — the day before the liquidators were called in.

The Federal Court imposed the $20m fine on May 28 after Justice John Middleton found Forex had engaged in systemic unconscionable conduct while selling its complex financial instruments to mostly unsophisticated investors.

ASIC launched its legal action against Forex in July 2020, six weeks after cancelling the company’s financial services licence on the basis it had disregarded it licensee obligations and had engaged in unconscionable, misleading and deceptive conduct.

The $20m fine and the court-ordered repayment of $1.5m of the watchdog’s legal and investigation costs left Forex Capital with less than $100,000 in the bank to pay known creditors, excluding clients, owed more than $5m.

Liquidators have since estimated Forex clients have claims against the company in excess of $77m because of previous court findings and their own conclusions about systematic misleading and unconscionable practises at the group.

Liquidators say Forex used high-pressure tactics to lure and keep clients buying contracts-for-difference and margin foreign exchange contracts issued by the firm.

They have claimed in the Federal Court that trading profits enjoyed by the company resulted directly from losses endured by the customers, who were counter-parties to the foreign exchange contracts.

The liquidators are now seeking to claim more than $77m from Gilbraltar-based parent Invesus under a guarantee provided in 2019. That guarantee allegedly covers the losses of clients from January 2017 to the end of March 2019.

Lawyer Brahma Dharmananda told the Federal Court on Wednesday that creditors would be told that no estimate could be made of the return that might be generated from the Invesus claim.

He said creditors would also be updated on a potential “unfair preference action against ASIC itself”.

In a draft information memorandum for creditors, FTI Consulting said the liquidators had formed the view that the $20m fine payment to ASIC last June may have unfairly prejudiced Forex Capital’s former customers.

The liquidators are “working with their legal advisers to explore avenues to recovering some or all of this money”.

And they warned creditors they might have to pursue the $77m claim against Invesus in a Gibraltar court if Forex’s parent company did not meet their payment demands.

ASIC has been contacted for comment.

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