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BGC Partners Fined $25M by Regulators for Forex Options Fraud

Zacks Equity Research

Recently, two units of BGC Partners Inc BGCP were charged with $25 million in lieu of settlement of fraudulent practices conducted by the firm’s brokers related to option trades. The brokers created false trades inducing customers to indulge in foreign-exchange options at unfair prices.

Among the two units, BGC Financial LP has been fined with $15 million, while GFI Securities LLC is likely to pay $10 million. Notably, the amount will be shared among the U.S. Commodity Futures Trading Commission and the office of New York Attorney General Letitia James.

Additionally, both units would enter non-prosecution agreements and will be supervised by an independent consultant for one year. Also, more caution will be exercised and proper control system will be employed to avoid any unforeseen event and full co-operation will be provided to James' ongoing investigation.

Accusations

Per regulators, in 2014 and 2015, hundreds of thousands of fake bids were reported by BGC and GFI brokers and offers for emerging markets foreign-exchange options were created under a practice named "flying." Notably, through this practice, the brokers intended to make clients trade by creating a fake market with high liquidity and narrower spreads.

Per James, fake trades were reported on a frequent basis by BGC and GFI brokers, which included thousands based on "flown" bids and offers pushing clients toward entering follow-up trades generating commissions for the brokers.

BGC and GFI neither admitted nor denied findings of the CFTC. However, use of fraudulent practices for options trade was accepted as part of the settlement with New York.

No comments have been recorded from BGC Partners.

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