page title icon Judge issues opinion in My Forex Funds vs. CFTC – Bad news for U.S. forex prop firms

May 18, 2024

My Forex Funds won the battle against the CFTC, but may have lost the war. 

On Tuesday District Judge Zahid Quraishi issued an opinion regarding whether or not the CFTC had the right to maintain a hold on MFF’s assets. While he significantly reduced the amount that the CFTC could hold, Judge Quaraishi also clearly sided with the CFTC on a number of the charges against MFF. 

This opinion was in response to My Forex Fund’s challenge of whether or not the CFTC had the power or the probable cause to freeze their assets. In what could be a huge blow to US prop firms, Judge Quaraishi ruled that the CFTC did indeed have authority in this case, and that there was evidence that MFF acted fraudulently. 

Before we go into the specifics, let me say again that I am by no means a lawyer. I accidentally walked into a legal library once, became disoriented by all the identical books and quickly showed myself out. I have been following this case from the beginning, however, and know a thing or two about prop trading firms.  

The good news for My Forex Funds

We’ll start with the good news, because there’s not a lot of it. The judge unfroze the bulk of the financial assets belonging to  MFF and its CEO Murtuza Kazmi. Only $12.1 million remain under CFTC control. 

This must come as a massive relief for Kazmi, who hasn’t had access to his bank accounts for more than two months. It also means that MFF might be one step closer to being able to process refunds and payouts, but they will probably have to wait until some sort of settlement is agreed upon with the CFTC.

Seems like good news, right? Well, yeah, but Judge Quaraishi did not make this decision based on any weakness in the CFTC’s case. 

He did so because he doesn’t believe Kazmi or MFF is going to try to dissipate their assets. He reached this conclusion because of MFF’s ongoing cooperation, their retention of experienced legal counsel and MFF’s “interest in resolving the case and remediating any potential disclosure issues.” 

So the judge awarded MFF a small, but important victory, in regards to control over their assets. 

That’s it. That’s the good news.

The bad news for My Forex Funds (and all US based prop firms)

A little ad for my own site with the tag line "Click Here to Read my Best Prop Firms for 2024"

It is important to note that this opinion is only ruling on the merits of CFTC’s “prima facie” case. That means the court only had to find that there was substantial evidence of wrongdoing, not full-on proof. 

If this case were to go to trial, the CFTC would have a higher burden of proof, but for the time being, the court is only determining whether the evidence was sufficient enough to justify the CFTC’s asset freeze. 

You might think that still gives MFF a glimmer of hope, but it seems this case will be settled out of court. That means that the CFTC will never have to offer full proof, and this opinion may be the last public ruling on the case.

If that’s true, surely the CFTC will be emboldened to take on more US-based prop trading firms in the near future, because, as you’ll see, the court sided with the CFTC at every turn.

Goodbye gray area – prop firms engage in “real” trading

The truly bad news for MFF and all other US based prop firms is that the judge more or less destroyed the gray, unregulated area in which prop firms reside.

The biggest grenade thrown into this gray area was probably this quote from the judge:  “The environment may have been simulated, but the trading was real.”  MFF and other prop firms have long argued that they are not subject to regulation because they are not actually making real trades. Everything is make believe, and if they aren’t making real-life trades, they shouldn’t be responsible to real-life regulators. 

Screenshot of a pivotal quote from the judge, which I highlighted. "The environment may have been simulated, but the trading was real."

Judge Quaraishi apparently found enough reality in the transactions to declare them real. That means prop trading firms should be registered with the CFTC as Retail Foreign Exchange Dealers (RFEDs), which they are not.

MFF also argued that they were not making actual transactions because customers made no deposits and therefore put none of their own assets at risk. The court stomped on this too, saying that the lack of deposits and risk had no bearing on whether or not real trading was taking place.  

Furthermore, the court agreed with the CFTC that MFF was engaging in off-exchange retail commodity transactions because MFF was acting as the counterparty to all trades for those who had live accounts, even if the funds were simulated. MFF was a counterparty because they determined the bid ask spread, added commissions, and imposed slippage and delays, paid out on profitable trading and kept the initial fees of unprofitable traders. That’s another big no no. 

Anatomy of a fraud – False & misleading statements, deceptive omissions

I kind of thought the bleeding would end there. The judge illustrated in the opening of this opinion that he actually understands the prop trading business model – perhaps even more so than the CFTC – so I didn’t think he’d agree with the fraud charges. I was wrong. He did.

In order to show that fraud had taken place, the CFTC had to demonstrate three things: 1) that MFF had made misleading statements 2) that these misleading statements were “material” to a customer’s decision making and 3) that MFF knew they weren’t accurately or completely providing customers with necessary information. 

For all three, the court found that the CFTC had made a prima facie showing that MFF was in the wrong. 

According to the court, MFF was misleading its customers by stating or inferring that traders with live accounts were trading against liquidity providers. In fact, MFF was the counterparty to almost all trades. This was material because a “reasonable customer” might not want to use a prop firm that would not be a partner but would, in fact, be an adversary.

In the matter of “scienter,” which means that MFF knew they were withholding material information, the court determined that Kazmi was aware of the fact that his business was acting as the counterparty in most trades.

MFF had argued that Kazmi wasn’t trying to defraud anyone, but the court said it didn’t need evidence of an “evil motive,” to know that MFF was aware that they weren’t being completely and honestly forthcoming.  

So the judge was all in on the fraud allegations.

Likelihood of future violations and preliminary injunction

The bad news didn’t stop there. The court also found that the fraud and unregistered foreign exchange trading were systemic to MFF’s business, and should they be allowed to open up shop again, they would almost certainly engage in the same behaviors. 

In order to prevent ongoing fraud and unregistered financial activities, the court placed a preliminary injunction on Kazmi and anyone affiliated with MFF. “The sheer scope of Defendants’ unregistered RFED, and off-exchange retail commodity trading, business compels the conclusion that preliminary injunctive relief is required.”  

So the very slight possibility that MFF might one day return took another serious hit.

The bad news for the CFTC

Not a lot to mention here, but the CFTC did get quite a reprimand from the court, as well they should have. 

One of the CFTC’s main arguments for seizing Kazmi’s assets as well as MFF’s was that MFF was making massive payouts to Kazmi himself. The CFTC found a transfer of $31.55 million to a Kazmi bank account. 

Sounds a little fishy, no? 

Actually, no. 

It turns out this was Kazmi’s payment to the Canadian tax authorities. (MFF also based some operations out of Canada.) The purpose of this payment was known to Canadian financial regulators, with whom the CFTC was supposedly partnering, but the CFTC apparently didn’t get the memo. That didn’t stop them from using this “mysterious” payment as justification for targeting Kazmi’s assets.

The CFTC found out about their error, but at no time informed the court of the mistake. In fact, they used the “mysterious” payments, which were no longer a mystery, to justify the asset freeze in a subsequent hearing.

The judge was not happy. The CFTC got a pretty good talking to, but that was about it…  

What does this all mean?

As I’ve said in previous posts about this case, MFF more or less put the entire prop industry on the line. At least a portion of their defense was, “everybody else is doing it.” Well it seems pretty clear that according to at least one judge, what everyone else is doing is fraud and illegally unregulated forex trading.  

As I said, none of this is written into law by any means, but surely this opinion will embolden the CFTC to go after other US-based forex prop firms.

Other prop firms are obviously monitoring this case very closely and are trying to be way more forthcoming about their operations, but this may be a case of too little, too late. And even if this sudden honesty means they are no longer engaged in fraud, the judge still made it pretty clear that those trading securities in a “simulated” environment should still be regulated as RFIDs.

Bottom line: I’d suspect we’ll see more asset freezes and shutdowns of US-based prop firms in the near future, so be careful out there.

Update 5/18: MFF’s motion to dismiss CFTC case

As there is a ruling expected in the next week or so, here’s the text of MFF’s motion to dismiss in full. As several of you have pointed out, the ramifications of this ruling to the prop trading world are enormous.

If the judge does dismiss the case, then the CFTC would be left with very little legal standing to go after prop firms in the future, and things could go back to “normal” in the industry. We will no soon enough, and I will keep this updated.

36 thoughts on “Judge issues opinion in My Forex Funds vs. CFTC – Bad news for U.S. forex prop firms”

    • I think so. They are definitely not manipulating prices, offering CFDs or other products not allowed in the US, or offering insane leverage, so they are on much stronger legal footing than most of the forex prop firms. Somewhere down the line I think there will be some sort of regulation for prop firms of any stripe, but I think that’s still a few years away.

    • Hi Ned, this is going to take a while, unfortunately. The judge just agreed to an extension, and MFF now has until March 8 to file their full response to the complaint. Then the CFTC has until April 5th to respond to the response, and so on — everything is being pushed back.

      One of the reasons for the extension is that MFF is facing a similar complaint in Canada since they also had headquarters there. That complicates things even further, so unless MFF and the CFTC come to some sort of agreement, it will be a long time before this all unwinds.

        • Chúng tôi vẫn đang đợi. MFF đã đệ trình kiến nghị bác bỏ các cáo buộc và thẩm phán dự kiến ​​sẽ ra phán quyết về kiến nghị đó trước ngày 6 tháng 5. Tôi nghi ngờ ông ấy sẽ bác bỏ tất cả các cáo buộc, vì vậy bước tiếp theo sẽ là chuẩn bị cho phiên tòa hoặc đạt được thỏa thuận giải quyết. Dù thế nào đi nữa, có lẽ phải đến cuối năm 2024 hoặc đầu năm 2025 thì mọi chuyện mới hoàn toàn ổn định. (Tôi đã viết điều này bằng cách sử dụng google dịch.)

  1. I think futures firms like Apex, topstep, MFFU will be OK in the short term,

    And long term – will probably need some type of registration to take US clients (Similar to brokers)

    For CFD firms, they’re pretty sure gonna get banned

    In the future after regulation I do want to see US firms offer spot FX

  2. So how does this impact those who sent money to MFF. Will they receive their money back? Many have paid thousands of dollars for their challenges under “false pretenses”.

    • If the CFTC prevails, I’m sure there will be some sort of compensation to MFF clients, but I have no idea how much that would be. MFF has indicated that they are still fighting all charges, so it could still be a long time before everything gets sorted out.

  3. What happens to customers who were on ‘live’ account s and In profit before the shut down? Any hope for these customers getting payment for their profit?

    • I think there is some hope, Eugene, but we still don’t know for certain. Most of MFF’s money is still being held by Canadian regulators. So the money hasn’t disappeared. That’s the good news. The bad news is that we still don’t know how they will distribute that money back to traders. It will take some time to sort all that out, unfortunately.

  4. Is there a possibility that MFF will reimburse the customer’s who have spent thousands on their contracts, regardless if they failed? It seems like this can be an option since they have engaged in fraud, and mislead their customers with the information they provided upon purchasing a contract.

    • If MFF loses the case, I think at some point there will be some form of reimbursement, but how much remains to be seen. It is also possible that MFF could win the case, in which case I would guess they’ll only reimburse challenges that were active at the time of the shutdown.

    • No major updates, but MFF did file a motion to dismiss. They are still claiming that since all the trades were made in demo accounts and not the real market that the CFTC has no jurisdiction. The judge has until May 6 to make a ruling on that motion.

    • Hi, Ned. Things are moving along slowly as expected. A new judge was assigned the case, which could slow things down even further. MFF filed a motion to dismiss all the charges, based mostly on the fact that they don’t believe demo trading falls under the jurisdiction of the CFTC. The judge has to respond before a deadline of May 6th, so that could be the next crucial date.

  5. Majority of MFF traders dont have an issue from MFF then what is problem of CFTC why they forcefully shutdown MFF’s business i’m also a oldest client of MFF i have an alot of accounts which i breached my mistake.MFF is best prop firm ever . IF CFTC want launch a poll then they will know most of people love MFF and they are waiting of come back of MFF.

    • Hi Tera, just more delays, I’m afraid. MFF is trying to get the case dismissed, but that motion has been referred to a different judge, so there’s no timeline for a ruling yet. This will likely drag on for quite awhile yet.

    • Nothing new, Ned, unfortunately. The motion to dismiss has also been forwarded to another judge, so that extended things beyond that May 6 deadline. This case is really going to test our patience, I’m afraid. I’ll publish any relevant updates!

  6. Hi Michael, I’m really interested to read MFF’s motion to dismiss arguments as this will determine the future of the prop firm industry. Unfortunately I don’t have access to PACER so I haven’t yet read the whole document. If you could share the pdf document that would really be helpful, thanks.

    • Hi, that’s a good idea — I’ve posted it in full above. It’s pretty much the same arguments they’ve been making since the beginning, so there’s not a lot of new ground being covered. But you’re right, this ruling will have an enormous impact on the prop trading biz, so everyone should have access to this document.

    • Hi Ned, now they are arguing about what documents the CFTC must provide MFF. The CFTC won’t comply to some of MFF’s requests unless they are ordered to do so by a judge. The judge is reviewing the arguments and will decide on July 15. In other words… … … more delays.

  7. Super agradecido, por fin alguien que sabe del tema y nos puede mantener al tanto de las actualizaciones, mil gracias.


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