In what is effectively a symbolic move meant to send a message to the online trading brokerage community down under, on 16 October 2020, the Federal Court of Australia ordered that AGM Markets Pty Ltd (AGM), OT Markets Pty Ltd (OTM) and Ozifin Tech Pty Ltd (Ozifin) pay a total of $75 million in pecuniary penalties.

AGM has been ordered to pay $35 million, while OTM and Ozifin have each been ordered to pay $20 million.

AGM Markets was an ASIC licensed broker offering Binary Options trading primarily under the brand AlphaBinary. The group also had a CySEC licensed counterpart in Cyprus, called AGM Markets Ltd, which has since been renamed Maxigrid Ltd. We’d note that the Cyprus AGM/Maxigrid was one of several CySEC brokers which were banned in the UK earlier this year. AGM/Maxigrid also operated the EuropeFX brand which was caught up as an IB in the bankruptcy of Australia Retail FX broker USGFX.

Not exactly a great track record.

The fines are effectively symbolic in that all three entities are already in administration/liquidation, with nowhere near that kind of money available even for existing creditors.

Indeed, ASIC executive director of enforcement Sharon Concisom told the Australian Financial Review that they are drawing industry-wide conclusions from the case and the judge’s comments (more on that below), as ASIC is apparently nearing the point of issuing new CFD product intervention measures, likely to include a cut in maximum leverage allowed for retail traders such as has been done in the UK and EU (30x max), Japan (25x), and the US (50x). Ms. Concisom was stated as saying that:

“product intervention will go some way in protecting consumers – and a decision is imminent.”

Justice David Beach of the Federal Court of Australia handed down the penalty following his February 2020 decision that AGM, OTM and Ozifin had engaged in systemic unconscionable conduct while providing over-the-counter (OTC) derivative products to retail investors in Australia.

His most damning comments regarding not AGM / OT Markets / Ozifin specifically but the industry in general were regarding the loose usage of leverage. Justice Beach wrote:

“CFDs might serve legitimate investment and hedging purposes. But most retail clients lose money trading CFDs, often due to excessive leverage… importantly, none of the defendants’ clients were acquiring CFDs for hedging purposes. They were unsophisticated and ill-informed speculators.”

He then termed the use of (excessive) leverage by retail traders as

“investors seeking such financial heroin hits.”

When imposing the pecuniary penalties, Justice Beach noted, that derivatives are complex instruments and risky investments and that as a result of the contravening conduct, clients of each of the three defendants lost significant amounts of money, with total trading losses of clients equating to approximately $32 million. His Honour found that such trading losses translated to revenue earned by the defendants.

One example highlighted by His Honour was that ‘the account managers engaged on behalf of OTM were instructed to “kill your customers”, which was a reference to the purpose of the defendants to encourage deposits and trades and ultimately for those clients to lose their funds. And in advancing such a purpose, the account managers engaged by or on behalf of the defendants explicitly sought to and did win the trust of vulnerable investors’.

‘The serious nature of the contraventions and the need to send a clear message to the limited number of licensees who are dealing in OTC derivatives justifies high penalties,’ His Honour said in his judgment.

His Honour noted that it was appropriate that, ‘the overall penalty for AGM be higher than that for OTM and Ozifin, reflecting the failure by AGM to discharge its obligations as the holder of an AFSL. Such a penalty will stand as a deterrent to other AFSL holders, particularly those who are participants in the OTC derivatives market, from failing properly to supervise the conduct of their authorised representatives.’

Justice Beach also ordered AGM, OTM and Ozifin pay refunds to approximately 10,000 former clients.

The exact refund amount will depend on each client’s individual circumstances, and the amount of money available, as each of the defendants are now in liquidation as noted above.

Within 28 days, former clients of OTM and Ozifin should receive a Refund Notice from the relevant liquidator with further information and a pre-populated ‘proof of debt’ form estimating the amount of their net deposits. If clients do not receive a notice in that time, they should contact the relevant liquidator.

ASIC Deputy Chair Daniel Crennan QC said the decision sent a strong message to those who would seek to break the law. ‘AGM, OTM and Ozifin engaged in systemic unconscionable conduct, targeting unsophisticated investors and harming vulnerable consumers. The penalties handed down demonstrate the serious consequences for firms who engage in this sort of misconduct.

‘The retail OTC derivatives sector remains a focus for ASIC, given misconduct identified across the sector. Where misconduct is detected, ASIC will continue to take strong enforcement action and hold wrongdoers to account.’

The Court also ordered AGM, OTM and Ozifin pay ASIC’s costs.

In February 2018, ASIC obtained interim injunctions and warned investors against AGM Markets, OTM Markets and Ozifin.

On 9 November 2018, ASIC cancelled AGM Markets’ Australian financial services (AFS) licence after an ASIC investigation found AGM’s financial services business involved core elements of unconscionability and unmanaged conflicts of interest and followed a business model that disregarded key conduct requirements.

ASIC also disqualified a former director of AGM Markets for 8 years, Yossi Ashkenazi.

On 11 October 2019, the Federal Court of Australia ordered that AGM Markets Pty Ltd, OTM Markets Pty Ltd and Ozifin Tech Pty Ltd be wound up on just and equitable grounds. His Honour also ordered that separate liquidators be appointed to each of the three entities.

Justice Beach’s full judgement and court order on the matter of AGM Markets can be seen here (pdf).