CFTC pushes for summary judgment against individuals behind ForexNPower
Several months after the Commodity Futures Trading Commission (CFTC) said it was amenable to settlement talks with the defendants in the ForexNPower case, the regulator has filed a motion for summary judgment in the New York Eastern District Court.
The CFTC seeks summary judgment against John H. Won and Tae Hung Kang a/k/a Kevin Kang, the individuals behind the fraudulent Forex scheme.
On March 30, 2021, Kang pleaded guilty to conspiracy to commit securities fraud in the related criminal matter. On November 9, 2021, after a jury trial, Won was convicted of six counts including securities fraud and wire fraud. Defendants’ criminal convictions were based upon the same underlying facts, timeframe, and parties involved in this civil matter. Consequently, Kang and Won are precluded in this case from disputing the facts as decided in the criminal fraud case.
The CFTC seeks summary judgment as to liability and the relief requested, including entry of an order of permanent injunction, civil monetary penalties, and restitution.
According to the evidence at the criminal trial, Kang and Won, via the ForexnPower fraudulent scheme, defrauded over 100 customers who deposited, collectively, over $1 million in either managed retail forex accounts or a commodity pool. Their systemic fraudulent conduct makes it highly likely that they will commit future violations of the Act and Regulations unless permanently enjoined. To prevent future violations, the CFTC requests that the Court enter a permanent injunction, trading ban, and registration ban against Kang and Won.
In his guilty plea, Kang admitted to restitution to defrauded victims of approximately $835,058. The Commission requests the Court accept that figure of $835,058 as joint and several restitution for both Kang and Won (with credit for any restitution paid in the criminal matter).
Defendant Kang, via the joint account with his wife, received from the fraudulent scheme approximately $120,065. Defendant Won directly received from the fraudulent scheme approximately $59,000. Given Kang’s and Won’s egregious conduct herein and to deter future conduct, pursuant to Section 6c(d)(1)(A) of the Act, 7 U.S.C. § 13a-1(d)(1)(A), the CFTC requests a civil monetary penalty of triple the monetary gain which would equal $360,195 against Kang and $177,000 against Won.
According to the CFTC complaint, between approximately October 2010 and December 2013, Kang and Won, and their companies Safety Capital and GNS d/b/a collectively ForexNPower, solicited and accepted customers to open accounts to trade retail off-exchange forex contracts. Safety Capital and GNS managed the trading for most of ForexnPower’s customers.
ForexnPower customers were instructed to open their retail forex accounts at Forex Capital Markets LLC (FXCM).
Kang was the CEO and President of Safety Capital and neither were registered with the CFTC. Won was the Client Relations Director and a Board Member of Safety Capital as well as the CEO and owner of GNS, which was registered with the CFTC as a CPO and CTA starting in October 2013.
Safety Capital and GNS placed ForexnPower advertisements in Korean language newspapers and radio channels. These ads represented that customers would achieve 10% monthly trading profits through a secret trading method, that forex trading was safe and risk-free, and targeted turning a $500-$1,000 investment into $100,000.
ForexnPower ads also offered an automated trading signals programs called ASET and Super Power-Bot that falsely represented customers would achieve 100% annual returns and become a millionaire in just three years.
ForexnPower also hosted seminars (in the Korean language) in Queens, NY and distributed brochures in which the claims about 10% or more monthly profits were repeated. Kang led these seminars and repeated the false claims that customers could obtain 10% or more monthly trading profits without any risk. Won was present at these seminars where these misrepresentations were repeated.
Both Kang and Won had ForexnPower business cards which also made these claims about “a secret trading method of generating 10% or more monthly profits” and “targeting $100,000 with $500 starting money.” ForexnPower sales materials to prospective customers also had a chart purporting to show $10,000 investment turning into $1.5 million in 36 months with 10% profits every month.
None of the ForexnPower ads or sales materials ever provided any risk disclosures about the risks of forex trading to their prospective customers in the Korean language. ForexnPower sales material also claimed ASET and Super Power-Bot trading signals programs would achieve profits between 5-25%.
ForexnPower’s claims about risk-free profits and large returns through managed accounts or its automated trading signals programs were false or misleading because neither ForexnPower nor its customers achieved 10% per month trading profits. In fact, most ForexnPower customers had net trading losses.
FXCM eventually terminated these exempt money manager agreements with Safety Capital and GNS. Won found a work-around by using a registered Introducing Broker (IB) to “introduce” GNS clients to FXCM. As the point person for both Safety Capital and GNS in dealings with FXCM and FX Evolve, Won told FXCM that Kang was not a principal of GNS but failed to disclose that both companies were advertising their forex trading services under the d/b/a ForexnPower and that Kang was telling customers he was CEO/President of ForexnPower.
From approximately June 2012 through December 2013, GNS had a client referral agreement with FX Evolve LLC, a CFTC-registered IB at that time. Won negotiated that agreement, signed it on behalf of GNS, and was the primary point person between GNS and FX Evolve.
Won falsely told FX Evolve that GNS was in the business of forex education and was profitable but failed to disclose that GNS, and its predecessor Safety Capital, had been managing retail forex accounts which had suffered net trading losses. Won also failed to disclose that GNS and Safety Capital were advertising their CTA services under the name ForexnPower. GNS agreed to refer forex clients to FX Evolve who then introduced them to FXCM and agreed to split the commissions on these forex clients (with 75% of all commissions to GNS and 25% to FX Evolve) and those commissions to GNS totaled approximately $87,849.
Safety and GNS also collectively accepted pool participants and investors for a commodity pool.
ForexnPower sales material made additional misrepresentations to customers in connection with forex trading including: a) that ForexnPower had an insurance fund to recover any trading losses; b) that ForexnPower had profits of 12-15% over a four-month period; c) that it was possible to achieve high profits investing in ForexnPower’s commodity pool; d) that ForexnPower was a registered IB and “operated an academy type business”; and f) Kang also promised to pay back existing investors with new investor funds in a classic Ponzi scheme.
Safety Capital had five retail forex clients who opened managed accounts at FXCM. These clients deposited approximately $147,401 in their trading accounts and suffered approximately $52,458 in losses and no client ever had 10% profits every month.
Between February 2012 and December 2013, approximately 97 GNS d/b/a ForexnPower customers (introduced directly or via FX Evolve) opened retail forex accounts at FXCM, deposited a total of approximately $779,347, lost approximately $438,568 in net trading losses (with no account having 10% profits every month) and it appears these individual GNS customers’ forex accounts were traded in a pattern as if they were all managed accounts.
Between April 2011 and October 2013, Safety Capital received approximately $708,355 in income and the majority of its revenue was derived from forex trading commissions or investments by customers. Only $12,500, or two percent of Safety Capital’s income, was spent on forex trading.
Between February 2012 and October 2013, the majority of GNS’s revenue was derived from commissions from retail forex trading customers, and investments by customers, for an approximate total of $227,917. Most or all of those funds were used for salaries or business expenses, including $21,700 to Kang’s joint account with his wife and $36,450 to Won, but none for forex trading. During the Relevant Period, GNS and Safety Capital paid Defendant Won approximately $58,950.
According to Kang’s guilty plea, victims who invested in ForexnPower collectively lost approximately $343,582 and victims who lost money in retail forex accounts lost approximately $491,476 for a total of approximately $835,058.