Scandal at One World Forex
For months I have been detailing on this thread the agonies of Forex Dealer Dead Pool Member One World Capital and how this poorly capitalized firm was destined for the scrap heap. Earlier this year the NFA accused them of failing to meet basic financial requirements and hauled them before their business conduct committee. Later in the year One World's own traders began to howl in protest over the fact they couldn't withdraw their funds. Then their Chicago Sales staff resigned en masse. Then the NFA wacked One World with a huge six figure fine. Then last week I received another report that their New York Sales staff had resigned en masse.
And now the coup de grace. On Monday, December 3, 2007, the house of cards that was One World came crashing down after the NFA forced them to close their doors. This lame three legged horse was finally put down. One World is now grist for the knacker.
So what finally did in this rotting, fly covered firm? The sordid details can be read in the NFA's own Member Responsibility Action. It is quite instructive and as someone who has been warning traders for months to stay away from these guys; prophetic. The autopsy can be read here:
National Futures Association | News Center
Let's go through it bullet point by bullet point. The reason I wish to subject everyone to this painful tooth scraping is that the collapse of One World provides for a perfect illustration of why poorly capitalized firms are so risky to trade with. So open your mouth and prepare for some bleeding gums...
One World is required to maintain adjusted net capital in an amount of at least $1 million. The firm's latest form 1-FR-FCM reported that, as of October 31, 2007, the firm's total current assets were $2,387,427, its total liabilities were $1,160,200 and that its excess net capital was $227,227.
As I have been saying for months, firms that are barely meeting their capital requirement need to be closely scrutinized. One World was just barely hovering over the $1 million minimum capital requirement. In such examples the odds of a firm fudging their numbers dramatically increase .
Beginning on or about November 2, 2007, NFA began receiving complaints from One World forex customers who told NFA that they were experiencing difficulty in withdrawing funds from their One World trading accounts. For example, one customer told NFA that he had e-mailed a withdrawal form to One World on October 21, 2007. One World did not confirm receipt of the form until October 29th, when it represented that the customer would receive the requested funds within 48 hours. The customer complained to NFA that the funds had still not been provided to him by November 4th. Another customer complained to NFA that he had recently requested a withdrawal from One World in late October but had not received his funds. Both customers subsequently represented to NFA on November 30, 2007 that they still had not received their requested withdrawals.
According to the bulletin boards reports of One World not honoring customer withdrawals had been happening well before November. Not sure why NFA took so long to act on these reports. In any case, the fact that One World isn't honoring these requests as per the NFA is pretty depressing. And it indicates either One World has the most incompetent operations staff on earth, or their finances are a complete shambles.
During November, NFA made inquiry with Walsh regarding complaints from customers who reported that they were having difficulty withdrawing funds from One World. Walsh told NFA that he was investigating anti-money laundering concerns with regard to one of the customers and he failed to make any response to NFA's inquiry about a second customer's problems.
John Walsh has got some cojones I'll say that much. NFA confronts him about failing to give customers their money back and he just blows them off? If the CEO of a firm is so brazen with regulators how do you think his firm is going to treat its own customers?
But now we get to the really good stuff. One of my main arguments on this thread has been that poorly capitalized firms do not have the proper infrastructure to properly run a forex broker dealer. As such these brokers cut corners and keep the worst books imaginable. This is precisely what happened at One World Forex.
NFA asked Walsh to provide it with information as to the amount of One World's liabilities to customers who traded on Metatrader. He responded that Metatrader was very unreliable because it double counted and included demo accounts so it was not accurate. At first Walsh said that he did not know the amount of customer balances on Metatrader, but he later told investigators that the Metatrader balance was probably hundreds of thousands of dollars. He added that he did not know for sure and could not stand by that number. He told NFA that he would wait until the margin equity report was finished before giving NFA any numbers. NFA requested Walsh to provide the margin equity report from Metatrader and Walsh represented that it would take an hour to obtain.
However, after an hour had passed, Walsh told NFA that he had been interrupted and that it would take another couple of hours for him to get the margin equity report. To date, neither Walsh nor anyone else acting on behalf of One World have provided the required margin equity report to NFA despite several requests for the information.
WOW. NFA asks for a simple report on customer liabilities and Walsh can't produce it. Or more likely, WON'T produce it. What is Walsh covering up? My hunch is that his customer liabilities far exceed what he has in cash on hand. That could be the reason he hasn't turned over the requested bank statements NFA has been asking for as well. And what's the deal with Metatrader's "double counting" data? He honestly can't separate demo accounts from live accounts? I don't know much about Metatrader. But either it is the most rinky dink trading platform on the market or John Walsh is once again trying to slip the NFA a micky. In any case let's skip ahead to November 29th where we learn another juicy tidbit.
Investigators were unable to gain entry to the firm's office at first and called Walsh in that regard. He told NFA that the Metatrader platform had crashed overnight and that he was working at home and dealing with a number of customer calls. When Walsh arrived later that day, NFA investigators requested him to provide support for the November activity in One World's Bank of America accounts and Walsh responded that he did not have online access to all of One World's accounts.
There goes that rickety old Metatrader software again! How convenient that it "crashes" just when the NFA wants to look at the company's positions and net exposure. And I love how Walsh is now working from home to answer customer calls! He really is the last man standing at that firm. I wonder if Walsh is offering 24 hour support from his bed. I can picture him now, sitting there in his Homer Simpson tighty whities with one hand buried in a bag of doritos and another clinging to a cordless phone as Oliver Stone's "Wall Street" plays in the background...
Walsh: "thank you for calling One World Forex, John Walsh speaking, how can I help you?"
Customer: "ya the platform won't open, I'd like to go long two lots of USD/JPY."
Walsh: "oh i'm sorry, you're breaking up, [insert fake static sound]", click...
(next call)
Walsh: "thank you for calling One World Forex, John Walsh speaking, how can I help you?"
Customer: "I requested a withdrawal 7 weeks ago and I still haven't gotten my money! I want to speak to a manager!"
Walsh: "I'm sorry we have discovered that you were involved in money laundering. As a result we have had to confiscate your money. But don't worry. Jasmine Hotpants in Vegas put that money to good use." click...
And so on. But hey, I'm impressed he can even be bothered to pick up the phone to talk to customers after this "server crash."
The rest of the affidavit from the NFA auditor is full of evasions as Walsh and his cronies dodge and weave and do everything possible to prevent the NFA from finding out exactly how much money One World has in their bank accounts and what their customer liabilities are. It really is an amazing farce and frankly quite comical, but for the fact that many of One World's clients could be in serious financial jeopardy if it turns out that One World is in fact on the verge of bankruptcy.
The farce ends with the NFA's auditor standing outside One World's locked office last Friday morning, trying in vain to contact someone to let them in. But no one was around. Everyone at One World has abandoned ship. Here's hoping the customers will be able to make it to the lifeboats before this wreck settles to the bottom of the ocean. And so to John Walsh I sing you the love theme from Titanic...
"Heeeeeeeeeere, faaaaaaaaar, whereeeeeever you are..."
