US says 11 currency traders operating illegally

Lawyer Blogs

Federal regulators are suing 11 firms they say broke the law by selling foreign-currency contracts to the public without being registered with a government agency.

The lawsuits announced Thursday were the second "sweep" by the Commodity Futures Trading Commission under regulations that took effect last October as mandated by the financial overhaul law. The commission is seeking to stop the firms from operating unless they register with it, and it wants civil fines and restitution.

Seven of the 11 firms are incorporated outside the U.S. The CFTC's first such action targeted 14 firms in January.

The agency urged all investors to check whether any firm they invest with is registered. If not, members of the public should be wary, the CFTC said.

The rules requiring foreign-currency trading firms to register are intended to protect investors from potentially fraudulent operations, the agency said.

When an investor buys a foreign-currency contract, he or she buys the right to purchase an amount of foreign currency at a fixed price in dollars. Investors hope to profit from ups and downs in currency markets, but they also can suffer losses from sharp price swings.

The CFTC and state regulators have previously warned the public to be cautious before trading foreign currencies in general — especially outside of major exchanges such as the Chicago Mercantile Exchange — saying it can be very risky.

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