The value of regulation and disclosure – Part II

On June 25, 2008 I wrote the first part in a series on FX FOREX LIQUIDITY LLC.

The company was brought before the courts by the regulatory agency – the CFTC, for falsification or misrepresentation of its financial records. The company was found to be undercapitalized from March 2007, but provided data to show otherwise.

I had indicated that I would have presented the receiver report indicating a tale of deception and ineptitude by the management of the company.

The owner directors of FX FOREX LIQUIDITY LLC were engaged in activities such as falsification of financial records, moving funds between accounts on which no trading took place, stating that clients accounts were making a profit, when in fact they were suffering losses.

Read the Part one of the receiver report here, its a real eye opener and then try to link what you have read here  to the current situation facing the forex trading clubs in Jamaica

www.robbevans.com/pdf/forexlqreport01.pdf

Related

• The value of regulation and disclosure

Investing is for gains not for losses

There is this nonsense going around about “I invest what I can afford to lose”.

Which “good” investor, invests to lose? What really is investment? Let us define this:

Investing: the act of committing, laying out money or capital in an enterprise with the expectation of profit.

Money is invested with an expectation of profit. So one expects to make a profit from his investing activities, not losses.

The very act of investing calls for some of the following.

1. Careful analysis of the business within which one wants to invest.
2. Careful analysis of the sector within which one plans to invest.
3. Pouring over the financial records of the company you plan to invest in (ie stocks).

The idea is to make sure that the downside of investing is low, while the upside is great. Having done all the above does not however guarantee you profits, as unexpected acts could take place, which throws your plans off track. The goal however is to have done the your best to make sure the outcome is in your favour.

Afford to Lose

The latest buzzword for those “investing” in the Alternative Investment Scheme (AIS) of “investing only what you can afford to lose” is nothing more than rhetoric. If Olint or any of the AIS ever post a loss in any month after a string of monthly profits, we would all see these guys scrambling to get out.

At the end of every month these same folk are asking.

1. How much did Olint, Lewfam post this month?
2. When am I going to get my requested funds?

If they are like some investors that could really afford to lose it, then it really does not matter if they are every paid. I am sure that the AIS GUYS who read these blogs, and are not paying, would be thinking, these guys who invest with us can afford to lose their investments, so what is the big deal.

Words of Wisdom

Warren Buffet, one the world richest men of this generation, echos the words of wisdom from his mentor. The two key rules of investing given by Benjamin Graham should be held in high regard. The two rules are:

• Don’t lose money, and
• Don’t forget the first rule.

No real investor, invests with the intention to lose. One should seek to analyze, diversify and practice good risk management in order mitigate losses should they occur. Remember,  “Think and Check before you Invest.”

The value of regulation and disclosure

Some folks have sought to use the failures of a number or prominent companies to downplay the importance of the financial data produced by these companies.

They have even sought to suggest that the information is meaningless and will not help you to determine if the company is failing.

I know I have never sought to suggest that this published data and regulation will not prevent a company failing; instead I have maintained that they can help in identifying potential failure before it actually occurs.

Take a look the information, I have provided below.

Here is a company, which has been registered with both the NFA – National Futures Association as well as the CFTC – Commodities Futures Trading Commission.

FX FOREX LIQUIDITY LLC.

The company was brought before the courts by the regulatory agency – the CFTC, for falsification or misrepresentation of its financial records. The company was found to be undercapitalized from March 2007, but provided data to show otherwise.

What “saved” investors from greater losses were:

• The fact that they were regulated
• They had to produce financial data
• The regulator looked at the financial data and picked up that something was wrong.

See the following links

March financial data :

http://www.cftc.gov/files/tm/fcm/tmfcmdata0703.pdf

Then take a look at April data, and you will notice a big jump in the capitalization of the company( turns out to be a big fat lie).

April financial data:

http://www.cftc.gov/files/tm/fcm/tmfcmdata0704.pdf

CFTC takes action against FX FOREX LIQUIDITY.

Check this link for the complaint

Check this other link for the actual enforcement order(PDF)

Next: The receiver report

In addition a receiver was brought in at a later stage and what he found was a tale of woes at the company, ranging from poorly kept records to down right fraudulent conversion.

Stay tuned