http://www.osc.gov.on.ca/documents/en/Proceedings-SOA/soa_20121219_khan.pdf


Ontario Commission des
P.O. Box 55, 19
th
Floor CP 55, 19e étage
Securities valeurs mobilières
20 Queen Street West 20, rue queen ouest
Commission de l’Ontario
Toronto ON M5H 3S8 Toronto ON M5H 3S8
IN THE MATTER OF THE
COMMODITY FUTURES ACT
R.S.O. 1990, CH. C.20, AS AMENDED
- AND -
IN THE MATTER OF FAWAD UL HAQ KHAN and
KHAN TRADING ASSOCIATES INC. carry
ing on business as MONEY PLUS
STATEMENT OF ALLEGATIONS
OF STAFF OF THE ONTARI
O SECURITIES COMMISSION
Staff of the Ontario Securities
Commission (the "Commission") makes the following allegations:
I. OVERVIEW
1.
This proceeding relates to unregistered tr
ading and advising in commodity futures by
Fawad Ul Haq Khan (“Khan”) and Khan Trading Associates Inc. carrying on business as Money
Plus (“KTA”), in breach of the
Commodity Futures Ac
t, R.S.O. 1990, Ch. C.20, as amended
(“
CFA
”) and in a manner that was c
ontrary to the public interest.
2.
Staff allege that the Respondents’ course
of conduct commenced in June 2006 and was
ongoing as late as July 2012 (the “Material Time”).
II. THE RESPONDENTS
3.
KTA is an Ontario company incorpor
ated on November 3, 2010 under the
Canada
Business Corporations Act
, R.S.C., 1985, c. C-44.
2
4.
Khan is an individual residi
ng in Mississauga, On
tario, and is one of two directors of
KTA. Khan’s brother is th
e other director of KTA.
5.
Neither Khan nor KTA have ever been regist
ered with the Commission in any capacity.
III. UNREGISTERED A
DVISING AND TRADING
The Trading School
6.
Khan operates a trading school located in
Mississauga, Ontari
o. Through radio and
newspaper advertisements, as well as the Money Pl
us website, Khan offe
rs to teach the public
how to trade commodity futures contracts (the
“contracts”), including foreign exchange and
indices. After teaching students
trading strategies, Khan directs
and assists his students to open
trading accounts at specific brokerage firms where, unbeknownst to his students, he and/or KTA
receive referral fees for trades ma
de in the accounts being referred.
7.
After his students open trading accounts, Khan
advises his students, and in some cases,
trades on behalf of his students, without being re
gistered, contrary to On
tario commodity futures
law and contrary to the
public interest.
The Brokerages
8.
On April 7, 2006, Khan entere
d into a “Consulting Agreemen
t for Foreign Consultant”
with Global Futures Exchange & Trading Co.,
Inc. (“Global Futures”), an introducing
brokerage firm based in California, U.S.A.
Khan referred approximately 600 accounts (the
“Referred Accounts”) to Global Fu
tures and the majority of thes
e accounts realized a loss over
the lifetime of the account. The Consulting
Agreement was terminated by Global Futures
effective June 30, 2011.
3
9.
Between June 2006 and March 2011, Khan received approximately $345,000 in referral
fees from Global Futures. Further, between
June 2006 and June 2011, in excess of $5 million
was deposited into the Referred Accounts and a
ggregate net losses fro
m trading totalled in
excess of $3 million.
10.
On February 4, 2011, KTA entered into a “C
ooperation (Brokerage) Agreement” with
Mirus Futures, LLC (“Mirus”), a brokerage firm based in Illinois, U.S.A. Mirus terminated the
agreement on April 5, 2012. Between Sept
ember 2011 and April 2012, Khan referred
approximately 60 accounts to Mirus and KTA received referral fees from Mirus totalling
approximately $25,000.
11.
In or about September 2011, KTA entered into a Referring Agreement with
Forex
Capital Markets Ltd.
(“FXCM”), located in London, United Kingdom. As of July 2012, Khan
was still acting in this capacity and being comp
ensated by FXCM for referring clients to them.
Khan referred at least 19 account
s to Mirus and KTA received
referral fees from Mirus.
Unregistered Advising
12.
Khan and KTA have been providing trading
advice to their students, including advising
students with respect to which part
icular contracts to buy or sell,
and at which prices to do so.
Khan and LTA have also been advising by exer
cising discretionary trading authority in the
accounts of others in a numb
er of cases (see “Unregistered Trading” below).
13.
Further, Khan has instructed and invited stud
ents to follow and copy his trading.
Some students follow Khan’s trading live via an
audio link he provides on
line while others trade
in person at the trading school.
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14.
Based on this conduct, Khan and KTA are acting
as advisors without
being registered in
accordance with Ontario commodity futures law,
in breach of subs
ection 22(1)(b) of the
CFA.
Unregistered Trading
15.
Khan has exercised discretionary trading au
thority in approximately 25 of the accounts
of his students by obtaining a Power of Attorn
ey (“POA”) on the account or by opening a joint
trading account with the individual(s). Where Khan
had a POA, he made al
l of the trades in the
accounts and entered into agreements
entitling him to share in his
students’ profits, but not in
the losses.
16.
Based on this conduct, Khan and KTA traded
in contracts without
being registered in
accordance with Ontario commodity futures law,
in breach of subs
ection 22(1)(a) of the
CFA
.
IV. CONDUCT CONTRARY TO
THE PUBLIC INTEREST
17.
Khan and KTA have engaged in conduct cont
rary to the public
interest by making
statements that they knew or reasonably ought
to have known were mi
sleading or untrue while
advising their students in commodity trading. In
particular, Khan and
KTA made the following
misleading representations to their students, th
rough advertisements, presentations and/or on
Money Plus’ web site:
(a)
that they would make $200 to $500 per da
y, as long as they followed Khan’s
advice, notwithstanding the f
act that his students did not
make such returns;
(b)
that Khan had a proven track record of
generating high rates of return for his
students, notwithstanding the
fact that a large majority
of his students sustained
losses; and
(c)
that Khan was an expert in
day trading, notwithstanding that he has no formal
securities training and has never be
en registered with the Commission.
5
18.
Khan also failed to disclose his compensa
tion arrangements with various brokerages
(including Global Futures, Mirus
and FXCM) to his students. In
particular, his students were
not aware that whether their trades
generated profits or losses, Khan received the same per-trade
compensation. While his students were losing the
majority of their funds, unbeknownst to them,
Khan was receiving referral fees from
the trades made in their accounts.
19.
Further, on January 5, 2010, Staff obtained
a written undertaking from Khan and Money
Plus undertaking “not to receive
commissions from the public
or trade Derivatives/Forex/
Futures/Options from the public unless register
ed as required and in
compliance with the
Commodities Futures Act”. Khan and KTA’s
ongoing conduct is in contravention of the
Undertaking.
V. MISLEADING THE COMMISSION
20.
Khan also made statements to
Staff that in a material respect and at the time and in the
light of the circumstances under which the statem
ents were made, were misleading or untrue or
did not state a fact that was required to be stated
or that was necessary to make the statements
not misleading. In particular, Khan misled Staff about:
(a)
the nature of the compensation Khan wa
s receiving from Global Futures: Khan
denied receiving compensation based on
the trading of the accounts he referred
when in fact he was compensated in this manner;
(b)
the process of Khan’s students opening br
okerage accounts: Khan stated that he
was not involved in that process when in
fact he was, and instructed students to
make misrepresentations in
their applications; and
(c)
Khan’s success rate: Khan advised Staff th
at his students were successful in their
trading when in fact the large majority of them sustained losses.
21.
Based on this conduct, Khan and KTA have
violated subsecti
on 55(1)(a) of the
CFA
and
engaged in conduct contrary
to the public interest.
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VI. CONDUCT CONT
RARY TO ONTARIO COMMO
DITY FUTURES LAW AND
CONTRARY TO THE PUBLIC INTEREST
22.
Staff allege that the foregoing conduct
engaged in by the Respondents constituted
breaches of Ontario commodity futures law and/
or was contrary to the public interest. In
particular:
(a)
The respondents engaged in unregister
ed trading and advi
sing in commodity
futures, in breach of sections 22(1)(a) and (b) of the
CFA
and contrary to the
public interest;
(b)
The respondents made misrepresentations
to Staff and misled the Commission, in
breach of section 55(1)(a) of the
CFA
and contrary to the
public interest; and
(c)
The respondents engaged in conduct c
ontrary to the public interest by:
(i)
making statements that they knew or reasonably ought to have known
were misleading or untrue while
advising in commodity trading;
(ii)
failing to disclose the compensa
tion arrangements with various
brokerages to their students; and
(iii)
engaging in conduct in contrave
ntion of the Undertaking.
23.
The course of conduct engaged in by the Re
spondents as described herein compromised
the integrity of Ontario’s capital markets, was abusive to Ontario’s capital markets and was
contrary to the public interest.
24.
Staff reserve the right to make such othe
r allegations as Staff may advise and the
Commission may permit.
Dated at Toronto this 19th day of December, 2012