Finance Magnates had this story

I found it also on Street Insider ... the gist of the CFTC finding:

(bolding mine)

  • The CFTC Order finds that, between September 4, 2009 though at least 2014 (the Relevant Period), FXCM engaged in false and misleading solicitations of FXCM's retail foreign exchange (forex) customers by concealing its relationship with its most important market maker and by misrepresenting that its "No Dealing Desk" platform had no conflicts of interest with its customers.
  • The Order finds FXCM, FXCM Holdings, and Niv responsible for FXCM making false statements to the National Futures Association (NFA) about its relationship with the market maker.

More:

  • The Order requires Respondents jointly and severally to pay a $7 million civil monetary penalty
  • and to cease and desist from further violations of the Commodity Exchange Act and CFTC Regulations, as charged.
  • FXCM, Niv, and Ahdout agree to withdraw from CFTC registration; never to seek to register with the CFTC; and never to act in any capacity requiring registration or exemption from registration, or act as a principal, agent, officer, or employee of any person that is registered, required to be registered, or exempted from registration with the CFTC.

Gretchen L. Lowe, Principal Deputy Director and Chief Counsel of the CFTC's Division of Enforcement.

  • "Full and truthful disclosure to customers and honest discourse with self-regulatory organizations such as NFA are vital to the integrity and oversight of our markets"

There is more at Street Insider

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Here is some more detail:

  • the Order finds, FXCM had an undisclosed interest in the market maker that consistently "won" the largest share of FXCM's trading volume - and thus was taking positions opposite FXCM's retail customers.
  • It was an algorithmic trading system to make markets to FXCM's customers
  • FXCM eventually spun off the algorithmic trading system as a new company ... the company remained closely aligned with FXCM
  • This market maker received special trading privileges, benefitted from a no-interest loan provided by FXCM, worked out of FXCM's offices, and used FXCM employees to conduct its business, the Order further finds.

And here is what that all means ... (ps., this is unsubstantiated, just chatter, rumour only ... just what I've heard):

  • FXCM largest liquidity provider was a firm called HFT Co.
  • Owned by FXCM
  • Acted as a counterparty to FXCM clients
  • HFT had a "last look" at each trade
  • HFT could take a trade on board or pass it on to one of their liquidity providers

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Commodity Futures Trading Commission (CFTC)