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For Immediate Release
September 08, 2005

For more information contact:
Larry Dyekman (312) 781-1372

NFA president proposes legislative changes to address retail foreign currency fraud

September 8, Chicago - Testifying before the U.S. Senate Committee on Banking, Housing and Urban Affairs today, National Futures Association's (NFA) President Daniel Roth proposed changes in the Commodity Exchange Act intended to close the regulatory loopholes that have resulted in increased fraudulent activity in the retail off-exchange foreign currency (forex) market. NFA is the industrywide self-regulatory organization for the U.S. futures industry.

In his testimony, Roth echoed the industry's sentiments in noting "the great success of the Commodity Futures Modernization Act of 2000 (CFMA) and the superb work of the Commodity Futures Trading Commission (CFTC) in implementing exactly the kind of flexible regulatory approach that the CFMA envisioned.” However, Roth continued, there is one area in which the CFMA has not met its objectives.

"Congress attempted in the CFMA to clarify the CFTC's jurisdiction to protect customers investing in off-exchange forex currency futures,” he said. "Unfortunately, as we sit here today, there is as much uncertainty over the CFTC's authority to protect retail customers as there was five years ago.”

One of the primary reasons this jurisdictional uncertainty still exists is the decision in the Seventh Circuit Court of Appeals in a forex fraud case brought by the CFTC, referred to as the Zelener case. Although the court found that retail customers had been defrauded, it asserted that the contracts in question were not futures contracts and that the CFTC had no jurisdiction over them

"Zelener creates the distinct possibility that, through clever draftsmanship, completely unregulated firms and individuals can sell retail customers contracts that look like futures, act like futures and are sold like futures and can do so outside the CFTC's and any other regulatory body's jurisdiction,” said Roth. He also cautioned that the Zelener decision is not limited to foreign currency products, and unsophisticated customers may be victimized by high-pressure sales pitches for futures look-alike products covering everything from foreign currencies to precious metals to heating oil.

NFA's proposal, developed in association with the nation's futures exchanges, would create a statutory presumption that would give the CFTC jurisdiction over several types of "look-alike” futures contracts without infringing on already regulated instruments like securities and banking products.

NFA believes that the solution to Zelener should go beyond forex to ensure that scammers cannot tailor their written agreements to sell leveraged commodity products to retail customers for speculative purposes in a completely unregulated environment.

NFA is also proposing an amendment to the CFMA to prohibit unregulated persons from soliciting retail off-exchange forex transactions or managing retail forex accounts. "There are literally hundreds of unregulated firms doing telemarketing of off-exchange forex transactions to retail customers, and in some instances the people making the sales pitches have been barred from the futures industry for sales practice fraud,” said Roth.

Roth concluded by reiterating NFA's commitment to work with Congress, the CFTC and the industry to address these important issues involving the protection of unsophisticated retail customers.

A transcript of the full testimony is available on NFA's Web site at

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NFA is the premier independent provider of innovative and efficient regulatory programs that safeguard the integrity of the derivatives markets.

NFA has published a forex investor alert and an educational brochure on the risks of retail forex trading. Both publications are available in the Investor Services section of NFA's Web site at

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