On October 2014, Li Wei opened an account with a foreign exchange trading platform (the forex company) and transferred $64,970USD into his account. At the same time he entered into an agreement with a trading broker (the broker).
The broker’s role was to manage Li Wei’s risk – the broker would inject funds into Li Wei’s account if the book profits from a trade were lower than the agreed yield. If the book profits from a trade were higher than the agreed yield, the broker would receive the excess amount.
No withdrawals
Li Wei actually held two accounts with the forex company, a profit account and a trading account. The trading account was a joint account in both Li Wei’s name and the broker’s name.
Every month $1,029.17USD was supposed to be automatically transferred from the trading account into the profit account. Li Wei could then send a withdrawal request form to the forex company to withdraw funds from the profit account.
Li Wei received three withdrawals between December 2014 and April 2015, totalling $5,045USD. However, after April 2015, when Li Wei submitted a withdrawal request form, the forex company did not reply.
Li Wei became concerned and contacted the broker asking for the broker to cease trading on his account. The broker also did not reply and Li Wei’s account remained active.
The complaint
By the time we received Li Wei’s complaint in May 2016, Li Wei had still not received any response from either the broker or the forex company.
The forex company was a FSCL participant. However, the broker was not registered in New Zealand. We contacted the forex company with Li Wei’s complaint.
The forex company said it had been unable to process Li Wei’s withdrawal because Li Wei had failed to provide a valid withdrawal request form. The forex company said that because Li Wei’s account was a joint account, to withdraw money from the account, both Li Wei and the broker’s signatures were required.
The forex company said it had also tried to contact the broker but with no success.
Terms and conditions
The account terms and conditions that Li Wei agreed to when he opened the account said that, where there was a joint account, the forex company was able to act on the instruction of either joint account holder.
At the time Li Wei entered into the agreement with the forex company, the broker had sent the forex company a letter to say that its permission was required for all withdrawals from any account where it was a joint account holder. Li Wei had no knowledge of this letter. The letter had not been signed by Li Wei and there was no record of Li Wei ever being sent a copy of this letter.
The forex company said that this letter changed the terms and conditions and that it could not accept Li Wei’s instructions to release a withdrawal without the broker’s permission.
Our view
We considered that the broker’s letter to the forex company did not stop the forex company from releasing Li Wei’s money to him.
Li Wei had deposited $64,970USD of his own money into his account with the forex company. We found that the forex company could not continue to hold Li Wei’s money for an indefinite period of time. We also found that Li Wei had made all reasonable attempts to contact the broker and, if the broker wanted to dispute the withdrawal of funds to Li Wei, it had received sufficient time to do so.
We considered that all the funds in the profit account belonged to Li Wei. Only Li Wei was entitled to withdraw money from the profit account. As such, Li Wei should be able to fully withdraw all of the funds in this account, being $18,525.06USD.
Both Li Wei and the broker had contributed funds to the trading account although we received no information as to how much the broker had withdrawn from this account. We considered in the absence of any further evidence, Li Wei and the broker should be entitled to the proportion of funds they each contributed into the account.
Li Wei had contributed 61% of the funds deposited in the trading account, being $64,970USD and the broker had contributed 31%, being $41,451.27USD. The amount in the trading account at the time we were considering the complaint was $52,410.93USD. Using the above percentages, we found that Li Wei was entitled to receive $31,970.67USD and the remaining $20,440.26USD should be held on trust by the forex company for the broker.
This was our final recommendation on the complaint.
Outcome
Li Wei accepted our decision to receive a withdrawal of $50,495.73USD. We sent the settlement form to the forex company and its lawyers who had been dealing with the complaint. However, the forex company failed to pay Li Wei the settlement sum and we received no further communication from the forex company or its lawyers.
Non-payment of a compensation award to a complainant is a breach of our terms of reference. As such, after giving notice to the forex company, we terminated its membership and notified the Financial Service Providers Register to begin its deregistration process. This meant that the forex company was no longer able to provide a financial service in New Zealand.
