ASIC Reveals Unconscionable Practices in USGFX Collapse

ASIC reveals disturbing conduct behind USGFX collapse, implicating EuropeFX and TradeFred in widespread financial misconduct.

In a landmark ruling, the Australian Federal Court has uncovered the far-reaching scope of “unconscionable conduct” behind the collapse of the former AFS licensed CFDs broker, USGFX. The ruling points to systemic misconduct that extended beyond the operations of USGFX itself, implicating its former corporate authorized representatives, EuropeFX and TradeFred.

The 2020 bankruptcy of Union Standard International Group Pty Ltd (USGFX), the company behind the troubled broker, left a trail of financial devastation, with over $357 million in client and creditor claims against a mere $8 million in assets to be distributed. Adding to the complexity, the company’s controlling shareholder, Soe Hein Minn, remains at large and in contempt of Australian courts.

ASIC’s Previous Actions Against EuropeFX and TradeFred

Earlier this year, the Australian Securities and Investments Commission (ASIC) banned EuropeFX director Pedro Sasso from acting as a director or controlling any entity involved in financial services for five years. This decision adds further gravity to the case, revealing the extent of breaches committed by USGFX and its affiliates.

The Federal Court found that USGFX and its two corporate representatives, BrightAU Capital Pty Ltd (trading as TradeFred) and Maxi EFX Global AU Pty Ltd (trading as EuropeFX), engaged in widespread violations of financial services laws from 2018 to 2020. These breaches included systemic unconscionable conduct, misleading and deceptive practices, and the provision of unlicensed personal financial advice.

The Court heard that during this period, customers of EuropeFX and TradeFred lost over $83 million, with these companies directly benefiting from those losses. They incentivized account managers to pressure investors into depositing more funds, exploiting their vulnerability and inexperience. Furthermore, many customers were unaware of the risks involved in trading the highly complex financial products offered by the brokers, with onboarding processes that actively targeted less-experienced investors.

ASIC Reveals Unconscionable Practices in USGFX Collapse

In an unprecedented decision, the Court also ruled that USGFX breached its general obligation to ensure that financial services were provided “efficiently, honestly, and fairly” under its Australian financial services (AFS) license. The Court highlighted that USGFX knowingly, or should have known, that providing services to customers in China exposed them to legal risks, as Chinese law prohibited trading CFDs. Despite this, USGFX failed to warn its customers of the potential civil and criminal liability they faced in China. The ruling set an important precedent for financial services providers offering services to overseas clients, making it clear that AFS licensees are responsible for the legality of their services beyond Australian borders.

In 2019, ASIC cautioned CFD issuers that breaching foreign laws could violate Australian regulations, which require them to provide services “efficiently, honestly, and fairly.”ASIC Deputy Chair Sarah Court emphasized the significance of the ruling, stating, “This outcome sets an important precedent for Australian-based financial services licensees providing services such as margin forex trading to overseas customers under their AFS license where such offerings are prohibited.”

The Court found that both EuropeFX and TradeFred engaged in a series of unconscionable practices, including:

• Deriving the majority of their revenue from customer trading losses.
• Offering financial incentives to account managers to pressure customers into depositing more funds.
• Failing to address known misconduct by account managers.
• Misleading customers about the risks involved in trading CFDs and promising unrealistic profits.
• Encouraging customers to fund their accounts through superannuation funds or credit cards.

These companies also provided unlicensed personal advice, further compounding their breaches of financial services regulations. The Court rejected EuropeFX’s defense, which attempted to argue that the companies did not profit from customer losses, a claim that the Court firmly rejected.

ASIC’s Commitment to Protecting Vulnerable Consumers

ASIC took the case to court to protect vulnerable consumers whom they misled and exploited. “Over two years, USGFX and its authorized representatives downplayed the risk and overpromised profits of high-risk CFD products,” Court said. “These entities profited from trades when their customers lost, and EuropeFX attempted to argue this was not the case, which the Court firmly rejected.”

Justice Wigney condemned EuropeFX’s conduct as “offensive to conscience” and well outside societal norms for acceptable behavior in the financial services industry.

The court has listed the matter for a case management hearing on 19 February 2025.

USGFX and its former corporate authorized representatives, EuropeFX and TradeFred, operated under the AFS license 302792. During its investigation, ASIC obtained asset restraint orders in December 2019 to protect customer funds. In 2020, USGFX entered voluntary administration, and TradeFred went into liquidation. Moreover, in July 2020, ASIC suspended USGFX’s AFS license, and The authorities canceled the license by September.

ASIC began legal proceedings against USGFX, TradeFred, and EuropeFX in December 2020. So, this ongoing case continues to reveal the extensive and deeply damaging practices that led to the downfall of USGFX, with significant implications for financial services regulation within Australia and beyond.

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