UNITED STATES OF AMERICA 

Before the 

COMMODITY FUTURES TRADING COMMISSION 

ROBERT WEST, 

Complainant, 

v. 

GAIN CAPITAL GROUP, LLC 

d/b/a FOREX.COM, and 

GLENN HENRY STEVENS, 

Respondents 

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CFTC Docket No. 10-R017 

OPINION AND ORDER 

Respondent Gain Capital Group, LLC (d/b/a Forex.com) ("Gain Capital"), appeals from 

an Initial Decision in this reparations case. That decision held that, in connection with two forex 

transactions, Gain Capital had recklessly failed to disclose material facts to its customer, 

complainant Robert West ("West"). The Order that accompanied the Initial Decision required 

Gain Capital to pay $10,000 in speculative profits to West. In this appeal, Gain Capital argues 

that the Initial Decision inconectly concluded that Gain Capital violated Section 4b of the 

Commodity Exchange Act, and that it erred in awarding speculative profits. We hold that Gain 

Capital did not violate section 4b, and that even if it had, an award of speculative profits would 

not be justified. Accordingly, we reverse.

1 

1 Although West did not file a notice of appeal, in his brief, he urges the Commission to increase the award of 

damages to $20,000. Because we hold that Gain Capital did not violate section 4b and was not liable for speculative 

profits in any event, we reject West's request. 
BACKGROUND 

The following background facts are undisputed. In early 2010, West entered into the 

market for foreign cunency.Z Using the internet, he opened a self-directed account at Forex.com, 

a division of Gain Capital. Evidence in the record shows that, as part of the process of opening 

his account online, West electronically acknowledged that he had read and understood cetiain 

Gain Capital documents, including Gain Capital's Customer Agreement, its Risk Disclosure 

Statement, its Secondary Risk Disclosure Statement, and its Trading Policies and Procedures. 

He also checked a box indicating that he had at least one year's experience trading foreign 

currency. 

The documents on Gain Capital's website contained numerous warnings regarding the 

risk of trading in foreign cun·ency. For example, the Risk Disclosure Statement (RDS) advised 

that "Foreign Exchange Trading ... is highly speculative[,]" RDS at ,-r 1, and that "There are no 

guarantees of profit or freedom from loss in Foreign Exchange ... Trading," id. at ,-r 9. The 

Secondary Risk Disclosure Statement warned that "Foreign Exchange Trading is highly 

speculative and is suitable only for those customers who (a) understand and are willing to 

assume the economic, legal and other risks involved, and (b) are financially able to assume 

losses significantly in excess of margin or deposits." The Secondary Risk Disclosure Statement 

also informed customers (in all capital letters) that: 

Forex is an over the counter (OTC) market, meaning that the foreign currency 

trading that you are entering into is not conducted on an exchange. As a market 

maker, Forex.com is the counterparty in these transactions and, therefore, acts as 

the buyer when you sell and the seller when you buy. As a result, Forex.com's 

interests may be in conflict with yours. . . . If Forex.com elects not to cover its 

own trading exposure then you should be aware that Forex.com may make more 

money if the market goes against you. 

2 West is a practicing physician. He also has a law degree and is a member of the Texas bar, but he does not practice 

law. 

2 
In addition to the risk disclosures, the documents on Gain Capital's website contained 

information regarding margin calls and a customer's obligation to maintain minimum margin 

requirements. 3 The documents advised the customer to maintain minimum margin requirements 

at all times, that it was the customer's responsibility to monitor his account, and that Gain 

Capital might liquidate all of the customer's open positions whenever the required minimum 

margin was not maintained. (Risk Disclosure Statement at~ 2.) The documents further warned 

that Gain Capital did not make margin calls. (Trading Policies and Procedures at~ 8.) But the 

documents also advised that Gain Capital might call on the customer for additional margin at any 

time by making a margin call when the customer's account fell below minimum margin 

requirements. (Customer Agreement at~ 5.) And Gain Capital advised that, when the 

customer's account was insufficient to satisfy his margin obligation, the customer "shall 

promptly pay upon demand the entire amount of such deficit." (Customer Agreement at~ 6, 

emphasis added.) 

On February 7, 2010, West opened a self-directed account with Gain Capital, and used 

his credit card to provide $5000 for that account. At two different times on February 8, 2010, 

West telephoned Gain Capital to purchase contracts on the euro. On the first occasion, he spoke 

to a sales representative who gave his name as "Jonathan."4 West explained that he was a 

novice, and that he wanted to shmi the euro against the dollar. Jonathan told West that each 

contract represented 100,000 euros, and he further informed West that there was a one percent 

margin requirement for each contract, which at that moment, equaled $1367.10. West indicated 

3 Gain Capital's Customer Agreement, its Risk Disclosure Statement, its Secondary Risk Disclosure Statement, and 

its Trading Policies and Procedures are set forth in full at Appendix B of Gain Capital's Answer (Tab 14). 

4 Gain Capital recorded its telephone transactions with West. Transcriptions of those recordings are in the record, 

Tab 21, and substantial pottions of the transcriptions are quoted in the Initial Decision. 

3 
that he wanted to purchase a contract, and hold it until the euro had dropped ten cents against the 

dollar, i.e., until he had made $10,000 on the contract. After West had completed the purchase 

of one contract, he asked Jonathan whether he could double his position by purchasing a second 

contract. Jonathan explained that if West were to purchase a second contract, his margin 

requirement would also double. Jonathan then wamed that: 

Jonathan: 

West: 

J: 

W: 

... But you most likely wouldn't want to do that because that 

would take you pretty close to getting out of the trade. 

I see. So if it gets up to where it's $5000, you get taken out of the 

trade? 

CmTect. 

I see what you are saying. 

Later that same day, West again called Gain Capital. This time he spoke to a different 

sales representative who gave his name as "Matt." West informed Matt that he was a novice 

investor, and said that he wanted to enter into a second contract for euros. Matt sold West a 

second contract, but, unlike Jonathan, Matt did not advise West of the risk of the purchase. 

Over the next six weeks, West periodically monitored the value of the euro on 

Yahoo.com, but he never examined his account on Gain Capital's website. 5 West next contacted 

Gain Capital on March 21, 2010, at which time he leamed that on February 9, the day after he 

had placed his orders, the value of the euro spiked almost two cents, resulting in a loss of $2344, 

and Gain Capital unilaterally liquidated his account ($2656 remained in his account). 6 West 

spoke to a Gain Capital employee, "Eric," who advised West that he had been "way over5 Gain Capital's Customer Agreement advised that the prices on its website might deviate from the prices listed on 

other websites. Customer Agreement at~ 4.1. 

6 West's initial margin for his two contracts totaled $2736.10. Gain Capital liquidated his account when the price of 

the Euro had increased 1.172 cents, at which time West's total margin obligation (initial margin plus mark-to-market 

margin) equaled $5080.10, more than he had in his account. Although Gain Capital sold West's contracts, his 

account remained open. 

4 
leveraged" on his trades because he was using more than half of his account for the initial margin 

on his contracts. West filed a complaint with his credit card company, and Gain Capital 

ultimately agreed to reverse the $5000 charge that West had placed on his credit card to fund his 

Gain Capital account. As a result of this refund, West suffered no loss, but received no profit, 

from his dealings with Gain Capital. 

On May 25, 2010, West filed his Reparations Complaint Form with the Commission.7 

The gist of his complaint was that he had been given assurances that, because he had used his 

credit card to fund his account, "any and all margin requirements would be deducted from the 

card." Reparations Complaint at 3. He contended that the failure to advise him that he did not 

have sufficient funds in his account, or that his account was going to be liquidated, constituted 

breach of contract, negligence, organized criminal enterprise, or fraud. He sought a refund of the 

$5000 he deposited in his account, 8 as well as $20,000 in profits he contended he would have 

received if his account had not been liquidated and if he held the contracts until the euro had 

dropped ten cents in value. 

In its Answer, Gain Capital responded that it had not violated any contractual obligation 

when it closed out West's positions because its Customer Agreement made clear that Gain 

Capital could liquidate a customer's positions any time that there were not sufficient funds in the 

customer's account to satisfy margin requirements. It contended that it had no fiduciary duty to 

make margin calls because its Customer Agreement specifically stated that it did not make such 

calls. It also stated that it had not engaged in any fraud because its sales representatives had 

7 In his Complaint, West named Gain Capital, and also named its CEO, Glenn Harry Stevens. The Initial Decision 

held that Stevens was not liable because West had failed to show an adequate connection between Stevens and 

West's losses. West has not challenged that holding in this appeal. 

8 At the time West filed his Reparations Complaint, Gain Capital had yet to agree to the refund of his $5000 deposit. 

5 
informed West of the consequences of failing to maintain sufficient funds in his account to meet 

margin requirements, and had made no misrepresentations regarding the transactions. 

On June 9, 2011, the Judgment Officer conducted a telephone hearing regarding West's 

complaint. West was the only witness. West argued that he never authorized the liquidation of 

his account, and that Gain Capital had an obligation to notify him before it completed the 

liquidation. He made no mention of the disclosures that he was provided when he opened his 

account. (In fact, in response to a question from the Judgment Officer, West stated that he had 

not read any of the disclosure documents.) He provided no evidence that he had ever been 

assured that margin requirements would automatically be deducted from his credit card account. 

Counsel for Gain Capital noted that, when West opened his account, he represented that he read 

and understood the Customer Agreement. As part of this representation, he agreed that he had 

either traded foreign currency for at least six months, or had traded on Gain Capital's Demo 

Trading System. Also, he had checked a box on his application indicating that he had at least 

one year's experience trading foreign currency. Counsel further noted that the Customer 

Agreement informed West that Gain Capital did not make margin calls. Counsel also explained 

that, even though West made two separate purchases from Gain Capital, because both of those 

purchases involved the same currency pair (i.e., euro/dollar), Gain Capital regarded this as one 

position. Thus, when West no longer had sufficient funds in his account to satisfy his margin 

requirement, Gain Capital liquidated West's entire position. 

On November 25, 2011, the Judgment Officer issued the Initial Decision. The Initial 

Decision contains lengthy factual findings, including extensive quotes from West's telephone 

conversations with Gain Capital's sales representatives. The Initial Decision concluded that 

6 
Gain Capital committed fraud by omission, thereby violating section 4b(a)(2)(A) of the CEA.9 

In particular, the Initial Decision held that, at the time when West purchased his second contract, 

West made it clear to Gain Capital's sales agent (Matt) that he did not understand the risks of 

purchasing a second contract. According to the Initial Decision, this triggered Gain Capital's 

obligation to disclose to West that, ifhe purchased a second contract, he would be overleveraged, and that, if his account did not contain enough to satisfy margin requirements, Gain 

Capital would liquidate his entire position. The Initial Decision concluded that, by failing to 

disclose this information to West, Gain Capital recklessly violated section 4b(a)(2)(A) of the 

CEA. 

The Judgment Officer then awarded West half of the $20,000 in speculative profits that 

he sought. The Initial Decision noted that, in an action such as this one, damages are normally 

limited to out-of-pocket losses, and Gain Capital had already compensated West for those losses 

by agreeing to a full refund of the $5000 in credit card charges. Nonetheless, the Initial Decision 

awarded West $10,000 in lost profits from the first contract he purchased because, it concluded, 

West would have realized that amount if he had received adequate disclosures, had not 

purchased a second contract, and had held his contract until the euro dropped ten cents in value. 

(The euro did drop ten cents in value approximately three months after Gain Capital liquidated 

West's account.) The Initial Decision found that West would have held his position until the 

euro had dropped ten cents because, after West purchased his contracts, he did not access his 

account for six weeks "indicat[ing] that West was committed to a long-term strategy of waiting 

for the exit price to be hit." ID at 19. The Initial Decision concluded that West was not entitled 

to any lost profits from his second contract because "he never expressed to Matt an intention to 

9 Section 4b(a)(2)(A) of the CEA, 7 U.S. C. § 6b(a)(2)(A), makes it unlawful "for any person, in com1ection with any 

order to make ... any contract of sale of any commodity for future delivery, ... to cheat or defi·aud or attempt to 

cheat or defi·aud the other person." 

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deposit addition[al] funds, and since he has otherwise not shown with a reasonable degree of 

certainty that he would have realized a profit on the second lot." !d. 

DISCUSSION 

On appeal, Gain Capital has raised two issues: it argues that it did not commit fraud when 

West purchased his second contract, and that, even if it did commit fraud, the award of lost 

profits was not appropriate. In his brief, West argued that he should have been awarded damages 

of$10,000 for both of his contracts- a total award of$20,000. We review these issues de novo. 

Scheufler v. Gerald, Inc., [1996-1998 Transfer Binder] Comm. Fut. L. Rep. (CCH) ,-r 27, 294 at 

46, 340; Ahlstedt v. Capitol Commodity Servs., Inc., [1996-1998 Transfer Binder] Comm. Fut. L. 

Rep. (CCH) ,-r 27,131 at 45,290 n.12. 

The Judgment Officer concluded that Gain Capital engaged in fraudulent conduct in 

violation of section 4b of the CEA because its sales representative recklessly failed to disclose 

material information to West. According to the Initial Decision, West should have been told at 

the time he purchased his second contract, that, by purchasing that contract, he would be overleveraged. 10 As discussed below, we disagree. 

1. We have held that, to establish fraud by omission, it is necessary to show 1) that the 

respondent failed to disclose certain information; 2) that a reasonable investor would consider 

the omitted information to be material to his investment decisions; and 3) that the respondent 

must have been aware that, by failing to disclose the information, the investor would have been 

misled. In the Matter of JAG Capital Mgmt., LLC, Comm. Fut. L. Rep. (CCH) ,-r 32,124 at 

68,775 (2012). Gain Capital's conduct does not satisfy the third element of fraud by omission. 

The Initial Decision held that Gain Capital acted recklessly (i.e., satisfied the third element) 

10 This was not West's theory of his case- he alleged that Gain Capital erred by liquidating his account without his 

permission. 

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because West told Matt that he (West) was a novice. "In these circumstances, Matt was well 

aware of West's reliance and was thus obligated to provide complete, accurate and meaningful 

disclosure of information material to a customer in West's place." ID at 17. But to establish a 

fraud by omission, Commission cases require more: there must be a showing that Gain Capital 

was aware that, absent these disclosures, West would be misled. 

For example, in CFTC v. R.J Fitzgerald & Co., 310 F.3d 1321 (11th Cir. 2002), the 

defendants informed potential customers in both a television commercial and a sales seminar that 

defendants had identified business opportunities that could generate 200 to 300 percent in profits. 

The court held that the defendants had engaged in a fraudulent omission because, "[g]iven the 

extremely rosy picture for profit potential painted in the Seminar and in the Commercial, a 

reasonable investor surely would want to know- before committing money to a broker- that 

95% or more of [its] investors lost money." !d. at 1332 (emphasis in original). Thus, because 

the defendants had touted their profits, it was fraudulent for them to fail to disclose that the vast 

majority of their customers lost money. 

Similarly, in JAG Capital Mgmt., supra, the respondents told investors in a commodity 

pool that their money would be used exclusively for trading, on the investors' behalf, in 

commodity interests. The Commission held that the respondents had committed fraud by 

omission because they failed to tell investors that, in fact, the respondents commingled 

investment funds with their personal accounts and used those funds for their personal purposes. 

Comm. Fut. L. Rep. (CCH) at 68,775 (2012). That is, respondents' scienter was established by 

the untrue statements that they made, and that they subsequently failed to conect. 

Although West did inform Gain Capital's sales representatives that he was a novice 

investor in foreign exchange, the Initial Decision does not identify evidence that is sufficient to 

9 
demonstrate that Gain Capital had the scienter necessary to establish fraud by omission. That is, 

the Initial Decision does not find that Gain Capital was aware that West believed (incorrectly) 

that Gain Capital made margin calls. 11 Examples of such evidence might consist of misleading 

statements or half-truths, if any misimpression created by the statements could have been 

corrected by the omitted information. 12 However, the mere fact that Gain Capital failed to 

provide West with information that might have been helpful to him does not, without more, 

constitute fraud. 13 Thus, the Initial Decision erred in holding that Gain Capital violated section 

4b of the CEA. 

2. Nor is there evidence to support West's theories ofhis case. In his complaint, he 

alleged that Gain Capital had an obligation to provide him with a margin call, and that Gain 

Capital should not have liquidated his account without his permission. In fact, there is no 

obligation on a company such as Gain Capital to make margin calls, and there is no evidence that 

11 In his brief, West argues that, in his telephone conversations with Gain Capital's sales representatives, those 

representatives "downplayed the risks of West's positions, [and] misrepresented Respondent['s] margin 

requirements .... " Tab 65 at 2. Had Gain Capital misrepresented the risk of West's positions or misrepresented 

margin requirements, this might be sufficient to trigger an obligation to make further disclosures. We find no 

indication in the transcripts of the telephone conversations that Gain Capital made such misrepresentations. 

12 The Initial Decision cites Avis v. Shearson Hayden Stone, Inc., [1980-82 Transfer Binder] Comm. Fut. L. Rep. 

(CCH) ~ 21,379 at 25,828 (1982). lD at 17. But in that case, the Commission held that the respondents had a 

fiduciary relationship with the complainant, and that they had pledged to inform him if his account no longer 

showed a profit. Here, Gain Capital specifically disavowed any fiduciary relationship with its customers, RDS at 

~ 6, and also informed them that its interests might be in conflict with theirs, Secondary Risk Disclosure. Fmiher, in 

this case, there was no pledge similar to the one in Avis. As described above, although Gain Capital's disclosure 

documents state that it does not make margin calls, those documents also contain some statements from which it 

could be inferred that Gain Capital might make such calls. We need not determine whether those statements could 

create an obligation to provide clarifying disclosures because West admitted that he had not read any of the 

disclosure documents. 

13 The Initial Decision held that West needed a second warning regarding leverage, but it may be that what he 

actually needed was more education regarding margin requirements. When West purchased his first contract, 

West's representative (Jonathan) explained that, for every hundredth cent increase in the price of the euro, West 

would be responsible for an additional $10 in margin. However, during the telephone hearing, and in his brief to the 

Commission, it appears that West believed that he would receive $10 in profit for every hundredth of a cent that the 

euro dropped in price, but would be responsible for only $1 in margin for every hundredth of a cent the price 

increased. 

10 
Gain Capital made any statement to West that would create such an obligation. Nor did Gain 

Capital need West's permission to liquidate his account: Gain Capital specifically advised that it 

would liquidate a customer's positions if there were insufficient funds in that customer's account 

to satisfy margin obligations. Customer Agreement at~ 9. 14 

During the telephone hearing, and in his brief on appeal, West claimed that NF A Rule 2-

40 requires that a customer be notified before his positions are liquidated. But West 

misunderstands Rule 2-40. That rule applies only to bulk liquidations -liquidations that occur 

when a dealer closes the accounts of all of its customers (as might happen if the dealer ceases 

business) - not to a situation in which the dealer closes out the positions of only one customer 

who is unable to satisfy margin requirements. NF A Rule 2-40 has no application here. 

3. Even if we could affirm the Initial Decision's conclusion that Gain Capital had 

committed fraud, however, we would still have to reverse because the damages awarded by the 

Initial Decision are inappropriate. In a reparations case such as this one, we are authorized to 

award "actual damages proximately caused by such violation." 7 U.S.C. § 18(a)(1)(A). 

Nmmally, we limit such damages to a complainant's out-of-pocket losses. Los Angeles Trading 

Group, Inc. v. Peregrine Financial Group, Inc., [2007-2009 Transfer Binder] Comm. Fut. L. 

Rep. (CCH) ~ 30805 at 61,781 (2008). Here, West has suffered no out-of-pocket expenses 

because Gain Capital has already refunded to him the amount he lost when it liquidated his 

account. As a result, West has been restored to the position he was in before he contacted Gain 

Capital. 

The Commission has generally limited recovery of lost profits to cases involving 

unauthorized liquidation of a complainant's market position. !d.; Adams v. Black Diamond 

14 West recognized that the price of the euro spiked on the day after he purchased his contracts. However, he was 

confused as to how much additional margin this required him to post. See note 13, supra, and Tab 65 at 3. 

11 
Futures & Trading, Inc., [2005-2007 Transfer Binder] Comm. Fut. L. Rep. ~ 30,492 at 59,403 

n.8 (2007). Although West alleged that Gain Capital had improperly liquidated his account, he 

presented no evidence to support that allegation. In particular, in his complaint, he represented 

that he had been promised that Gain Capital would automatically withdraw post-purchase margin 

requirements from his credit card account. But there is nothing in the record to support this -

indeed, nothing in any of the transcripts of West's telephone conversations with Gain Capital 

employees indicates that such a promise was ever made. To the conti'ary, although the 

disclosures that Gain Capital provides to its customers are not a model of clarity, those 

disclosures do specifically state that the customer is responsible for monitoring his account 

balance. It is undisputed that West did not monitor his account. 

Thus, the Initial Decision did not hold that Gain Capital's liquidation of West's account 

was improper. Instead, it concluded that West should never have purchased the second contract. 

Once West made that purchase, there was nothing improper about the liquidation. And even 

assuming that Gain Capital committed a fraud that induced West's second purchase, the 

appropriate remedy would be a refund of West's out-of-pocket expenses, see Sanchez v. Crown, 

[2005-2007 transfer Binder] Comm. Fut. L. Rep.~ 30,183 at 57,728 (2006), an amount that West 

has already received. Because the Initial Decision's award of speculative profits is unjustified, 

we reverse. 15 

15 Even if an award of speculative profits would have been appropriate, there is no justification for the award of 

$10,000. As we have explained, in those unusual situations where an award of speculative profits is appropriate, we 

calculate the amount "using either: (1) the value of the futures position at the time of the conversion, or (2) the 

position's highest intermediate value between notice of the conversion and a reasonable time thereafter during which 

the futures position could have been replaced had that been desired, whichever is higher." Severance v. First 

Options of Chicago, Inc., [2005-2007 Transfer Binder] Comm. Fut. L. Rep. (CCH) 'If 30,132 at 57,517 (2005). The 

Initial Decision awarded the profit that West would have received if he had purchased only one contract and held it 

until the contract reached his stated target price - which did not occur until several months after his account was 

liquidated. This is not an appropriate calculation of an award of speculative profits. 

12 
CONCLUSION 

We reverse the Judgment Officer's award of speculative profits. We hold that the 

evidence in the record does not support a conclusion that Gain Capital violated section 4b of the 

Commodity Exchange Act. We further hold that, even if Gain Capital had violated section 4b in 

connection with West's purchase of the second contract, West was at most entitled to an award 

of his out-of-pocket losses. Since Gain Capital voluntarily refunded that amount to him, there is 

no additional remedy that we can award. Accordingly, we reverse the Initial Decision and 

dismiss this matter with prejudice. 

IT IS SO ORDERED. 

By the Commission (Chairman GENSLER and Commissioners SOMMERS, CHILTON, 

O'MALIA, and WETJEN). 

Dated: April4, 2013 

Melissa D. Jurgens'', -

Secretary of the Co mission 

Commodity Futures Trading Commission 

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