UNITED STATES OF AMERICA 


Before the 


COMMODITY FUTURES TRADING COMMISSION 


Sergei S. Laube and Galina Laube, 

Complainants, 

v. 

Gain Capital Group, LLC d/b/a Forex.com, 

Respondent. 

CFTC Docket No. 13-R006 

OPINION & ORDER 

This reparations matter involving an allegedly improper liquidation of a customer's retail 

forex account by a futures commission merchant is before the Commission on review of the 

Judgment Officer's October JO, 20J4 order awarding $35,205 in damages to complainants. For 

the reasons set forth below, we reverse. 

BACKGROUND 

Respondent Gain Capital Group, LLC ("Gain") appeals from an order in which the 

Judgment Officer ("JO") held that Gain's liquidation of the complainants' account for 

insufficient margining was in bad faith because liquidation ofjust one forex contract would have 

met the margin deficit, but instead Gain liquidated all open positions. Laube v. Gain Capital 

Grp., [20J4-2015 Transfer Binder] Comm. Fut. L. Rep. (CCH) ~ 33,334 (JO CFTC Oct. JO, 

20J 4). 

Complainants Sergei and Galina Laube (the "Laubes") are Washington, D.C. residents 

who opened a joint retail forex account with Gain in 20JO. See Respondent's Answer and 

Statement of Facts, filed Mar. 5, 2013, Tab No. 8 ("Answer") at Statement of Fact. Gain, which

operates Forex.com, is a registered futures commission merchant ("FCM") and Retail Foreign 
Exchange Dealer ("RFED"). The Laubes' forex account was self-directed by Sergei Laube; 

Galina Laube "d[id] not trade and ha[d] no knowledge of the account password." Answer, Ex. 

C. Gain did not advise the Laubes on any trades. 

Gain's standard customer agreement applied to the Laubes' account. That agreement

contained provisions regarding margin requirements and liquidation in the event of margin 

deficits. The customer agreement authorized Gain to liquidate, without notice, any or all 

positions in an account with insufficient margin. In pertinent part, the agreement provided: 

5. Margin Requirements. Customer shall provide to and maintain with 

Forex.com Margin in such amounts, in cash or other such forms, and within such 

limits as Forex.com, in its sole discretion, may from time to time require .... 

Forex.com may at any lime liquidate Customer's Account in accordance with 

Paragraph 9 [see below]. Forex.com may withdraw funds from the Customer's 

account without notice: (x) to ensure that Posted Margin equals or exceeds 

Required Margin ... 

*** 

9. Liquidation of Accounts and Deficit Balances. In the event of: (a) an 

Event of Default; (b) insufficient Margin, or Forex.com's determination that any 

Collateral deposited to protect Customer's Account is inadequate, regardless of 

current market quotations, to secure Customer's Account; or (c) any other 

circumstances or developments that Forex.com, in its sole discretion, deems 

appropriate for its protection, Forex.com may, in its sole discretion, take one or 

more, or any portion, of the following actions: (I) satisfy any obligation 

Customer may have to Forex.com (either directly or by way of guarantee or 

suretyship) out of any of Customer's funds or property in the custody or control of 

Forex.com; (2) sell or purchase any or all Contracts and any securities or other 

property held or carried for Customer; and (3) cancel any or all outstanding 

Orders or Contracts or other transactions or commitments made by or on behalf of 

Customer. Any of the above actions may be taken without demand for Margin or 

additional Margin, without prior notice of sale or purchase or other notice to 

Customer ... and regardless of whether the ownership interest is held individually 

or jointly with others .... 

Answer, Ex. A, at pp. 6-7 ~~ 5, 9 (emphasis added). 

Further, in the "Trading Policies and Procedures" section of the customer agreement, 

Paragraph 6 stated in pertinent part, "if the Margin Balance should at any time equal or fall 

below the Minimum Margin Requirement for Customer's Account in the aggregate, Forex.com 

2 

will have the right but not the obligation to liquidate any part ofor all Open Positions in 

Customer's Account." Answer, Ex. A, at p. 12, 6 (Liquidation Level) (emphasis added). 

Gain liquidated all positions in the Laubes' account without notice when the account 

became under-margined on August 1, 2011. Trading in the Laubes' account leading up to the 

liquidation consisted of some trades that were executed immediately, and other trades that were 

to be executed only if and when a certain trading price was attained. See Answer at Statement of 

Fact and Exs. D & E. In the first trade, on April 8, 2011, Sergei Laube entered a new position by 

buying 100,000 U.S. Dollar I Swiss Franc ("USD/CHF") position at a rate of $0.9099 with a 

margin requirement of$2,000. Answer, Exs. D & E. On April 14, 2011, Sergei Laube increased 

his position by buying another 100,000 USD/CHF at the rate of $0.88997, bringing the aggregate 

margin requirement to $4,000. Answer, Ex. D. Then, on June 2 and 3, 2011, Sergei Laube 

placed two additional 100,000 USD/CHF "pending limit" orders to be executed if the trading 

price for USD/CHF reached $0.80088 or $0.82033, respectively. Answer, Exs. D & E. A 

pending limit buy order is for the purchase of a trading position at a price below the current 

trading price; the trade is executed if the named price is reached. 

Shortly after placing his pending limit orders in June 2011, Sergei Laube went on an 

extended vacation in Cancun, Mexico, where he remained from .June 11, 2011 to September 3, 

2011. Answer, Ex. C. On July 13, 2011, while Mr. Laube was still away on vacation, the 

pending limit order for 100,000 USD/CHF was triggered and executed at the rate of $0.82033, 

bringing the margin requirement of the Laubes' account to $6,000. Answer, Ex. D. On July 25, 

2011, the second pending limit order was triggered, and a trade of 100,000 USD/CHF was 

executed at the rate of $0.80088, bringing the Laubes' aggregate margin requirement to $8,000. 

Id. 

3 

On the morning of August I, 2011, while Mr. Laube remained on vacation, the Laubes' 

margin balance fell to $6,919.91. See Complaint, filed Nov. 6, 2012, Tab No. I ("Comp!."). 

This balance was $1,080.09 short of the $8,000 margin required for the Laubes' open positions. 

Without notice, and in accordance with Gain' s policy that it "does not make margin calls in the 

ordinary course of its business" to which the Laubes had agreed, Gain liquidated all positions in 

the Laubes' account, selling 400,000 USD/CHF at the price of$0.78167. See Comp!. at I; see 

also Answer, Ex. A, at p. 12 ~ 6 (Liquidation Level). By Gain's calculation, the Laubes' account 

realized a loss of $37,662.95 from the liquidation. See Answer at Statement of Fact. 

Sergei Laube complained to Gain and requested a refund of $35,362.69. Answer, Ex. C. 

Gain denied the request and concluded that "no credit is due in this case" because the "August 

1st liquidation was performed correctly in accordance with FOREX.com's stated policies and 

procedures" that allowed the FCM to liquidate all positions without notice in the event of a 

margin deficit. Answer, Ex. D. 

PROCEEDINGS BEFORE THE JUDGMENT OFFICER 

The Laubes,pro se, filed a reparations claim with the Commission on November 6, 2012. 

See Comp!. Their complaint did not cite any Commodity Exchange Act ("CEA") sections or 

CFTC regulations, and instead generally alleged that Gain engaged in "deceptive margin and 

liquidation practices[.]" See Comp!. at 2. The Laubes present the issue as, "Why Gain Capital 

Trading Desk sold all 400,000 USD/CHF, instead of closing only one 100,000 USD/CHF 

contract, maybe [two] I 00,000 USD/CHF contracts?" Id. at I. 

Gain filed an Answer in which it asserted that the open positions in the Laubes' account 

were created by Sergei Laube's self-directed trading, and the positions were properly liquidated 

4 

in accordance with Gain' s margin and liquidation procedures when the account became undermargined. See Answer. 

The JO requested written final arguments from the parties. Order, dated Jan. 9, 20 I 4, 

Tab No. I 7. Only the Laubes submitted closing arguments. Complainant's Closing Arguments, 

filed Feb. 1I,2014, Tab No. 18. The Laubes did not make any legal argument or cite authority 

regarding FCM liability for margin-related liquidations. Rather, they cited news articles about 

currency manipulation in forex markets. See id. Gain did not file a closing argument and stated 

instead that Gain "did not feel it necessary to make further filings" because "[t]he original 

answer contained the full extent of our arguments as well as a plea to have the case dismissed." 

"Phone Note" Docket entry, dated Apr. 16, 2014; Respondent's Response to JO McGuire's 

Email Dated April I 6, 20 I 4, filed Apr. I 6, 20 I 4, Tab No. 20. 

In the Initial Decision ("ID"), the JO concluded that Gain liquidated the Laubes' account 

in bad faith because "the $I ,080 margin deficit could have been met with the liquidation ofjust 

one forex contract[.]" ID at 9. The .Judgment Officer cited Mills v. Smith Barney, [I 984-I 986 

Transfer Binder] Comm. Fut. L. Rep. (CCH) iJ 22, 762, CFTC No. R81-8 I 3-82-111, 1985 WL 

56343 (CFTC Oct. I, 1985), and concluded that the Laubes had "shifted the burden to Gain to 

show that its determination to liquidate all four contracts was in good faith." ID at 9. Because 

Gain justified the total liquidation by relying only on its standard margin and liquidation policy, 

the Judgment Officer found that "Gain has produced no evidence justifying the liquidation of 

more than one contract in these circumstances, and thus has failed to show that the total 

liquidation was in good faith." Id. The Judgment Officer sua sponte concluded that Gain 

violated CEA Section 4d(a)(2), which requires that FCMs treat as customer property those funds 

that are used to margin domestic futures positions. The Judgment Officer ordered Gain to pay 

5 

the Laubes $35,205 for the violation, plus prejudgment interest and fees. Id. at I 0. This appeal 

followed. 

GAIN'S APPEAL 

On appeal, Gain does not argue that CEA Section 4d is inapplicable to retail forex. 

Rather, it argues that the Judgment Officer's Section 4d analysis was flawed. Gain argues that 

the Initial Decision should be reversed because it conflicts with longstanding interpretations of 

CEA Section 4d(a)(2) affording FCMs a "near-absolute right to liquidate the position of[] 

customers when they fail to maintain adequate margin." Respondent-Appellant Gain's Appeal to 

the CFTC, filed Dec. 5, 2014, Tab No. 3 I, at 3. Gain asserts that its liquidation was in good faith 

because its right to protect its own financial position and that of other customers superseded any 

duties it owed to the Laubes when the Laubes defaulted on their margin requirements. Id. at 4. 

Further, Gain argues that a liquidation is in bad faith only when the liquidation is to penalize the 

customer for a reason unrelated to the FCM's business, and that an FCM does not act in bad faith 

by liquidating all open positions even if lesser alternatives would meet the margin deficit. Id. at 

4, 8. As a policy matter, Gain maintains that "forbidding firms to liquidate beyond the minimum 

required" would impose on FCMs "the operational cost of determining with precision the 

amount of liquidation that would meet the absolute minimum margin requirements[,]" a policy 

that is impracticable because "any further deterioration (in a falling market) will be at [the 

FCMs'] expense or require additional, continual risk management." Id. at 9. Finally, Gain 

argues that the Judgment Officer legally erred by shifting the burden to Gain to demonstrate that 

its liquidation was in good faith because the customer, not the FCM, bears the burden of proof in 

cases of allegedly improper liquidation. Id. at I 0. 

The Laubes did not file a brief or any other statement in Gain's appeal. 

6 

STANDARD OF REVIEW 


The Commission reviews a judgment officer's initial decision de nova. See, e.g., Jn re 

Stmyk, [1996-1998 Transfer Binder] Comm. Fut. L. Rep. (CCH) il 27,206, at 45,807, CFTC No. 

95-5, 1997 WL 778236, at *7 (CFTC Dec. 18, 1997). "On review, the Commission may affirm, 

reverse, modify, set aside or remand for further proceedings, in whole or in part, the initial 

decision[.]" 17 C.F.R. § I 0.104(b). Further, "the Commission may, in its discretion, consider 

sua sponte any issues arising from the record and may base its determination thereon, or limit the 

issues to those presented in the statement of issues in the briefs, treating those issues not raised as 

waived." Id.§ 12.401(f). 

LEGAL FRAMEWORK 

CEA Section 4d(a)(2) requires FCMs to "treat and deal with all money, securities, and 

property received ... to margin, guarantee, or secure the trades or contracts of any customer ... 

or accruing to such customer as the result of such trades or contracts, as belonging to such 

customer." 7 U.S.C. § 6d(a)(2). In general terms, Section 4d is the requirement for FCMs to 

segregate customer property. Section 4d applies to customer property that an FCM receives in 

connection with trading domestic futures and cleared swaps. CEA Section 4d(a), (f); 7 U.S.C. 

§ 6d(a), (t). 

CEA Section 4d does not, however, apply to retail forex transactions such as the Laubes 

had with Gain. See Enhancing Protections Afforded Customers and Customer Funds Held by 

Futures Commission Merchants and Derivatives Clearing Organizations, 78 Fed. Reg. 68506, 

68515 (Nov. 14, 2013). Indeed, customers who engage in off-exchange retail forex trading have 

been required since October 18, 2010 to be warned about these very risks. CFTC Regulation 5.5 

requires an FCM to warn its retail forex clients that: 

7 

(3) YOUR DEPOSITS WITH THE DEALER HAVE NO REGULATORY 

PROTECTIONS. 

Funds deposited by you with a futures commission merchant or retail foreign 

exchange dealer for trading off~exchange foreign currency transactions are not 

subject to the customer funds protections provided to customers trading on a 

contract market that is designated by the Commodity Futures Trading 

Commission. Your dealer may commingle your funds with its own operating 

funds or use them for other purposes. In the event your dealer becomes bankrupt, 

any funds the dealer is holding for you in addition to any amounts owed to you 

resulting from trading, whether or not any assets are maintained in separate 

deposit accounts by the dealer, may be treated as an unsecured creditor's claim. 

17 C.F.R. § 5.5(b)(3). 

On the other hand, there is a requirement for FCMs and RFEDs to have prior 

authorization to trade in a retail forex customer's account. See id. § 5.17. Under Regulation 

5.17, no FCM or RFED "may directly or indirectly effect a retail forex transaction for the 

account of any customer unless before the transaction the customer ... specifically authorized 

the [FCM or RFED] to effect the transaction." 17 C.F.R. § 5.17. 

In the futures context, where Regulation 166.2, 17 C.F.R. § 166.2, codifies the 

requirement of prior authorization to trade, Commission and court precedent have long held that 

when an FCM determines that a customer is under-margined, the FCM's duty to protect the 

financial position of the FCM's other customers and right to protect the FCM's own financial 

position can supersede any duties the FCM owes to the under-margined customer. See, e.g., Lee 

v. Lind-Waldock & Co., [1999-2000 Transfer Binder] Comm. Fut. L. Rep. (CCH) ~ 28,173, at 

50,159, CFTC No. 99-RI08, 2000 WL 862615, at *4 (CFTC June 29, 2000); see also Capital 

Options Inv. v. Goldberg Bros. Commodities, 958 F.2d 186, 190 (7th Cir. 1992) ("Margins are 

accorded a special status in the regulatory scheme of the Commodity Exchange Act so that 

futures commission agents are able to assure their own financial integrity, which, in turn, 

contributes to the financial integrity of the entire marketplace."). A futures customer who claims 

8 

his positions were improperly liquidated must show by a preponderance of the evidence either 

that the FCM misled him about its margin policy or that the FCM liquidated the positions in bad 

faith. Bakerv. Edward D. Jones & Co., [1980-1982 Transfer Binder] Comm. Fut. L. Rep. 

(CCH) ii 21,167, at 24,771-72, CFTC No. R 76-4, 1981 WL 26078, at *4 (CFTC Jan. 27, 1981). 

Moreover, in the futures context, the Commission has summarily affirmed cases 

involving FCM liquidations, including total liquidations, under contractual provisions that 

authorize total liquidation without notice in the event of a margin deficit. See, e.g., Cost v. 

Goscenski, [2009-2011 Transfer Binder] Comm. Fut. L. Rep. (CCH) iJ 31,332, CFTC No. 07­

R059, 2009 WL 613634 (JO CFTC Mar. 5, 2009), summarily afj'd, 2013 WL 1398995 (CFTC 

Apr. 4, 2013); see also Glass v. Rosenthal Collins Grp., [1998-1999 Transfer Binder] Comm. 

Fut. L. Rep (CCII) iJ 27,455, CFTC No. 98-Rl 24, 1998 WL 770585 (JO CFTC Nov. 5, 1998), 

summarily aff'd, 1999 WL 343406 (CFTC May 28, 1999). 

Similarly, in the context of contract law, federal courts recognize that a contractual 

provision authorizing an FCM to liquidate a customer's account, without notice, upon occurrence 

of a margin deficit, is enforceable and not unconscionable. Geldermann & Co. v. Lane 

Processing, Inc., 527 F.2d 571, 578 (8th Cir. 1975). This is so because commodities trading 

generally is "not a long-term investment to be made and thus thought about at infrequent 

intervals." See generally id. Self-directed trading requires "daily, and at times constant, 

attention." Id. It is "incumbent" upon a customer who self-directs his trades "to furnish the 

required margins as needed according to the terms of his trading contract even without notice[.]" 

Id. 

A Seventh Circuit decision holds that the existence of"less drastic alternative[s]" does 

not establish bad faith when considering a customer's tort and breach-of-contract claims against 

9 

an FCM for trading losses resulting from liquidation without notice. Capital Options Inv., 958 

F.2d at 191. In Capital Options Inv., the Seventh Circuit held that an FCM is not obligated to 

use a "less drastic alternative" and does not breach a duty of good faith by liquidating all open 

positions when the parties have contractually agreed that total liquidation to meet a margin 

deficit may be done at the FCM' s discretion. Id. (Imposing a "less drastic alternative" standard 

on FCMs would "strip them of their right to raise margins when they perceived a potentially 

volatile market."). 

We have found no Commission authority establishing that it violates the CEA or 

Commission regulations if an FCM or RFED foregoes less drastic alternatives and completely 

liquidates a retail forex customer's account in the event of a margin default, particularly where a 

contractual provision authorizes a total liquidation without notice, and where monies held to 

margin retail forex positions have no regulatory protections under the CEA and Commission 

regulations. 

ANALYSIS 

Here, although the Laubes suffered significant trading losses from liquidation of their 

account, Gain's decision to liquidate the Laubes' retail forex positions did not violate the CEA or 

the Commission's regulations because CEA Section 4d is inapplicable to retail forex transactions 

and the evidence that Gain acted in bad faith is insufficient. 

The Judgment Officer sua sponte applied CEA Section 4d to the Laubes' claim, and cited 

Mills, [1984-1986 Transfer Binder] Comm. Fut. L. Rep. (CCH) ~ 22, 762, 1985 WL 56343. 

However, Mills does not support the proposition that an FCM acts in bad faith unless it liquidates 

the smallest position that would cover a margin deficit. Rather, that case stands for the more 

general proposition that the "rights given to customers by section 4d of the Act" are not 

10 

"absolutely waived" by a customer agreement that allows an FCM "unfettered discretion to 

liquidate a customer's account without notice." Id. at 31,186 n.2, 1985 WL 56343, at *10 n.2. 

In Mills, the Commission remanded for further findings where it appeared an FCM liquidated an 

account notwithstanding receiving assurance from the customer that a check to cover the margin 

deficit was in the mail. Id. at 31,186, 1985 WL 56343, at *IO. Yet even circumstances like that 

are not necessarily conclusive proof of bad faith. See, e.g., Geldermann & Co., 527 F.2d at 578 

("Due to the availability of wire transfers, one hour is not unreasonable in usual circumstances as 

a time limitation for giving commission merchants the proper assurance that sufficient financial 

reserves will be maintained."). 

While it is true that customer rights are not "absolutely waived" by a contract that allows 

an FCM unfettered discretion to liquidate a customer's account without notice, Mills, [1984-1986 

Transfer Binder] Comm. Fut. L. Rep. (CCH) at 31,186 n.2, 1985 WL 56343, at *10 n.2, the 

Judgment Officer's sua sponte application of CEA Section 4d to the Laubes' claim was error as a 

matter of law because that section does not apply to money held by an FCM or RFED to margin 

retail forex transactions. See 17 C.F.R. § 5.5(b)(3). 

Further, under the circumstances of this case, Gain appears to have acted within its 

contractual rights to liquidate all open positions in the Laubes' account without notice when their 

account became under-margined. The only evidence of Gain's alleged bad faith was that 

liquidation of fewer than all open positions in the Lau bes' account could have met the margin 

deficit. Yet Gain did not misrepresent its liquidation policies, and as a matter oflaw, did not 

violate any duty of good faith by foregoing a "less drastic alternative." See Capital Options Inv., 

958 F.2d at 191. The Commission has long recognized, albeit in the more highly regulated 

futures context, that FCMs must have "adequate means to assure their own financial integrity 

11 

and thereby contribute to the financial integrity of the entire marketplace." Baker, [1980-1982 

Transfer Binder] Comm. Fut. L. Rep. (CCH) at 24,772, 1981WL26078, at *4. Gain Capital 

liquidated the Laubes' open positions for business reasons in accordance with the terms of its 

customer agreement, and these facts do not indicate bad faith based on Commission precedent in 

other, more regulated contexts. Id. at 24,772 n.10, 1981WL26078, at *4 n.10. Thus, based on 

the facts of record here, we decline to hold that Gain' s actions constituted bad faith in the retail 

forex context. 

We are careful to note that our decision today does not foreclose the possibility that an 

FCM or RFED could be found to have liquidated in bad faith in other cases, where the facts so 

indicate. Further, the mere existence of a contractual provision authorizing liquidation without 

notice does not waive a retail forex customer's right to be dealt with in good faith. We conclude 

today only that the facts of this case, without more, do not indicate that Gain acted in bad faith. 

For these reasons, the October 10, 2014, order is hereby reversed. 

IT IS SO ORDERED. 1 

By the Commission (Chairman MASSAD and Commissioners BOWEN and GIANCARLO). 

Christopher dltkJ<'~~ J.irkpatriC 

Secretary of the Commission 

Commodity Futures Trading Commission 

Dated: January 6, 2017 

1 Under Sections 6(c)(l l)(B) and 14(e) of the Commodity Exchange Act, 7 U.S.C. §§ 9(11 )(B) and I 8(e), a party 

may appeal a reparation order of the Commission to the United States Court of Appeals for only the circuit in which 

a hearing was held; if no hearing was held, the appeal may be filed in any circuit in which the appellee is located. 

The Commission has ruled that telephonic hearings are "held" in Washington, D.C., although parties may speak 

from several different locations. Dubois v. A/aron Trading Corp., [2000-2002 Transfer Binder] Comm. Fut. L. Rep. 

(CCH) ~ 28,406, at 51,026 n.16, CFTC No. 95-Rl 52, 2000 WL 1593877, at *5 n.16 (CFTC Oct. 26, 2000). The 

statute also states that such an appeal must be filed within 15 days after notice of the order and that any appeal is not 

effective unless, within 30 days of the date of the Commission order, the appealing party files with the court a bond 

equal to double the amount of any reparation award. CEA Sections 6(c)(l l)(B), 14(e), 7 U.S.C. §§ 9(1l)(B),18(e). 

12