United States District Court, D. Utah, Central Division
ORDER FOR FINAL JUDGMENT BY DEFAULT, PERMANENT
INJUNCTION, CIVIL MONETARY PENALTIES, AND OTHER STATUTORY AND
Nuffer United States District Judge.
30, 2017, the Commodity Futures Trading Commission
(“Commission” or “Plaintiff”) filed a
Complaint charging Defendant Tallinex a/k/a
Tallinex, Ltd. (“Defendant” or
“Tallinex”) with violating Sections
2(c)(2)(C)(iii)(I)(aa), 4b(a)(2)(A) and (C) and 6(c)(1) of
the Commodity Exchange Act (“the Act”), 7 U.S.C.
§§ 2(c)(2)(C)(iii)(I)(aa), 6b(a)(2)(A), (C) and
9(1) (2012) and Commission Regulations
(“Regulations”) 5.2(b)(1) and (3), 5.3(a)(6)(i),
5.5 and 180.1, 17 C.F.R. §§ 5.2(b)(1) and (3),
5.3(a)(6)(i), 5.5 and 180.1 (2017).
August 15, 2017, Tallinex was properly served with the
summons and Complaint pursuant to Rule 4(f)(2)(C)(ii) of the
Federal Rules of Civil Procedure (“Fed. R. Civ.
P.”) by registered mail addressed by the Clerk of the
Court. Defendant Tallinex's Answer was due on
September 5, 2017. Tallinex has failed to appear or answer
the Complaint within the time permitted by Fed.R.Civ.P.
12(a)(1). Accordingly, upon the Commission's filing of a
motion for entry of a clerk's default against Defendant
Tallinex,  and on April 24, 2018, the Clerk of this
Court entered a default against Defendant
Tallinex. The Commission has now moved this Court to
grant final judgment by default against Defendant Tallinex,
order permanent injunctive relief, and impose a restitution
obligation and a civil monetary penalty.
carefully considered the Complaint, the allegations of which
are well-pleaded and hereby taken as true, the
Commission's memorandum in support of its motion, the
record in this case, and being otherwise advised in the
premises, IT IS HEREBY ORDERED that the Plaintiff's
Motion for Default Judgment against Defendant Tallinex is
GRANTED. Accordingly, findings of fact, conclusions of law,
and an Order of Final Judgment by Default for Permanent
Injunction, Civil Monetary Penalties, and Other Statutory and
Equitable Relief (“Order”) pursuant to Sections
6c and 6d of the Act, 7 U.S.C. § 13a-1 (2012), are
entered as set forth herein.
OF FACT AND CONCLUSIONS OF LAW
Findings of Fact The Parties to This
Plaintiff Commodity Futures Trading Commission is an
independent federal regulatory agency that is charged by
Congress with administering and enforcing the Act, 7 U.S.C.
§§ 1-26 (2012), and the Regulations promulgated
thereunder, 17 C.F.R. Pt. 1.1 - 190.10 (2017).
Defendant Tallinex a/k/a Tallinex Limited is an Estonian
company licensed to do business in St. Vincent and the
Grenadines. It uses as a business address The Jaycees
Building Stoney Ground, P.O .Box 362, Kingstown VC0100, St
Vincent and the Grenadines, and also purports to have a
business address in Estonia of Tornimae tn5, Kesklinna
Iinnaosa, Tallina linn, Harju Maarkond 10145. Tallinex has
never been registered with the Commission in any capacity.
Tallinex operated a website at www.tallinex.com and
also operated an introducing broker program whereby companies
introduced forex trading accounts to Tallinex and received
commissions on revenue generated by the accounts' trading
least during the relevant time period, Tallinex solicited and
accepted funds and orders from non-ECP, U.S. resident
customers to trade leveraged forex contracts.
Customers could open trading accounts by submitting
information online through Tallinex's website. During the
relevant period, the Tallinex website, in the frequently
asked questions section, stated, “Tallinex welcomes
residents of the U.S. . . . and provides them with the same
leverage and hedging facilities as non-U.S. . . .
residents.” Further, Tallinex's online application
contained a drop down menu for the applicant to select his or
her “country” and the U.S. was one of the
choices. The online application also allowed a customer to
select a currency for his or her account, and one of the two
available currencies was the U.S. dollar.
or around September 2016, Tallinex changed its website to
state that it does not accept U.S. customers.
Tallinex's online application did not solicit information
concerning whether prospective customers were ECPs and it
failed to inquire whether a prospective customer had the
ability or the business need to accept foreign currency into
his or her bank account. Tallinex permitted customers to open
forex trading accounts with a minimum initial deposit of 100
EUR/USD. Tallinex's website stated that its ECN-Micro
account was “designed for traders new to the [f]orex
market, and those needing to trade smaller volumes.” 8.
Tallinex determined the “spread” for the forex
contracts it offered to customers. Tallinex offered its
customers' variable spreads averaging between 0.5 and 2.5
pips (the measuring mechanism for price changes in forex
contracts per contract such as EUR/USD (Euros versus U.S.
dollars). Tallinex therefore acted as the counterparty to its
Tallinex offered its non-ECP customers forex contracts with
leverage of up to 1:1000. This meant that a customer could
increase its trading position by buying or selling up to 1000
times the amount of funds he or she had invested. Thus, for
example, a Tallinex customer could trade up to $1, 000, 000
notional value in foreign currencies with a $1, 000 deposit,
and a customer with $10, 000 invested could trade up to $10,
000, 000 in foreign currencies. This spectacularly high
degree of leverage meant that even a small price movement
could produce large losses in relation to the customer's
initial deposit and could result in customers rapidly losing
their funds and being unable to ever recover from a losing
Tallinex's online account application did not require
that the customer state whether or not the customer had the
ability to deliver and accept delivery in connection with the
customer's lines of business, which is one of the
prerequisites to qualify as an ECP.
Tallinex's forex contracts neither resulted in delivery
within two days nor created an enforceable obligation to
deliver between a seller and a buyer who had the ability to
deliver and accept delivery, respectively, in connection with
their lines of business. Rather, these forex contracts were
ultimately offset without anyone making or taking delivery of
actual currency (or facing an obligation to do so).
Defendant Tallinex fraudulently solicited U.S. retail forex
customers by making false and misleading misrepresentations
of material fact and omitting material information, including
but not limited to: (a) falsely representing that Tallinex
could do business in the United States; (b) misrepresenting
and omitting the likelihood of profit and risk of loss
involved in trading their forex contracts; (c) falsely and
misleadingly representing the safety of customer funds in the
event of Tallinex's financial collapse (i.e.,
Defendant Tallinex made these false and misleading
misrepresentations of material fact and omitted material
information during the relevant period on its website, in
correspondence and discussions with retail forex customers,
and in social media sites available to the general public,
among other places.
Defendant Tallinex falsely represented to U.S. customers that
it could do business in the U.S. by stating on its website
that it “welcomes residents of the U.S.” and
using at least one domestic IB to solicit U.S. customer
accounts on Tallinex's behalf.
Further, in the course of soliciting U.S. customers, Tallinex
misrepresented and omitted material facts regarding the
likelihood of profit and the risk of loss associated with
trading Tallinex's forex contracts.
Specifically Tallinex's website represented that money
managers who traded its forex contacts for customers made
purported profits of 162.29% in a little over a year [and] up
to 1301.10% in a little over a two-year period. Tallinex
promoted these extraordinary profits to create the misleading
impression that forex investments made with it were likely to
be profitable for the specific purpose of increasing its
number of customer accounts. However, the website failed to
disclose the likelihood of profits and risk of loss in
trading its forex contracts. For example, it did not disclose
the percentages of retail forex accounts that were profitable
and not profitable. By acting as an RFED, Tallinex had a duty
to disclose this information under Regulation 5.5 in order to
give a balanced and realistic view of the results of trading
its forex contracts.
Tallinex also did not provide all customers with a risk
disclosure statement that warned customers of the risk of
rapid losses using leveraged trading. By acting as an RFED,
Tallinex had a duty to disclose this information under
Regulation 5.5 in order to give a balanced and realistic view
of the results of trading its forex contracts with leverage.
Tallinex knowingly or recklessly made these material
misrepresentations and omissions. Tallinex had actual profit
and loss history in its possession, but failed to disclose
this balanced information to customers and potential
custormers while touting extraordinary profits, including
profits of between 162.29% and 1301.10%. Accordingly,
Tallinex made these misrepresentations knowingly or
Tallinex also misrepresented to customers that their funds
were segregated, suggesting that customers were protected
from risk events such as Tallinex's financial collapse.
This representation, which Tallinex posted on its website,
fact, the written disclosure statement prescribed in
Regulation 5.5 warns that RFEDs must state that the RFED may
commingle customer funds with the RFED's own operating
funds, use them for other purposes, and in the event of the
RFED's bankruptcy any funds the RFED is holding for the
customer, including any amounts owed to the customer, may be
treated as an unsecured creditor's claim even if the
customer accounts are segregated.
Conclusions of Law Jurisdiction and Venue
This court has jurisdiction over this action under 28 U.S.C.
§ 1331 (2012) (federal question jurisdiction) and 28
U.S.C. § 1345 (2012) (district courts have original
jurisdiction over civil actions commenced by the United
States or by any agency expressly authorized to sue by Act of
Congress). In addition, Section 6c of the Act, 7 U.S.C.
§ 13a-1 (2012), provides that whenever it shall appear
to the Commission that any person has engaged, is engaging,
or is about to engage in any act or practice constituting a
violation of any provision of the Act or any rule,
regulation, or order promulgated thereunder, the Commission
may bring an action in the proper district court of the
United States against such person to enjoin such act or
practice, or to enforce compliance with the Act, or any rule,
regulation or order thereunder.
Venue properly lies with this court pursuant to Section 6c(e)
of the Act, 7 U.S.C. § 13a-1(e) (2012), because the
Defendant(s) transact business in this jurisdiction and the
acts and practices in violation of the Act and Regulations
occurred within this District, among other places.
OF THE COMMODITY EXCHANGE ACT
ONE: VIOLATION OF SECTION 2(c)(2)(C)(iii)(I)(aa) OF THE ACT,
and COMMISSION REGULATION
As an Unregistered ...