Two FPA members fell victim to the scam at Legend Trader Limited, a managed forex accounts service based in Hong Kong. The scam worked like this:
- Pay Legend Trader $3500 up front. Some of the money is supposed to insure Legend Trader in case you skip out on paying account management fees. Some is supposed to to buy an “exotic options contract” to insure the principal in the account.
- Put $10,000 or so into an account. The CEO/chief trader of Legend Trader, Khalid Alam (aka Khalid Alam Chowdhury) promises to use tight risk management. He also promises that as soon as a little profit is made, he will only risk the profit, never the initial principal.
- Watch the account balance go up some, then see your account balance suddenly plummet due to a trading style best described as “random trades entered by a drunken monkey.”
- Ask about using the insurance to recover lost principal. Get lots of excuses. In one case, get appointed to be the European representative of Legend Trader with promises of a cut of the money from any new accounts introduced.
- Keep asking about the insurance. Somehow, there are always delays and excuses. Eventually, an offer to get back half of what the insurance paid within a month or two is offered.
- Realize that Legend Trader isn’t answering phones or emails for extended periods.
- Ask the FPA for help. FPA Investigator Lt. Gerard sends an email to Legend Trader asking if there is a way to fix the problem that will be fair to all parties involved.
- Then see Charles Lam, Legend Trader’s lawyer (claiming a bachelor’s degree in law – probably a fake one he bought somewhere for $20) make threats against the FPA.
- Get hung up on when you finally get Khalid on the phone.
- Eventually realize that Legend Trader is not ever going to return any money at all.
A client paying for an insurance policy against skipping out on account management fees is ludicrous. If an account manager is making so much money that the client owes a lot of fees, this means the client is also making a lot of money and would have to be insanely stupid try to avoid paying fees to someone who is generating so much money. Exotic options contracts do exist, but they have nothing to do with being an insurance policy for any sort of managed account against loss. No insurance company that I’ve ever heard of is going to insure the initial principal in any forex account. From what I can tell, all of those upfront fees were nothing but a way for Legend Trader to take more money from clients while providing no benefits to clients.
After all attempts to negotiate a solution to this problem met with no cooperation from Legend Trader, the FPA issued a scam finding against Legend Trader on July 28, 2008. I am told that the FPA received thank you messages from a number of people who were about to send money to these scammers. At minimum, FPA’s scam warning about this company prevented a number of other people from being victimized.