Media and EFRI have sent an open letter to Demetra Kalogerou, the chairwoman of CySEC, and Europol regarding Maxigrid and the associated broker scams, such as RoyalsFX or LincolnFX, to mention just two. We disagree with The Financial Ombudsman Service of the Republic of Cyprus’ assertion that CySEC is not accountable for the cryptocurrency-related operations of the investment firms under its supervision. Furthermore, Maxigrid managed bank deposits for con artists and participated in fictitious FIAT transactions. We are not claiming that Maxigrid committed crimes directly, but rather that there is a wealth of factual and circumstantial evidence that justifies an investigation in the best interests of the numerous victims.
Whether it was deliberate or not is the question.
The U.S. authorities and regulators, such as the CFTC, are adopting a strict and consistent stance to protect investors and the markets, while CySEC appears to be looking the other way and/or does not feel responsible for cryptocurrencies and related regulatory violations (read this media report on the BitMEX case here).
Large broker frauds have processed their payments in FIAT and cryptocurrency through Maxigrid, a CySEC-regulated business that is beneficially owned by Roy Almagor. This is an undeniable truth that has been well-documented in the Maxigrid Case.
It is plausible, nevertheless, that the CySEC-regulated Maxigrid’s participation in the aforementioned fraudulent activities was not the consequence of deliberate actions, but rather of careless conduct and improper use of KYC/AML protocols. However, even if carelessness were assumed in place of malice, processing payments linked to scams and cybercrime would still be against the law, necessitating intervention and an investigation by CySEC. particularly if other victims of these frauds from various EU nations attest to Maxigrid’s involvement through their documentation.
Maxigrid’s payments for the scams were also processed, according to an examination of the victims’ records, despite the fact that at the time officials from a number of EU regulatory bodies had already issued warnings. In each KYC/AML audit, this ought to be clearly visible or additionally. This must be conspicuous in every KYC/AML audit or also be noticed in the AML transaction monitoring.
Opinion of the Financial Ombudsman
The Financial Ombudsman Service of the Republic of Cyprus ended its investigation into the Maxigrid case after receiving a complaint from a scam victim who had deposited money to the RoyalsFX scam via BitandBuy from Maxigrid. This marks the case’s climax thus far.
The victim of the complaint was notified by Semeli Christophorides of the Financial Ombudsman Office in Cyprus that Maxigrid had been operating the BitandBuy platform without the authorization of CySEC. However, the same CySEC would not be in charge of the cryptocurrency operations of investment businesses that it regulates, and as a result, the Ombudsman would not be involved. The emails state that as a result, the complaint inquiry would be discontinued, permanently discontinued. We have not heard this legal or regulatory viewpoint from any other regulatory regime so far.
Welcome to Cyprus, the country that sells passports and convicted criminals to anyone who wants to invest there, according to reports from Al Jazeera’s “Cyprus Papers.” Similar to how con artists have entry to the EU financial system through investment businesses governed by CySEC, these criminals have access to the EU.
CySEC
Cyprus’s financial regulator is the Cyprus Securities and Exchange Commission, or CySEC for short. The European MiFID financial harmonisation law is complied with by CySEC’s financial regulations and operations as a member state of the EU.
A sizable portion of foreign retail forex brokers are registered with CySEC. Many binary options brokers had previously chosen CySEC as their regulator of choice before 2018.
The following are the duties of CySEC:
- to oversee and manage the trading activities of the Cyprus Stock Exchange, as well as the Stock Exchange’s listed companies, brokers, and brokerage firms.
- to oversee and administer mutual fund management firms, collective investment funds, licensed investment services organisations, and investment advisors.
- to authorise investment firms, including brokerage houses, brokers, and consultants, to operate.
- against applying disciplinary actions and administrative consequences against investment consultants, brokerage houses, brokers, and any other natural or legal person covered by the Stock Market Laws.
Recent changes to the law governing CySEC’s duties have given it considerable authority over the organisations it oversees. This includes the ability to conduct investigations, search properties, and share any results with authorities in other countries.
CySEC takes action against Maxigrid Ltd and initiates compensation for clients!
Bans and administrative fines for Maxigrid Ltd.
Ultimately, Maxigrid Ltd. was the target of action taken by the Cyprus Securities and Exchange Commission (CySEC) on June 17, 2022. The announcement included four directors who were barred from performing management duties for Cyprus Investment Firms (C.I.F.s.) and administrative fines totaling € 210,000.
CySEC enforced the following administrative punishments in particular.
- Israeli shareholder and former non-executive president of the board Roy Almagor is fined €200,000 administratively and is prohibited from managing C.I.F.s. for a period of five years.
- Jekaterina Pedosa, the company’s executive director, is fined €10,000 administratively and is prohibited from managing C.I.F.s. for a period of five years.
- Katerina Papanicolaou, the company’s executive director, is prohibited from performing managerial duties in C.I.F.s. for a period of two years.
- Ex Executive Director of the Company Nikolai Monogarov receives a two-year ban from exercising management functions in C.I.F.s.
With the trade names Dualix and A.G.M. Markets, Maxigrid Ltd. has been conducting business as a Cyprus Investment Firm (C.I.F.). The licence number 145/11 was revoked on February 14, 2022. Following an enforcement action by German authorities that led to the arrests and impending indictments of multiple defendants in Germany, Maxigrid fell apart. As of right now, the inquiry is still on.
The actions of Maxigrid Ltd. caused harm to thousands of victims throughout Europe.
Under CySEC licence number 145/11, Israeli Roy Almagor’s Maxigrid Ltd. and its Chief Executive Officer, Jekaterina Pedosa, have been processing payments as an unlicensed payment processor for numerous broker scams, including RoyalsFX, LincolnFX, 10CryptoMarket, RoyalCBank, and others. Maxigrid employed BitandBuy, its cryptocurrency platform, and its bank account with Lithuania’s GlobalNetint for this purpose.
Not Enough Money To Pay Debts
Additionally, Maxigrid doesn’t seem to be able to fulfil its commitments resulting from investor claims, and CySEC doesn’t think it will be able to do so very soon.
The Cyprus Securities and Exchange Commission, or CySec, declared on June 7th that the Maxigrid victims’ compensation process had begun.
“CySEC has determined that the Company (member of the I.C.F.) for the time being, for reasons directly related to its financial circumstances, is unable to meet its obligations arising out of investors’ claims and has no early prospect of being able to do so,” the circular reads, citing paragraph 18(1)(a) of Directive DI87-07 of 2019 for the Operation of the Investors Compensation Fund (R.A.D. 76/2019).
The I.C.F. will then invite covered clients to submit their claims against the corporation, if any, and will specify the process for submitting applications for compensation as well as the deadline for doing so. The fund then publishes the information, including the address where investors can get updates on the status of their applications, in at least two local newspapers.
According to the provisions of the contracts governing each client’s connection with the failing broker, the amount of compensation payable to each client is determined. However, the maximum sum typically stays under €20,000.
The maximum payment for legitimate claims was modified by the CySEC earlier in 2019 and is now equal to 90% of the total amount of covered claims or €20,000, whichever is less.
Coverage is therefore equal to Min (90 percent X the claimed amount, or €20,000). Accordingly, an investor holding €50,000 with a C.I.F. that experiences difficulties and is unable to make payments will get €20,000 from the I.C.F. But, if the claim is for €10,000, the coverage will only be 90%, or €9,000, instead of 100%, as was previously determined.
The specific claim process for the Maxigrid clients (victims) has not yet been announced by the I.C.F. We’ll keep you informed.
