Articles Posted in CFTC

The U.S. Commodity Futures Trading Commission has filed a civil case against Deutsche Bank AG (DB). According to the regulator, for five days the firm, which is a provisionally registered Swap Dealer, did not report any swap data for a number of asset classes, turned in untimely and unfinished swap information, failed to supervise the staff responsible for the reporting of the swap data, and had an inadequate Business and Continuity and Disaster Recovery Plan.

The bank’s swap data reporting system had suffered a System Outage. The CFTC said that the swap data reported prior to and after the outage showed that there had been ongoing problems with specific data fields and their integrity. As a result, the market data issued to the public was affected. Some of it purportedly continues to be affected to this day. The CFTC said that a reason for the System Outage and the reporting problems is that Deutsche Bank lacked an adequate Business Continuity and Disaster Recovery Plan or another supervisory system that was equally satisfactory.

Earlier this month, the Financial Industry Regulatory Authority fined Deutsche Bank $12.5M for substantive supervisory failures involving trading-related information and research that the firm had issued to employees over internal speakers, also referred to as squawk boxes. The self-regulatory organization said that even though there were red flags related to this matter, Deutsche Bank neglected to set up supervision that was adequate over both the access that registered representatives had to the “squawk,” or “hoots,” which is the information issue through the squawk boxes, and the communication of this data to customers.

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Investment Advisor Firm Accused of Paying Off Terminally Ill Patients to Commit Fraud
The SEC has filed fraud charges against Donald Lathen and his Eden Arc Capital Management. Lathen is accused of recruiting at least 60 individuals who had less than six months to live and agreeing to pay them $10K each for the use of their names on joint brokerage accounts. When one of these individuals would die, he would allegedly redeem the investments by falsely representing that he and the terminally individual person were joint account holders.

Lathen recruited the terminally ill patients through contacts he had at hospices and nursing homes. In reality, it was Lathen’s hedge fund that owned the option investments.

As a result, of the purported omissions and misrepresentations, issuers paid over $100M in early redemptions. Lathen is accused of violating the custody rule by not properly putting the securities and money from the hedge fund in an account under the name of the fund or in one that held only client money and securities.

SEC Stops Trading in Neromamam Ltd.
The SEC has stopped the trading of Neuromama Ltd. (NERO) shares. The shares trade on the mostly unregulated over-the-counter markets and the regulator is concerned about transactions that may be “potentially manipulative, as well as other red flags that have purportedly been cropping up for years.

Neruomama’s paper value went up times four to $35B this year despite not much volume. The company’s shares went up by four times to $56/share. (On January 15, ’14, its value was $4.73B.)

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Atlantas Group Inc. and hits owner and president Edmund Hysni have reached a $7.2M settlement with the U.S. Commodity Futures Trading Commission. The money is restitution and civil penalty to settle charges of solicitation fraud and the purported making by Hysni of material false statements to the National Futures Association.

According to the CFTC order, between ’06 and ’12 Atlantas and Hysni falsely represented to customers that they would be giving back about 300% of customers’ initial investments, their investment strategy was conservative and safe, and their performance history was a successful one. The charges against the firm and Hysni are related to options on futures contracts trading that took place on the Commodity Exchange and the Chicago Board of Trade.

The regulator said that contrary to the misrepresentations, Hysni and Atlantas invested clients’ funds in an out-of-the-money option spread that caused customers to suffer financial losses. Also, Atlantas is accused of collecting about 90% of clients’ losses in commissions while misrepresenting the impact of the commissions. The commissions, said the SEC, affected customer losses and profits, the trading strategy used, and how much Atlantas charged customers.

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Galileo Trading to Pay Penalties and Restitution to Settle Commodity Futures Fraud Charges
The U.S. Commodity Futures Trading Commission is filing fraud charges against Nathan Schleifer and his Galileo Trading LLC. Schleifer and his firm are accused of fraudulently soliciting customers to get them to trade commodity futures and for making a number of false statements and material representations to the National Futures Association about their trading practices.

The SEC said that from at least ’99 – ’14, Schleifer and his firm fraudulently obtained at least $2.8M from a number of people for supposed trading in a pooled investment in commodity futures. The Commission claims that Galileo and Schleifer misrepresented to pool participants that they’d had previous success trading in futures. They also purportedly claimed that they were making a lot of money for these pool participants when in reality there were substantial losses.

Schleifer is accused of falsely claiming that he was a skilled money manager. He guaranteed investors minimum returns and told them their money was safe. When at least one individual tried to take money out, Schleifer said he lost the funds during a flash crash in May. Later, he admitted that he lost all of the investor’s money years ago.

CFTC Permanently Bans Trader from Registering with the CFTC
The CFTC has settled charges against Brian Hinman for aiding and abetting a commodity pool fraud involving a number of Texas-based entities owned by Kevin G. White and for the fraudulent solicitation of participants to get involved in Revelation Forex Fund, a foreign currency exchange pool. It was in 2013 that the CFTC filed a federal court action against White and his KGW Capital Management, LLC and RFF GP, LLC. They were ordered to pay $3,365,888 in restitution and a civil penalty of over $4.1M. White is now serving prison time for mail fraud.

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Banc de Binary Ltd. has settled a fraud lawsuit by the Commodity Futures Trading Commission and the SEC accusing the Cypriot financial trading company of illegally signing American investors to join its binary options trading program. According to the regulators, from 2011 and 2013, Banc de Binary pursued and took orders from U.S. customers on contracts connected to currency, commodity, and stock prices. By doing this, the company purportedly got around a ban in the US that prohibited off-exchange binary option contracts and received net deposits of $11M from over 6,000 U.S. customers

As part of the settlement, the financial trading company has agreed to pay $7.1M in disgorgement and restitution and $2M in penalties to the CFTC. It will pay the SEC $1.95M in civil penalties. $9.05M of the settlement will go toward paying back the U.S. customers who suffered harm in this matter. Oren Laurent, who is the founder of Banc de Binary, will pay $150K in the settlement.

Banc de Binary is considered the biggest binary options operator. Binary options offer all or nothing payouts according to price moves. They remain unregulated in a lot of the world.

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The U.S. Commodity Futures Trading Commission is suing 3RedTrading LLC and its owner Chicago broker Igor Oystracher for allegedly engaging in spoofing on some of the largest exchanges in the world. The spoofing purportedly took place over 51 trading days between 12/11 and 1/14 on the Chicago Board Options Exchange, the New York Mercantile Exchange, the Chicago Mercantile Exchange, and the Commodity Exchange.

The CFTC claims that Oystacher and 3Red gave the impression of “false market depth” to benefit themselves while hurting other market participants. The regulator believes that the trader spoofed in futures markets that were based on natural gas, copper, an options volatility index, and the S&P 500 equity index.

According to the complaint, 3Red and Oystacher made large passive orders on one side of the market at (or close to) the best bid or offer price, which they would then cancel before executing the trades. The purported orders were made through accounts belonging to 3Red.

Oystacher is accused of using “avoid orders that cross,” a feature on his trading software, while putting a big resting order on one side of the market to deceive others into believing that prices were about to drop or go up. However, because he was using that particular feature, the small order he’d make on the other side of the market would cancel the big resting one within five milliseconds. As a result, says the CFTC, 3Red and Oystacher were able to sell or buy futures contracts in amounts and at price levels that otherwise would not have been available to them if they hadn’t engaged in spoofing.

Bloomberg reports that a source said last month that already a grand jury has heard testimony about Oystacher and his alleged activities. Two other sources told the media outlet that federal prosecutors might be bringing criminal charges.
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Cash Flow Financial Embroiled in Commodity Pool Ponzi Scam
The U.S. Commodity Futures Trading Commission said that Cash Flow Financial LLC, Alan James Watson, and Michael S. Potts will pay over $91.9 million for their involvement in a commodity pool Ponzi scam. The regulator claims that the defendants fraudulently solicited at least $45M from over 600 investors and misappropriated most of their money for their own spending and to cover principal and supposed “returns” to other commodity pool investors.

As part of the default judgment, Cash Flow Financial/Watson must pay restitution and a $2M civil monetary penalty, and interest. The firm is permanently enjoined from taking part in commodity futures, options, swaps, forex, and securities futures product transactions. Potts must pay an over $558K penalty, interest, and disgorge over $186K in illicit profits. Watson will pay over $37M in restitution.

Also, in Virginia, Watson pleaded guilty to wire fraud in a related criminal case. He must serve 12 years behind bars.

BNP Paribas Securities Resolves Charges of Improper Investments Related to Segregated Customer Monies
BNP Paribas Securities Corp. will pay a civil penalty of $140K to settle charges accusing the registered Futures Commission Merchant of violating the regulator’s limits that apply to segregated commodity customer funds and how they are invested. The firm reported two violations to the agency and another one was discovered by CME Group Inc., which is FCM’s designated self-regulatory organization.

According to CFTC, on two of three days, BNP Paribas Securities invested over 10% of segregated customer funds in a money market mutual fund, which was a violation. Also, BNP purportedly invested over 50% of segregated customer funds in money market mutual funds, which was also a violation.
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The U.S. Commodity Futures Trading Commission has submitted a civil injunctive enforcement action against Guardian Asset group LLC and its owner Andrew Kurzbard. The regulator claims the defendants took part in illegal-off-exchange transactions involving precious metals. The transactions purportedly involved retail customers and took place on a financed, margined, or leveraged basis.

According to the regulator, from February 2012 through at least February of the following year, Guardian and Kurzbard solicited customers by phone to get them involved in precious metal transactions. The company was able to collect at least $1.7 from its customers related to the transactions while earning over $434K in commissions.

The CFTC said that Guardian accepted customer funds and orders, acting as a Futures Commission Merchant but was not registered with the regulator as an FCM. The regulator says that because Kurzbard is Guardian’s control person, he is liable for its Commodity Exchange Act violations.

The CFTC’s complaint also claims that Guardian executed illegal precious metal transactions using AmeriFirst Management LLC. It was two years ago that the regulator filed an enforcement action against that company, accusing it and others of illegal, off-exchange precious metal transactions. AmeriFirst was charged with numerous violations, including fraud. The agency entered a consent order resolving the claims against AmeriFirst later that year after finding it liable for fraud and of engaging in illegal off-exchange precious metal transactions.
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Almost five years after the 20-minute Flash Crash when the Dow Jones Industrial Average plunged nearly 600 points and then quickly rebounded, the U.S. Department of Justice has arrested trader Navinder Singh Sarao. He is accused of allegedly playing a major part in the brief turmoil because of his involvement in a number of market manipulating trades.

The crash, on May 6, 2010, caused certain stocks to trade at a penny before thousands of trades were cancelled and placed substantial downward pressure on shares of big companies. The Flash Crash generated a lot of worries about just how stable the U.S. stock markets were and triggered scrutiny into high frequency trading firms and electronic trading venues.

Now, following a joint probe with the Commodity Futures Trading Commission, the DOJ is putting a lot of blame for the crash on Sarao. He is accused of multiple counts of commodities manipulation, one count of wire fraud, and one count of spoofing. Sarao’s alleged manipulation took place over a number of years up, including up through this month.

The U.S. District Court for the Southern District of New York says that Mark Evan Bloom and his North Hills Management, LLC (NHM) must together pay a $26 million civil penalty for running North Hills LP, a fraudulent commodity pool, and misappropriating customer monies.

It was in June 2010 that the court submitted a Consent Order of permanent injunction against the two defendants. The court said that both Bloom and his firm misappropriated around $13 million from North Hills, which they ran for at least seven years. During that period, Bloom kept up a fancy lifestyle, even buying a more than $5 million apartment in Manhattan.

Bloom and NHM were accused of hiding their misappropriation, making misrepresentations and material omissions to pool participants, and issuing false statements about North Hills. A permanent injunction, as well as permanent trading, registration, and solicitation bans were imposed.

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