CFTC Category Archives — Page 4 of 8 — Investor Lawyers Blog Published By Investment Fraud Attorneys

CFTC Sues Chicago Trader and 3RedTrading for Spoofing

Published on: October 26, 2015 | by Shepherd Smith Edwards & Kantas, LLP

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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CFTC Cases: Cash Flow Financial Must Pay Over $91.9M in Commodity Pool Ponzi Scam, BNP Paribas to Pay $140K Over Improper Segregation of Customer Funds, & Unauthorized Trading Leads to $500K Penalty

Published on: October 22, 2015 | by Shepherd Smith Edwards & Kantas, LLP

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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CFTC Charges Guardian Asset Group With Illegal Off-Exchange Precious Metal Transactions

Published on: October 17, 2015 | by Shepherd Smith Edwards & Kantas, LLP

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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CFTC Investigates JP Morgan For Product Steering

Published on: September 9, 2015 | by Shepherd Smith Edwards & Kantas, LLP

According to The Wall Street Journal, sources say that the CFTC is probing into whether J.P. Morgan Chase (JPM) engaged in product steering by inappropriately directing private banking clients to its own hedge funds. Its investigation is also scrutinizing Highbridge Capital Management LLC, which is owned by the bank. The CFTC wants to know why a significant chunk of Highbridge’s assets is from J.P. Morgan’s private banking assets and whether this was beneficial to the alternative investment management firm during the economic crisis.

Although banks can sell in-house investments, advisers are only allowed to recommend these investments if they are in the best interests of clients or, at a minimum,suitable for their portfolios and needs.

J.P. Morgan purchased Highbridge in 2009. The firm’s returns were solid for years until the financial crisis, which is when investors sought to take out billions of dollars from its biggest hedge fund. To keep investors from leaving, Highbridge offered incentives, such as lower fees.

J.P. Morgan’s private banking clients still hold significant investments in Highbridge funds. However, a J.P. Morgan spokesman who spoke to The Wall Street Journal said that 95% of hedge fund investments from the financial institution’s private banking clients are in funds that have no connection to Highbridge.

BaFin Report Accuses Deutsche Bank Executives of Negligence in Libor Rigging

Published on: June 26, 2015 | by Shepherd Smith Edwards & Kantas, LLP

According to a report by German financial regulator BaFin, senior management at Deutsche Bank (DB) allegedly behaved “negligently” related to the rigging of Libor rates. The European regulator has been investigating the bank over its possible involvement in the manipulation of the inter-bank rate setting process.

The BaFin report contends that Deutsche Bank’s outgoing joint leader Anshu Jain may have lied to the European nation’s central bank, the Bundesbank, by purposely making inaccurate statements” about rate rigging during a 2012 interview. The regulator wants Deutsche Bank to be subject to special supervisory measures.

The Financial Times reports that, Jain, who resigned from his position and will officially step down at the end of the month, is accused of telling Bundesbank that he did not know about the rumors about possible rigging even though e-mails about a meeting on this matter were forwarded to him in 2008. Deutsche Bank, however, maintains that Jain did not lie or mislead the German central bank during the interview. The bank said that the BaFin report confirms its own findings that no current or ex-members of its Management Board or Group Executive Committee directed firm employees to rig intra-bank offered rate submissions or knew of any attempted manipulations before June 2011.

Deutsche Bank has paid over $9 billion in fines to resolve claims of Libor rigging. In April, the bank was fined $2.5 billion for manipulating interest-rate benchmarks.

Deutsche Bank to Pay $2.5B for Rate Rigging

Published on: April 23, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Financial firm Deutsche Bank (DB) will pay a $2.5 billion fine to regulators in the United States and Britain for its involvement in rate rigging. The German lender also will fire seven of its employees.

This is the largest penalty to date against a financial institution over allegations of benchmark manipulation. As part of the deal, Deutsche Bank’s subsidiary in London has pleaded guilty to criminal wire fraud charges. Meantime, the parent group has arrived at a deferred prosecution deal to resolve U.S. wire fraud and antitrust charges.

The large fine is reflective of the banks’ big market share for financial instruments tied to interest rates on mortgages, credit cards, student loans, and credit cards that the benchmarks help set.

Trader Blamed in 2010 Flash Crash is Arrested in London

Published on: April 22, 2015 | by Shepherd Smith Edwards & Kantas, LLP

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.

District Court Imposes $26M Commodity Pool Fraud Penalty

Published on: March 7, 2015 | by Shepherd Smith Edwards & Kantas, LLP

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.

U.S. Bank National Association Must Pay $18M to Peregrine Customers, Says Court

Published on: February 18, 2015 | by Shepherd Smith Edwards & Kantas, LLP

A district court issued a Consent Order placing a permanent injunction against the U.S. Bank National Association and mandating that the bank return $18 million to customers of Peregrine Financial Group, Inc. customers.

US Bank has offices in Iowa where Peregrine, a non-bank, nonclearing FCM (Futures Commission Merchant), and its owner Russell Wasendorf were based. Peregrine was also The bank was the depository for the non-bank and it held an account for customer-segregated funds that Wasendorf accessed when bilking over 24,000 clients. Some $215M was misappropriated.

In July 2012, the Commodity Futures Trading Commission put out a civil action against Peregrine and Wasendorf. The latter has pled guilty to criminal charges and received a 50-year sentence. He also has to pay over $215M in restitution.

CFTC, FINRA, and SEC Fight Investor Fraud Together

Published on: December 5, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The Commodity Futures Trading Commission has launched CFTC SmartCheck. The site gives consumers information about financial fraud. It links to The Securities and Exchange Commission’s EDGAR product registration database and the Financial Industry Regulatory Authority’s BrokerCheck system, as well as to the National Futures Association. For the first time the three regulators are joining forces to combat investor fraud. The site makes checking the backgrounds of brokers and investment advisers more localized.

This year, the CFTC spent around $4.2 million in consumer protection and has an even bigger budget for next year. Under the Dodd-Frank Act, the CFTC was given authority to establish a consumer protection fund that covers whistleblower office and education initiatives.

Last month, the North American Securities Administrators Association announced that in 2013 state securities regulators increased the number of formal enforcement actions they initiated against licensed broker-dealer sales representatives, as well as firms and individuals that didn’t have a license. The states reported 810 actions against unlicensed firms or individuals, which is 34% more than the year before. There was an 89% rise in actions against (357) licensed broker-dealer agents between the same time period.