If the final quarter of 2012 is any indication, the U.S. Commodity Futures Trading Commission (CFTC) will continue to pursue commodity pool scams, failed registration, and rate-rigging enforcement in 2013.
To close the year, the CFTC issued enforcement actions against a number of firms and individuals who are alleged to have engaged in commodity pool scams. It remains to be seen whether the agency’s enforcement strategy is curtailing commodity pool scams, but the pace of enforcement seems to have slowed since a major regulatory blitz in November and early December. Could this suggest that the CFTC’s diligence is working?
Although the New York Times and others have recently speculated on the nature of 2013’s coming white-collar crimes, the best indicator of what to expect for enforcement in 2013 is actually the final quarter of 2012.
The wave of enforcement actions began on Nov. 20 with Eagle Market Makers Inc., a registered Futures Commission Merchant (FCM), Commodity Pool Operator (CPO), and Commodity Trading Advisor (CTA) based in Chicago, Illinois. Eagle was ordered to pay $223,000 for exceeding spot-month position limits in corn futures and for “failing to diligently supervise its traders,” the CFTC said.
Then, on Nov. 21, the CFTC continued by filing against (and settling with) Cantor Fitzgerald of New York. Cantor is a registered Futures Commission Merchant (FCM) that apparently failed to maintain the required funds in its customer segregation account—for three days. On top of the monetary penalty for violating the Commodity Exchange Act, Cantor will have to improve its “internal procedures” to ensure that the mistake does not happen again.
The CFTC announced on Nov. 23 that Harbor Light Asset Management of Raleigh N.C. had been charged with running a Ponzi scheme “with the purpose of trading S&P futures contracts.” The scheme allegedly solicited $1.79 million from nearly four hundred investors located mostly in Raleigh.
The complaint against HLAM includes charges of embezzlement and failure to register against its owner and President, Michael Anthony Jenkins. According to a CFTC statement, Jenkins misappropriated nearly $750,000 of investors’ funds in order to “trade gold and oil futures, stock index futures, and E-mini futures.”
HLAM apparently told its customers that it was only trading E-mini futures; instead, falsely reported spreadsheets and profit statements masked the misappropriation of funds.
Also in November, the CFTC filed a high-profile civil complaint against Intrade The Prediction Market Limited and Trade Exchange Network Limited, both of Dublin, Ireland. The complaint includes the charge that Intrade and TEN offered commodity option contracts to U.S. customers for trading—an action that violates the off-exchange options trading ban.
Judge Katherine Forest of the U.S. District Court for the Southern District of New York ordered Forex Group, Forex Partners, and Highland Stone to pay more than $1.8 million in penalties and ill-gotten gains.
The order also imposes permanent trading and registration bans against the defendants and prohibits them from violating the Commodity Exchange Act as well as any CFTC regulations.
According to the report, the case stems from a CFTC anti-fraud enforcement action against the firms, which are accused of “fraudulently solicited 106 customers who invested more than $2.8 million to trade retail foreign currency (forex).”
In early December, the CFTC issued a statement announcing that Judge Edward J. Lodge of the U.S. District Court of Idaho entered a permanent injunction requiring Trigon Group, Inc, to return $20.6 million in ill-gotten gains. Trigon is accused of operating a commodity pool Ponzi scheme.
On December 13 we reported that the CFTC had filed an enforcement action against Arista LLC, a registered commodity pool operator (CPO) based in California.
The enforcement action alleges that Arista LLC principals Abdul Sultan Waliji and Reniero Francisco defrauded investors, made false statements in filings with the National Futures Association (NFA), and failed to register as a CPO during its first year of operating as one.