CFTC LAW | Forex, Futures and Derivatives Regulatory News » CFTC Regulations

CFTC names Swaps Division director

Felix Shipkevich — Mon, 22 Aug 2011 22:46:51 +0000

The CFTC has named Gary Barnett to head the agency’s new Division of Swap Dealer and Intermediary Oversight. The division was created as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act to enhance the Commission’s ability to regulate derivatives products. As head of a division setting out into uncharted regulatory waters, Mr. Barnett is poised to make a significant impression on the swaps industry.

Mr. Barnett comes from a strong legal background. He is currently in charge of the U.S. Derivatives and Structured Finance Practice Group at Linklaters LLP, where he specializes in the international swaps market. Said CFTC Chairman Gary Gensler: “Gary Barnett comes to the CFTC with a vast knowledge of the swaps market. His derivatives expertise will be essential to leading the CFTC’s new division, which will be integral to implementing the Dodd-Frank provisions that will lower the risk of the swaps market to the overall economy. The division also will provide necessary oversight of this market. I welcome him to our team and look forward to working with him.”

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CPO ordered to pay $835,000 for commodity pool fraud

Felix Shipkevich — Thu, 28 Jul 2011 18:25:21 +0000

CPO ordered to pay $835,000 for commodity pool fraud

The CFTC announced that Jay C. Nolan and his company Lodge Capital Group have been ordered to pay $825,000 as a civil monetary penalty for commodity pool fraud. Nolan and Lodge Capital, registered at the time as an Illinois commodity pool operator (“CPO”) were found to have defrauded investors of millions through misrepresentation and misappropriation.

A federal judge in Illinois has found that between January 2005 and November 2009, Nolan solicited $3.9 million from ten individuals, purportedly to trade commodity futures in his commodity pool Lodge Diversified Fund. Nolan was able to attract these funds by telling prospective pool participants (primarily his friends) that their funds would be invested in Treasury bills held at a local bank and that these bills were to be collateral for the pool’s trading activities. He registered Lodge Capital as a CPO to operate the fund and hold the participant’s investments.

According to the order, Nolan told participants that the pool was making a monthly profit of 1-2%, when in fact it incurred significant losses, sustaining an overall negative return of 95%. $2.3 million was lost in trading, and a further $550,000 was misappropriated by the defendants. Nolan and his CPO were paid an incentive-based fee theoretically linked to the commodity pool’s profitability, and Nolan paid for personal credit card bills, country club fees, and sports tickets with the misappropriated funds. To cover up these losses, Nolan distributed false account statements showing monthly profits and claiming that the fund was outperforming the S&P 500. Some early investors were able to withdraw money from the commodity pool because Nolan used other participants’ money to pay them, in Ponzi fashion.

Nolan was sentenced to 60 days in prison and ordered to pay $3.3 million in restitution in related criminal proceedings in March of this year.

AP fined for platinum and palladium price manipulation

Felix Shipkevich — Tue, 26 Jul 2011 20:37:12 +0000

AP fined for platinum and palladium price manipulation

As a coda to last year’s enforcement action against Moore Capital Management, the CFTC has filed and settled charges against Christopher Louis Pia for attempted price manipulation. The hedge fund portfolio manager and CFTC registered Associated Person (“AP”) attempted to manipulate the settlement price of palladium and platinum futures on the New York Mercantile Exchange (“NYMEX”) while employed by Moore Capital Management.

The CFTC order finds that from November 2007 through May 2008, Pia used a trading strategy known as “banging the close” to manipulate palladium and platinum futures contracts. When “banging the close,” Pia would enter market-on-close orders in the last ten seconds of trade in an attempt to push up prices in the final moments of the day. Such a strategy is possible because the palladium and platinum markets are thinly traded, illiquid, and use volume-weighted average for settlement price calculations.

The order imposes considerable restrictions on any trading Pia plans to carry out in the commodity futures market. In addition to a $1 million dollar penalty for price manipulation, the AP is permanently banned from trading during the market closing period, and from trading CFTC-regulated platinum and palladium products. He also must disclose a copy of the court order to current investors, and to all current and future employees, principles, and officers, and provide a disclaimer document explaining the order to existing and future clients. Furthermore, a monitor (employed at this own expense) will ensure that Pia complies with this order for a five-year period and imposes considerable record-keeping and new registration obligations.

Previously the CFTC settled similar charges against Moore Capital Management, LP (MCM), Moore Capital Advisors, LLC (MCA) and Moore Advisors, Ltd. (MA). The defendants were required to pay a $25 million civil monetary penalty and placed restrictions on their CFTC registrations, including a two-year restriction on trading during the closing periods of the palladium and platinum futures and options markets.

Read out earlier coverage of Moore Capital Management.

Penalty and prison time for commodity pool fraud

Felix Shipkevich — Thu, 14 Jul 2011 23:14:33 +0000

Penalty and prison time for commodity pool fraud

The CFTC has announced that Joseph A. Dawson and his company Dawson Trading, LLC (DT) have both been ordered to pay $2.1 million in civil monetary penalty. A federal judge found that Dawson had committed solicitation fraud and misappropriated investor funds while acting as an unregistered associated person (“AP”) to the DT commodity pool. DT, an unregistered commodity pool operator (“CPO”), has been found liable for Dawson’s fraudulent actions.

Between February 2005 and December 2009, Dawson solicited funds for DT for the purpose of trading “stocks, commodities, bonds, and real estate” from family members and old friends. He provided each with a note guaranteeing a certain rate of return (slightly different for each participant) plus a bonus. The note contained no specifics as to his commodity pool managerial fees or other costs, and does not make any provisions for unprofitable trading.

Dawson traded some of these and other funds (transferred from the LEAP fund in 2004) with a registered futures commission merchant (“FCM”), and lost almost a million dollars on the account. Despite these losses, he sent participants emails and account statements stating that their accounts were profitable. Dawson also misappropriated $2.1 million for personal costs, including mortgage payments and the installation of an in-ground pool.

In addition to the CFTC penalty and trading and registration bans, Dawson was sentenced to 54 months in prison and ordered to pay $3.3 million in restitution in March 2011.

CPO settles with CFTC over fraud charges

Felix Shipkevich — Thu, 14 Jul 2011 07:00:27 +0000

CPO settles with CFTC over fraud charges

The CFTC has simultaneously filed and settled charges against Robert S. Moss, an unregistered commodity pool operator (“CPO”) accused of commodity pool solicitation fraud and misappropriation. The North Carolina resident has been ordered to pay over $2 million in restitution and penalties.

According to the CFTC, between 2001 and 2008 Moss solicited upwards of $3 million from 22 individuals purported to trade commodity futures in a pool. Not only was Moss never registered with the CFTC or NFA as a CPO, he misrepresented his past trading performance to potential investors. He would solicit participants via a one-page letter, in which he claimed (1) he had not lost money trading since 1993, (2) his annual returns were 22-41%, (3) no participant had ever lost capital, (4) his liquid assets were over three times the size of his trading account. All of these claims were false. Moss would also provided new participants with promissory note guaranteeing them either 16-19% returns or variable rates based on his own profitability.

After Moss received participants’ funds, he would deposit them into his personal bank account. Some of those funds were traded in his name with various futures commission merchants (FCMs), but half went to the CPO’s personal expenses, and to make Ponzi payments to other pool investors. The funds actually traded in the commodity pool sustained significant losses, but Moss issued false statements to investors in order to keep his scheme alive. Finally, in February 2009, he issued a letter informing participants that he would not be able to make their interest payments or return their funds. Of the $1.5 million he owed, he only had $177,000.

In addition to restitution and penalty, Moss is banned from any commodity-trading related activity, including seeking registration as a CPO or another other entity with the CFTC.

UPDATED: CFTC fines forex scammer Ortiz $1.2 million

Elan Mendel — Tue, 12 Jul 2011 21:29:00 +0000

UPDATED: CFTC fines forex scammer Ortiz $1.2 million

UPDATE

The CFTC has published a press release and court order confirming that it has obtained a default judgement against the defendant. According to the release, “The order finds that, since May 2008, Goyep and Royal Returns, acting through Ortiz, fraudulently solicited 11 customers by guaranteeing monthly profits of 10 percent and falsely representing that such returns would be produced by successful forex trading…Customers were not able to withdraw their invested funds from defendants because funds were either lost trading, paid to other customers because the defendants operated a Ponzi scheme, or misappropriated, according to the order…Additionally, the order finds that the defendants had some customers send their funds directly to the relief defendants [Loredana and Natural Health Matters].”

The Wall Street Journal’s Market Watch is reporting that the CFTC has won its suit against David Ortiz and his companies Goyep International Inc. and Royal Returns Inc. A federal judge has ordered the defendants to pay $1.2 million in restitution and penalties in connection with their foreign exchange (“forex”) trading scheme. Ortiz’s wife Loredana and her company Natural Health Matters LLC was also ordered to return over $20,000 in ill-gotten gains.

The CFTC brought charges against the defendants in February of 2011. In a complaint filed with a federal judge, the Commission alleged that Ortiz fraudulently solicited investors for his companies for the purported purpose of trading forex. Not only were the defendants never registered with the SEC, as they claimed to be, but Ortiz made exaggerated claims about his forex trading experience, and made unrealistic promises about investment returns. In this manner, Ortiz solicited nearly $491,500 from acquaintances and the general public. However, only a small portion of those funds were ever used to trade forex, and most of those were lost. Instead, Ortiz and his wife used most of the money for personal expenses. When a participant asked for their funds to be withdrawn, Ortiz made Ponzi payments to them out of other investors’ money. Some customers also received fraudulent monthly account statements showing trading profits.

The judge has found the defendants committed solicitation fraud and misappropriated investor funds.

CFTC charges unregistered IB and CPO with misrepresentation, misappropriation

Felix Shipkevich — Mon, 11 Jul 2011 17:59:13 +0000

CFTC charges unregistered IB and CPO with misrepresentation, misappropriation

The CFTC has charged unregistered introducing broker (“IB”) CIS Commodities LLC (CIS) and its founder Allen Nicholas Ward, with misappropriation and misrepresentation, and unregistered commodity pool operator (“CPO”) TransGlobal Investments LLC (TransGlobal) and its president Chales Leroy Timberlake with misrepresentation. A federal judge has ordered the defendant’s assets frozen, and prohibited the destruction of its books and records.

Between November 2006 and February 2009, Ward and his Neveda-based company allegedly solicited hundred of thousands of dollars for commodities trading. Ward obtained these funds by falsely claiming to at least one prospective investors that the commodity pool would be handled by an experienced Chicago Mercantile Exchange trader, and that investors could expect a 38% annual rate of return. Commodity pool investor funds were deposited directly into Ward’s personal bank account. In October 2008, Ward told another investor that her money would be traded in a commodity account managed by CIS. Both customers received fabricated statements showing returns on their investment, even though the funds went to cover CIS’s operating costs and Ward’s personal expenses.

The CFTC claims that in March 2007, Ward joined with Timberlake to use TransGlobal as CIS’s commodity trading partner. Together, the two solicited investors across the country and around the world, promising that investments would be held in a segregated account, and would bring consistent 10-30% returns. Timberlake also claimed that TransGlobal was registered as a CPO with the CFTC. Timberlake, Ward, and their companies have never been registered in any capacity with the CFTC or an NFA member. A small percentage of the funds solicited to the false CPO went to a Futures Commission Merchant (“FCM”). Ward and Timberlake told the FCM that they were not trading customer funds, and CIS posed as the fund’s introducing broker.

According to the complaint, the CPO lost $161,000 in commodities trading. However, they sent statements to commodity pool participants showing profitable accounts. In total, Ward and Timberlake misappropriated $175,500, including $65,000 from the TransGlobal commodity pool. The CFTC is seeking restitution, civil monetary penalties, and trading and registration bans.

photo credit: Perpetualtourist2000

Real estate scammer allegedly prey to forex fraud

Elan Mendel — Thu, 07 Jul 2011 19:00:27 +0000

Real estate scammer allegedly prey to forex fraud

The CFTC has filed charges against Mark Rice and his company, Financial Robotics (FinRob), for over-the-counter foreign exchange (“forex”) solicitation fraud and misrepresentation. A federal judge in Texas has frozen the defendants’ assets, prohibited the destruction of books and records, and ordered Rice and FinRob to appear before a court at the end of the month.

In September 2006, the Texas resident and his company allegedly solicited millions from Robert Copeland. Rice told Copeland that he had developed an automated forex trading program, or an expert advisor (EA), that was generating incredible profits (10-15% return per month). According to the complaint, the defendants guaranteed that the investment was “risk free”—not only was the trading method sound, but any initial investment would be insured against loss.

Altogether, the CFTC says Copeland invested in excess of $10 million over several years with Rice and FinRob. These investments were spaced out over a period of time. After losing money in an FCM account, Rice allegedly advised Copeland to move his investment to the UK, to a forex account held in FinRob’s name. Though the account lost nearly two million between 2007 and 2008, Rice told Copeland that his investment was growing steadily, and that his account would soon be worth $20 million.

According to the complaint, in November 2008, Rice informed Copeland that his entire investment has been lost. A few months later, he informed Copeland that it had never been insured against loss. Thus far, only a few million of the $10 million investment has been repaid.

In a bizarre twist of fate, the funds Copeland invested were not his own. In 2009, Copeland plead guilty to wire fraud. The money he invested with Rice he himself had fraudulently solicited from 125 investors purportedly to use for real estate and other development purposes, not for forex trading.

The CFTC is seeking restitution, disgorgement of ill-gotten gains, and civil monetary penalty.

Air traffic controllers and trader charged with forex fraud

Elan Mendel — Mon, 04 Jul 2011 19:06:40 +0000

Air traffic controllers and trader charged with forex fraud

The CFTC announced that it has filed charges against Louis Giddens, Anthony Dutton, and Michael Gomez for running a fraudulent off-exchange foreign currency (“forex”) scheme. The defendants allegedly took approximately $1.4 million from investors, and misappropriated almost all of it. Giddens and Dutton were by profession air traffic controllers. A federal judge has frozen Gomez’s assets and prohibited the destruction of all books and records.

Giddens and Dutton operated Currency Management Group LLC and Pinnacle Capital Partners LLC, respectively. According to the CFTC, between January and October 2010 Giddens and Dutton solicited funds from the general public, purportedly to use for OTC forex trading. However, the defendants transferred the funds to a third entity known as Pinnacle Trade Group LLC. From here, the funds were sent to a final location in Elyon LLC, a firm owned and operated by Gomez. Though some of the money was used to trade forex, the majority of funds were allegedly misappropriated by the defendants.

The complaint suggests that Giddens drew his inspiration from Botfly Inc., a forex Ponzi scheme he was invested with in 2008. Though the scheme was shut down in 2010, the scheme Giddens allegedly ran worked on a similar model. Giddens and Dutton guaranteed investors a 5-10% monthly return on their initial investment, even issuing a promissory note to that effect. Participants were provided with access to online accounts that gave grossly inflated account statements. Invested funds operated at a loss seven out of the nine months the commodity pool was in operation. The funds not invested were put to personal use, for example to fund car payments, hotel suites, and healthcare office technology.

Giddens and Dutton have been charged with misrepresentation, and Dutton and Gomez with misappropriation. The CFTC is seeking restitution, disgorgement of ill-gotten gains, a civil monetary penalty, and a permanent trading and registration ban for the defendants.

CFTC charges Nebraska CPO Reisinger with commodity pool fraud

Elan Mendel — Sun, 03 Jul 2011 19:23:51 +0000

CFTC charges Nebraska CPO Reisinger with commodity pool fraud

The CFTC has charged Grace Elizabeth Reisinger and ROF Consulting with operating a fraudulent commodity pool scheme. The Nebraska resident and her firm operated commodity pool NCCN, LLC, where they bought and sold exchange traded commodity futures and options (“ETFs”) and other financial instruments, though they were never registered as Commodity Pool Operators (“CPO”) with the CFTC or NFA.

The CFTC claims that between February 28, 2005, and October 26, 2009, that Reisinger and ROF fraudulently solicited and accepted at least $4 million in commodity pool funds from the general public. Reisinger told prospective investors that she was exempt from CPO registration, that the commodity pool only took funds from investors who met the requirements for a qualified eligible person (“QEP”), and that the that minimum investment was $5 million. Furthermore, the defendants failed to send participants monthly account statements and annual reports or notify participants that their fees were paid to a “foreign introducing broker.”

According to the complaint, after the commodity pool was created and Reisinger was already acting as NCCN’s CPO, she filed a letter with the NFA claiming exemption from CPO registration under CFTC regulation 4.13(a)(4). This exemption relieves from registration those operators of commodity pools with only QEPs. However, Reisinger admitted she “did not know” whether all participants were QEPs when she accepted their money, and therefore Reisinger was not eligible for the exemption that she claimed.

The CFTC has charged the defendants with misrepresentation, operating a commodity pool without registration, and failure to follow regulation. The Commission is seeking restitution, disgorgement of ill-gotten gains, civil monetary penalty, and commodity trading and registration bans.