Category: Commodity Pool Operator

Fed Re-evaluating Commodities Control Ruling

The Federal Reserve announced that they will be reviewing their rulings regarding Banks trading commodities after receiving complaints.

Since the Bank Holdings Act, which is over 50 years old, deposit holding banks have been disallowed from directly holding commodities. But in 2003, the Federal Reserve put in place a provision letting non-commercial banks deal in commodities, but forbade them from dealing in commodities storage. According to Bloomberg, however, the ten largest banks generate over 6 billion dollars in revenue from trading in commodities, both financially and tangibly.

However, some have voiced concern that it is perhaps un-competitive to have a Bank having financial and physical holdings. As a Senate Subcommittee is investigating JP Morgan for possible gas price manipulation, the subject of commodities has been increasingly important. U. S. Sentaor Sherrod Brown has voiced his own concern regarding the potential for manipulation. “When Wall Street banks control the supply of both commodities and financial products, there’s a potential for anti-competitive behavior and manipulation,” he said in an article for Bloomberg.

The Federal Reserve will be analyzing their stance on the ruling on the 23rd.

CFTC Escalates Enforcement Actions Against Commodity Pool Fraud

The U.S. Commodity Futures Trading Commission (CFTC) announced yesterday that Judge G. Ross Anderson of the U.S. District Court for the District of South Carolina entered an emergency Order freezing and preserving the remaining pool of participant assets under the control of Robert Stanley Harrison, of Easley South Carolina.

Soliciting Funds

According to a CFTC press release, Harrison was charged with fraudulently soliciting funds from members of the public to invest in the Investors Choice Advisors LLC commodity pool. The charge was brought against Harrison in a civil enforcement Complaint filed under seal by the CFTC on February 6, 2013. The record of solicitation dates back to at least June 2011 to the present.

The CFTC’s Complaint states that Harrison guaranteed pool participants’ principal investment against risk of loss, in addition to promising 100 percent profits of investments within 60 to 90 days. The Complaint also claims that Harrison and his agent issued false investment contracts to participants that represented the assumed profits. Harrison also misappropriated pool participant funds, improperly operated the commodity pool, and failed to register himself and his agent as a Commodity Pool Operator with an Associated Person of the CFTC.

According to the press release, the CFTC seeks a permanent injunction from future violations of federal commodities laws, permanent registration and trading bans, restitution to defrauded pool participants, disgorgement of ill-gotten gains, and civil monetary penalties.

CFTC Charges Hansen with $1.1 Million Commodity Pool Fraud

A federal court in Texas has ordered J. Hansen Investments, LLC, to pay more than $1.3 million to settle a case of commodity pool fraud. From the statement:

The Order finds that Hansen fraudulently solicited and accepted over $1.1 million from investors to trade E-Mini S&P 500 futures contracts in a commodity pool Hansen operated. Hansen used only a small portion of pool participants’ funds to trade futures contracts, transferring such funds to his personal or JHI’s futures trading accounts, both of which sustained consistent losses, according to the Order. The Order also finds that Hansen misappropriated funds for his personal use and commingled pool funds with his own funds. Additionally, Hansen issued monthly account statements to pool participants falsely reporting profits earned in pool participants’ trading accounts and monthly trading memoranda falsely reporting monthly and annual trading returns, according to the Order.

Read more.

 

 

CFTC Seeks to Revoke Registration of Crabapple Capital for $1m Fraud

The U.S. Commodity Future Trading Commission (CFTC) announced yesterday that it intends to revoke Associated Persons ( AP), Commodity Pool Operator (CPO) and Commodity Trading Advisor CTA) registrations for Crabapple Capital and its principal, Robert A. Christy. The CFTC’s intent to revoke the registrations of the Georgia entity are based on a permanent injunction order that prohibits them from committing any future fraud.

From the CFTC Statement

The CFTC’s notice alleges that Christy and Crabapple are subject to statutory disqualification of their registrations based on a consent order for permanent injunction entered by the U.S. District Court for the Northern District of Georgia on October 16, 2012 (see CFTC Press Release 6400-12, October 23, 2012). The consent order prohibits Christy and Crabapple from committing further fraud, among other violations as charged, and includes findings that Christy and Crabapple fraudulently misappropriated over $1 million of pool participant funds, fraudulently solicited prospective pool participants, and made material false statements to pool participants.

Crabapple Capital and its principal were held liable for a fraudulent CPO Ponzi scheme. They’ve been ordered to pay $1,099,598 to victims for restitution. Additionally, they’ve been ordered to pay a $1,099,598 civil monetary penalty.

CFTC and Commodity Pool Fraud

At the end of 2012, 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?

The CFTC did manage to regulate against a $340,000 commodity pool fraud on January 15. A Federal Court in Nevada ordered Trans Global Investments, LLC to pay $340,000 to settle commodity pool fraud charges. The defendants, including Charles Leroy Timberlake, Trans Global’s President, are now permanently barred from the commodities industry.

Read more.

 

 

CFTC Obtains $340,000 Penalty Against Trans Global for Commodity Fraud

The U.S. Commodity Futures Trading Commission (CFTC) announced today that a Federal Court in Nevada has ordered Trans Global Investments, LLC to pay $340,000 to settle commodity pool fraud charges.

The defendants, including Charles Leroy Timberlake, Trans Global’s President, are now permanently barred from the commodities industry.

The CFTC report states:

As to Timberlake and Trans Global, the CFTC complaint alleged that Timberlake fraudulently solicited at least $220,000 from five individuals for the purpose of trading commodity futures and option contracts through the Trans Global pool. The complaint further alleged that Timberlake falsely represented that he was registered with the CFTC as a CPO when, in fact, he has never been registered with the CFTC in any capacity. Finally, the complaint also alleged that Timberlake made false representations of material facts and issued false statements to Trans Global pool participants regarding the profitability and value of their investments.

According to the CFTC, litigation continues for the remaining defendants.

CFTC and Commodity Pool Scams

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.

If the final quarter of 2012 is any indication, the CFTC will continue to pursue commodity pool scams, failed registration, and rate-rigging enforcement in 2013. This new penalty against Trans Global Investments and Charles Leroy Timberlake—not to mention pending litigation against related persons—suggest that the agency’s aggressive stance on commodity pool scams may persist in the New Year.

Nevertheless, the pace of enforcement seems to have slowed since a major regulatory blitz in November and early December. Given that the long-term goal of the CFTC must be to curtail commodity pool scams, does this suggest that the CFTC’s diligence is paying off?

Read more.

CFTC Enforcement Watch for 2013: Commodity Pool Scams, Rate-Rigging…

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.

CFTC Enforcement for 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.

Enforcement Review for Fourth Quarter 2012

CFTC Issues Enforcement Action Against Eagle Market Makers

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.

Cantor Fitzgerald Fined by CFTC

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.

Harbor Light Asset Management Charged with Fraud, Misappropriation, and Embezzlement for Ponzi Scheme

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.

CFTC Charges Intrade’s “Prediction Market” with Violation of Trading Ban

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.

Forex Capital, Highland Stone Capital

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).”

Trigon Group

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.

Arista

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.

Read more.

CFTC Issues No-Action Relief for Banks, Brokers, Advisors…

The U.S. Commodity Futures Trading Commission issued a range of no-action letters today. The letters provide temporary relief for certain introducing brokers (IBs) commodity trading advisors, and banks owned by non-U.S. swaps dealers.

CFTC No-Action for IBs and CTAs

From the CFTC’s statement:

The Division of Swap Dealer and Intermediary Oversight (DSIO) of the Commodity Futures Trading Commission announced today in a letter that it is taking a no-action position which provides relief from the requirement to register as an introducing broker (IB) or commodity trading advisor for certain affiliates of a swap dealer or swap counterparty that is within thede minimis exception to the swap dealer definition. The relief also extends to the affiliates’ employees where the employees engage in certain activity in support of and on behalf of the swap dealer or swap counterparty. The relief is subject to a number of conditions, including that the affiliates and the swap dealer or swap counterparty undertake to be jointly and severally liable for violations of the CEA or the Commission’s regulations with respect to the relevant activity, and that the affiliates and employees are not subject to a statutory disqualification.

Additionally, DSIO announced its interpretation of an existing rule. The interpretation states that an employee of a swap counterparty that is within the de minimis exception to the swap dealer definition who engages in certain activity on behalf of its employer in connection with the employer entering into a swap would not be considered by DSIO to be an IB.

CFTC No-Action for Banks Owned by non-U.S. Swaps Dealers

From the CFTC statement:

The no-action letter states that the Division will not recommend that the Commission take enforcement action against any U.S. bank that is wholly owned by a foreign entity for failure to consider the swap dealing activities of its foreign affiliates, or the U.S. branches of such affiliates, with respect to swap positions executed from and after October 12, 2012, when determining whether such U.S. bank satisfies the de minimis exception to the swap dealer definition and registration requirements, so long as the U.S. bank meets certain conditions specified in the letter.

CFTC No-Action for “Certain Associated Persons”

From the CFTC Statement:

DSIO stated that, subject to certain conditions, it would not recommend that the Commission commence an enforcement action against any person for failure to register as an AP of a futures commission merchant, introducing broker, commodity pool operator, or commodity trading advisor where the requirement to register as an AP is solely because of the person’s involvement with swaps or as a result of the transition of certain contracts on the Intercontinental Exchange, Inc. and the New York Mercantile Exchange to clearing as commodity futures and options transactions.

The relief is temporary and subject to certain conditions, including the filing of an application for registration as an AP on or before March 31, 2013.

Read more.

CFTC, Libor Usher in New Era of Financial Penalties

The U.S. Commodity Futures Trading Commission (CFTC), in conjunction with the fallout from the Libor scandal, has recently upped the ante for financial penalties.

The new fervor on the part of regulators to exact financial penalties is embellished by today’s announcement that UBS AG, accused of manipulating the Libor interest rate, will pay a penalty of $1.5 billion jointly imposed by regulators in the U.S. and Britain. The penalty marks the second enormous settlement from a bank accused of manipulating the interbank interest rate.

The fine, which exceeds the expectations of most analysts, is also three times higher than the fine against Barclays. The British bank paid a fine of $450 million after admitting to manipulating Libor in June.

The $1.5 billion fine, however, is not even the largest bank settlement of the week. The penalty comes on the heels of a fine against HSBC last week, which agreed to pay $1.92 billion in order to settle an investigation into alleged money laundering to drug cartels.

CFTC and Penalties

The CFTC has used a blitzkrieg-style approach while exacting financial penalties from both large and small entities in the weeks after the presidential election. The end of November and the first week of December saw enforcement actions rise into the double digits as the agency took on various Ponzi and commodity pool schemes.

The agency also fined Goldman Sachs $1.5 million for failing to supervise a trader who assumed an $8.3 billion trading position that resulted in a loss of over $100 million.

CFTC’s Chilton Asks for Larger Penalties

With penalties stemming from the Libor rate-rigging scandal now exceeding $1 billion, it is likely that the CFTC will continue its push for larger penalties, or at least the power to seek them.

CFTC commissioner Bart Chilton has called on Congress to allow for a maximum penalty of $1 million per violation and $10 million per entity for failing to ensure diligent supervision of trading and traders. In the case of the Goldman Sachs violation, the potential maximum penalty would have been roughly $60 million, up from a mere $1.5 million.

In theory, this push for greater penalties would square with the incoming head of the Congressional Financial Services Committee. Rep. Jeb Hensarling, who has been a vocal critic of the size of U.S. banks and the “too-big-too-fail” ethos. In practice, however, it may be quite a while before the agency can exact Libor-like penalties for the financial practices it monitors.

Read more.

 

CFTC Charges Arista LLC with $9.5 Million Commodity Pool Fraud

The U.S. Commodity Futures Trading Commission (CFTC) today 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.

CFTC Complaint

In particular, the CFTC complaint maintains that “from at least February 2010 through January 2012, the defendants carried out a fraudulent scheme to misappropriate millions of dollars from investors in commodity futures and options.”

Apparently, Waliji and Francisco collected $9.5 million from almost 40 investors, losing almost half of the money in fees and the other half in trading. “In order to perpetuate their scheme,” the CFTC statement says, “the defendants allegedly proved false quarterly statements to investors and filed false quarterly reports with the NFA.”

The report continues:

For example, the complaint alleges that the NFA, as a result of its examination, determined that Arista’s September 2011 pool quarterly report (PQR) had falsely reported a positive 99 percent rate of return in September 2011, when in reality Arista’s rate of return was negative 46.98 percent. NFA also determined that Arista’s PQR had falsely reported a net asset value (NAV) of $8,421,139 as of September 30, 2011, when in reality Arista’s NAV as of that date was approximately $523,000, according to the complaint.

Additionally, Waliji and Francisco will face a criminal complaint from the U.S. Attorney’s Office for the Southern District of New York. The complaint charges Waliji and Francisco with conspiracy, securities fraud, and wire fraud offenses. Waliji will be charged with commodities fraud as well. Currently, both Waliji and Francisco are under arrest in California by the Federal Bureau of Investigation.

The enforcement action comes amid a blitz of similar actions against fraudulent commodity pools since late November.

Read the CFTC’s statement here.

CFTC Cracks Down on Commodity Pool Ponzi Schemes

The U.S. Commodity Futures Trading Commission (CFTC) issued a statement yesterday 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.

The order also imposes permanent trading and registration bans against Trigon and defendant Daren L. Palmer.

The CFTC statement explains:

The consent order finds that, from at least September 2000 to date of the complaint, defendants directly and indirectly solicited at least $40 million from at least 57 individuals or entities to invest in Trigon entities. Pool participants understood that their funds would be used for trading commodity futures on their behalf, among other things, S&P 500 index futures contracts. Defendants made repeated misrepresentations that the pool was profitable and growing. In fact, defendants misappropriated the vast majority of the funds invested by pool participants. The consent order also finds that the defendants violated registration requirements as charged.

CFTC Charges Arizona Man with Commodity Pool Ponzi Scheme

The CFTC announced this morning that it has filed a civil enforcement complaint charging Ray Thomas Brown of Arizona with operating two commodity schemes over the last two years.

The complaint charges Brown with soliciting members of the public to join in a commodity pool while acting as an unregistered commodity pool operator. In the process, Brown apparently tricked persons to allow him access into their commodity futures accounts. How did Brown get access? The CFTC report sheds some light:

Brown’s fraud allegedly included misrepresentations and omissions about his past trading success, trading profits, trading expertise, and personal history, the dissemination of false account statements, and the misappropriation of customer funds.

Using this method, Brown was able to trick would-be investors into placing $1.2 million to accounts in his control.

See the CFTC statements here and here.

CFTC Enforcement Blitz: Eagle, Intrade, Cantor, Harbor Light

The U.S. Commodity Futures Trading Commission (CFTC) seems to be increasing the rate of its enforcement of financial regulation. The agency issued four new enforcement actions in the last week, against Eagle Market Makers, Cantor Fitzgerald, Harbor Light, and most recently, Intrade.

CFTC Issues Enforcement Action Against Eagle Market Makers

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 is 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.

Cantor Fitzgerald Fined by CFTC

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.

Harbor Light Asset Management Charged with Fraud, Misappropriation, and Embezzlement for Ponzi Scheme

The CFTC announced on Nov. 23 that Harbor Light Asset Management of Raleigh N.C. has 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.

CFTC Charges Intrade’s “Prediction Market” with Violation of Trading Ban

Yesterday, the CFTC filed a 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.

Intrade is a popular online service that allows its customers to bet on events, sports, and even weather. For nearly five years, from 2007 to 2012, Intrade offered options betting on a range of commodities. The CFTC is seeking a permanent injunction that would include fines and “disgorgement of all ill-gotten gains.”

As of today, Intrade has ordered all of its U.S. customers to close their accounts.

Read the CFTC statement here.