Category: Commodity Trading Advisor

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.

Stephen O’Connor Leaves Morgan Stanley to Become Full-Time ISDA Chairman

Stephen O’Connor is resigning from his position at Morgan Stanley to join the International Swaps and Derivatives Association, Inc (ISDA) as a full-time Chairman.

With this new position, O’Connor will have a more  hands-on approach in driving ISDA’s strategic initiatives. The pace and scope of those initiatives continues to increase given global regulatory reform and the continued evolution of the financial markets and the OTC derivatives business. To address these needs, the decision was made to appoint a full-time chairman who could devote more time and energy to directing and leading the Association.

O’Connor joins ISDA full-time after serving as a member of its Board since 2008 and as the Chairman of the Board since April 2011.  During this time, O’Connor was a Managing Director for Morgan Stanley, which he joined in 1988.  During his 25-year career with Morgan Stanley, O’Connor held several senior positions in regulatory reform strategy, clearing, and counterparty risk management.

“ISDA’s mission, leadership and activities have never been more important in building safe, efficient markets for all users of derivatives,” said O’Connor. “I look forward to a more active role in working with ISDA CEO Bob Pickel and the ISDA team to address the important issues facing our markets.”

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 Rule Update: New CTA Reporting Rule Deadline Announced by NFA

The U.S. Commodity Futures Trading Commission’s (CFTC) final rule 4.27, requiring that all commodity trading advisors (CTA) report a range of substantive information to the NFA, is set to to get into affect on February 15, 2013.

From the NFA Statement Regarding CFTC Rule:

In February 2012, the CFTC issued final rules adopting CFTC Regulation 4.27 which, among other things, requires that all CTAs file a Form PR annual report with NFA within 45 days of the calendar year end. The Form PR requires each CTA to report on an annual basis general information about the CTA, its trading programs, the pool assets directed by the CTA and the identity of the CPOs that operate those pools. NFA has provided the Form PR template.

The first annual Form PR report will be due by February 14, 2013 for the year ended December 31, 2012 and must be filed electronically using NFA’s EasyFile System, which can be accessed at In order to access the EasyFile System, the CTA’s security manager must set up the necessary security settings. Instructions on how to do that can be found on our website.

NFA Rule

Additionally, the NFA announced that a similar, quarterly filing must be made within 45 days of the close of each quarter. The first filing will be due on March 31, 2013.

From the Statement:

CTA Members should also be aware that NFA has proposed changes to NFA Compliance Rule 2-46 to require a similar CTA PR filing to be made quarterly within 45 days of the calendar quarter end and expects that the first filing under this amendment will be due for the quarter ending March 31, 2013. NFA will provide notice to Members once approval of the amendments has been received.

Read more.

CFTC Enforcement Update: Pro Trading Course’s CTA Registration Revoked

The U.S. Commodity Futures Trading Commission (CFTC) today announced a Final Order that states it will not intervene in the decision to revoke Pro Trading Course, LLC’s CTA registration. The decision was apparently entered by a Judgment Officer.

In April, 2012, the CFTC charged Pro Trading Course with solicitation fraud. This is from the CFTC’s initial statement:

The complaint alleges that PTC solicited clients for its training program through the use of employment advertisements placed on Craig’s List and other websites. After individuals responded to the employment advertisements, PTC and Regan allegedly used false and misleading promotional material and sales solicitations that overstated the advancement opportunity and profit potential of the commodity futures training program PTC was selling. The defendants’ promotional material and solicitations also allegedly failed to disclose that no PTC commodity futures trader ever advanced beyond Level 1 of the program or received the large monthly profit distributions depicted on PTC’s “Payout Charts.”

Further, the complaint alleges that PTC and Regan used false and misleading promotional material and sales solicitations to sell access to PTC’s Virtual Trading Room (VTR). Defendants described VTR as a “trade room” operated on trading days by Regan and his team of purportedly elite traders that allowed subscribers to observe and make the same trades as Regan and his team, according to the complaint. The promotional material and sales solicitations allegedly created the impression that VTR sessions involved actual commodity futures trading, but failed to disclose that Regan and his team conducted only simulated trading in these VTR sessions.

From Today’s CFTC Statement:

The Judgment Officer’s decision, entered on December 14, 2012, finds that PTC failed to file an answer to the formal notice that the CFTC made to PTC on September 20, 2012, of the CFTC’s intent to revoke the company’s registration (see Related Link: CFTC Press Release 6356-12). The decision also finds that the factual grounds supporting the revocation are deemed to be true – in particular, that a Default Judgment Order entered by the U.S. District Court for the Northern District of Illinois against PTC on May 29, 2012, which found that PTC violated the anti-fraud provisions of the Commodity Exchange Act (CEA) and permanently enjoined PTC from engaging in fraudulent conduct in violation of the CEA, provided a valid basis for revoking PTC’s CTA registration.

CTA Definition

A CTA is defined by the NFA as:

an individual or organization which, for compensation or profit, advises others as to the value or advisability of buying or selling futures contracts, options on futures, or retail off-exchange forex contracts. Providing advice includes exercising trading authority over a customer’s account as well as giving advice based upon knowledge of or tailored to customer’s particular commodity interest account, particular commodity interest trading activity, or other similar types of information.

CTAs must register with the CFTC and become members of the NFA, but may be exempt from the registration requirement in some cases.

 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 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 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.





CPO/CTA Charged With Fraudulent Allocation Scheme

The CFTC has filed a federal civil enforcement action against Donald A. Newell and his company Quiditty, LLC (a registered CPO and CTA), charging them with fraudulently allocating commodity futures and options trades to a proprietary account at the expense of customer accounts managed by the firm.

According to the complaint, the defendants placed trades with FCMs without providing account numbers and waited to see whether the trades were profitable. Losing trades were largely allocated to customer accounts, while 85% of the trades allocated to the proprietary account were profitable.

The scheme allegedly netted a profit of over $1.1 million between at least October 15, 2008 and at least March 19, 2009. The defendants allegedly failed to keep required records, and Newell allegedly lied to the CFTC during the investigation, claiming he provided account numbers when placing orders.

The CFTC seeks restitution for defrauded customers, a return of ill-gotten gains, civil monetary penalties, trading and registration bans, and permanent injunctions against further violations of federal commodities laws.

Read more.

Photo credit: Chilli Media

NFA takes action against CPO/CTA

The NFA took an emergency enforcement action against Crabapple Capital Group LLC and its principal, Robert Allen Christy. CCG is a Georgia-based commodity pool operator (“CPO”) and commodity trading advisor (“CTA”).

Under the Member Responsibility Action (“MRA”) and the Associate Responsibility Action (“ARA”), the NFA prohibited CCG and Christy from soliciting or accepting client funds accounts, pools, and other investments. The NFA also prevented CCG from trading for their clients, releasing or moving any funds without NFA approval. Through the ARA and MRA, the NFA intends to insulate CCG’s and Christy’s futures and forex clients, as well as other investment clients controlled by the defendants. The CPO/CTA failed to produce information requested by the NFA. The regulator alleges that the CCG and Christy also gave falsified documents regarding performance history.

According to the NFA, Christy and the CCG distributed an unapproved disclosure document dated October 2011, that listed unsupported and inflated futures with returns. The  returns, from 2006 through September 2011, ranged from 10% to 27%.  Christy has not supported the document’s assertions. Furthermore, the unapproved document claimed that Christy’s investment group, Christy Investment Group Ltd. (“CIG”), claimed that the group was a register investment advisory firm. CIG’s website referred to the firm as a “boutique investment advisory firm,” but CIG is not registered with the Security and Exchange Commission.

The defendants are entitled to request a hearing before the NFA’s Hearing Committee.

Read more about this enforcement action.