Enforcement actions taken this week:
Federal court orders Matthew Marshall Taylor to pay $500,000 for fabricating and concealing trades from Goldman Sachs
Judge Richard J. Sullivan of the U.S. District Court for the Southern District of New York entered a final judgment and consent order for permanent injunction against Matthew Marshall Taylor for defrauding Goldman, Sachs & Co. , his former employer, in December 2007, by intentionally concealing from Goldman the true position size, as well as the risk and potential profits or losses associated with the S&P 500 e-mini futures contracts position in a firm account traded by Taylor.
The order finds that Taylor recorded multiple fabricated entries in a manual trade entry system for e-mini futures trades that he never made to conceal and understate the true size of his e-mini futures position and risk in his trading account, as the fabricated sales functioned to offset portions of Taylor’s actual e-mini futures purchases.
Further, Taylor violated the anti-fraud provisions of the Commodity Exchange Act (CEA) by concealing his position, risk and P&L from Goldman and requires Taylor to pay a $500,000 civil monetary penalty. Additionally, the court ordered a permanent trading and registration ban on Taylor and prohibits him from violating the CEA, as charged. Taylor resides in Florida.
In a related criminal proceeding based on substantially the same facts, Taylor pleaded guilty in the U.S. District Court for the Southern District of New York to one count of wire fraud.
CFTC permanently bars Jeannie Veraja-Snelling for failing to properly audit PFG
The U.S. Commodity Futures Trading Commission (CFTC) filed and settled charges against Jeannie Veraja-Snelling, d/b/a Veraja-Snelling & Company, a certified public accountant and sole practitioner from Glendale Heights, Ill., barring her from practicing before the Commission. The CFTC charges Veraja-Snelling with failing to audit Peregrine Financial Group, Inc.
Veraja-Snelling was the auditor for Peregrine, a registered futures commission merchant (FCM). On July 10, 2012, the CFTC charged Peregrine and its sole owner and chief executive officer, Russell Wasendorf, Sr., with fraud, among other violations, within 24 hours after the discovery that Wasendorf had misappropriated millions of dollars in customer funds. Among the violations that were discovered, Peregrine’s 2011 certified financial statements filed with the Commission were fraudulently overstated by more than $215 million. According to the CFTC, Wasendorf deceived Veraja-Snelling and others by manufacturing bogus bank statements that overstated Peregrine’s bank balances and by forging documents sent to Veraja-Snelling that purported to provide bank confirmation of the overstated balances.
According to the CFTC, Wasendorf was able to perpetrate and conceal his fraud in part because Peregrine lacked proper internal accounting controls and was not subject to audits performed in accordance with CFTC regulations. The CFTC found that Veraja-Snelling’s audits of Peregrine’s financial statements were not performed in accordance with generally accepted auditing standards (GAAS) and did not include appropriate review and tests of internal accounting controls and procedures for safeguarding customer assets, as required by CFTC Regulation 1.16.
David Meister, the CFTC’s director of enforcement, stated, “As the Peregrine debacle shows, the importance of the independent accountant’s gatekeeper function cannot be overstated. FCMs and, most importantly, their customers, rely on auditors to approach each and every auditing assignment professionally and with due care. There is no place in the CFTC-regulated world for below-standard audits or auditors who do not have a sufficient understanding of the futures industry.”
The CFTC found that Veraja-Snelling lacked the necessary technical expertise needed to audit an FCM, failed to adequately staff and plan the Peregrine audits, and failed to exercise due care in performing the Peregrine audits. Among other failures, Veraja-Snelling’s review and testing of Peregrine’s internal controls during the Peregrine audits did not identify that Wasendorf had exclusive control over the customer segregated account and its financial reporting, which reflected a material inadequacy in Peregrine’s internal controls, according to the CFTC.
In addition, the CFTC found that Veraja-Snelling improperly conducted the process to confirm bank account balances, which generally entails an auditor sending a confirmation form to a bank for a bank officer to sign and return to the auditor. Here, Veraja-Snelling relied on Peregrine’s accounting staff to prepare the confirmation request and identify the proper recipient. After Peregrine’s accounting staff provided the confirmation request and envelope to Veraja-Snelling for mailing, she sent the confirmation request to a post office box that was secretly controlled by Wasendorf. Wasendorf responded to the request by forging the signature of a bank employee on the form, confirming the false balance amounts.
The CFTC concludes that Veraja-Snelling’s failure to conduct the Peregrine audits in accordance with Regulation 1.16 constituted improper, unprofessional conduct, and permanently bars her from appearing or practicing as an accountant before the Commission. In addition, the order requires her to relinquish her right to receive payment for performing the 2011 audit.
In related actions, the CFTC filed a complaint on June 5, 2013 against U.S. Bank National Association for unlawfully using and holding Peregrine’s customer segregated funds. Wasendorf also was criminally charged by the U.S. Attorney’s office for the Northern District of Iowa, pled guilty, and on Jan. 23, 2013 was sentenced to 50 years in prison and ordered to pay more than $215 million in restitution.
Federal court orders Sidney J. Charles, Jr. and The Borrowing Station, to pay over $600,000 to settle CFTC forex fraud action
The CFTC obtained a federal court consent order of permanent injunction requiring defendants Sidney J. Charles, Jr., formerly of Bowie, Md, and his company, The Borrowing Station, LLC, jointly and severally to pay $254,236 in restitution and a $350,000 civil monetary penalty in connection with an off-exchange leveraged foreign currency Ponzi scheme.
The order, entered on Aug. 23, 2013, by Judge Paul W. Grimm of the U.S. District Court of the District of Maryland, also imposes permanent registration and trading bans against both defendants and prohibits them from further violations of the CEA and CFTC regulations, as charged. The court’s order stems from a CFTC complaint filed on April 23, 2012, that charged defendants with solicitation fraud, misappropriation, issuing false statements, and registration violations .