If the customer agreed to the transaction, the customer sent the deposit, commission, and mark-up to London Metals, and the funds were ultimately transferred to Hunter Wise Commodities, LLC to be executed. In return, Hunter Wise paid London Metals a portion of the customer commissions and fees, with London Metals ultimately receiving $121,665.75 in commissions and fees for the retail financed precious metals transactions executed through Hunter Wise.
However, neither London Metals nor Hunter Wise bought, sold, loaned, stored, or transferred any physical metals for these transactions, and neither actually delivered any precious metals to any customer, according to the CFTC. Since London Metals’ transactions were executed off exchange, they were illegal.
The CFTC sued London Metals’ clearing firm, Hunter Wise, in federal court in Florida on Dec. 5, 2012. The CFTC charged Hunter Wise with engaging in illegal, off-exchange precious metals transactions, as well as fraud and other violations. On Feb. 25, 2013, the court granted a preliminary injunction against Hunter Wise, froze the firm’s assets, and appointed a corporate monitor to assume control over those assets.
CFTC fines Macquarie Futures USA $150,000 for secured funds lapse
The CFTC issued an order filing and simultaneously settling charges against Macquarie Futures USA LLC, a New York-based registered futures commission merchant (FCM), for failing to maintain adequate funds in secured accounts. The CFTC requires Macquarie to pay a $150,000 civil monetary penalty and to cease and desist from violating CFTC Regulation 30.7.
The CFTC found that on Oct. 15, 2012, ICE Clear Europe converted its existing OTC swaps and options to U.S. exchange-listed futures and options to be listed for trading on ICE Futures U.S. Energy Division and ICE Futures Europe (ICE conversion). Assets held by ICE Clear Europe corresponding to assets under secured funds were to be re-designated as segregated funds. Notice was given to all concerned firms, including Macquarie, with instructions and support provided by ICE Clear Europe, according to the CFTC.
In anticipation of this conversion, on Oct. 15, 2012, Macquarie transferred certain secured assets to its segregated accounts, and kept certain positive balances in its secured accounts. However, later on Oct. 15, consistent with the notice given to Macquarie, ICE Clear Europe re-designated approximately $45 million of Macquarie’s secured funds to segregated funds, making the funds segregated assets rather than secured assets. Because all of the secured assets pertaining to the ICE conversion were moved to the segregated account(s), but the entire secured client liability pertaining to the conversion was not timely moved on Macquarie’s books to segregated account(s), a secured deficiency occurred.
The CEA and CFTC regulations contain provisions to protect the funds of customers trading on both U.S. and foreign exchanges. In relation to customers trading on foreign exchanges, an FCM must account for and maintain money, securities, and property in an amount at least sufficient to cover or satisfy all of its current obligations to foreign futures and options customers in a separate “secured account.” The funds in a secured account are referred to as secured funds.
On Oct. 16, 2012, Macquarie discovered that it was undersecured in the amount of $36.6 million, based on calculations made from balances as of the close of business on Oct. 15. After learning of the deficiency, Macquarie immediately provided notice to the CFTC, the National Futures Association, and various exchanges, in accordance with its regulatory obligations. Macquarie also transferred approximately $45 million from its segregated account to its secured account, curing the deficiency.