CFTC orders FXDirectDealer to pay $2.74 million
The U.S. Commodity Futures Trading Commission (CFTC) issued an order filing and simultaneously settling charges that, from at least Dec. 10, 2009, until June 2011, FXDirectDealer, LLC (FXDD), a CFTC-registered retail foreign exchange dealer and futures commission merchant headquartered in New York, violated its supervision obligations by employing a trading system that gave FXDD pricing advantages over and harmed thousands of its retail customers.The CFTC requires FXDD to make full restitution of $1,828,261 to FXDD’s current and former customers that were harmed by its violation and imposes a $914,131 civil monetary penalty against FXDD.
According to the CFTC, FXDD solicits customers to open trading accounts and to buy or sell foreign currency with FXDD taking the other side of the transaction. FXDD streams forex price quotes for particular currency pairs to its customers through its electronic trading platforms. The price quotes offered by FXDD — measured in “pips” — often change, or “slip,” between the time the customer clicks on a price showing on the computer and the time FXDD fills the customer’s order. If the price slips, FXDD’s system employs slippage parameters that determine whether FXDD fills or rejects a customer order at the original price clicked by the customer, the Order finds.
According to the CFTC, FXDD used asymmetrical slippage parameters on its principal trading platform, meaning that the system favored FXDD over its customers in slippage situations. Based on these parameters, FXDD rejected a customer’s order when the price slipped more than two pips in the customer’s favor (and instead re-quoted the customer the new, less favorable price), but filled a customer’s order at the original price if the price slipped in FXDD’s favor by more than two pips. As a result, FXDD benefited from slippage of more than two pips in its favor between order placement and order execution, but did not allow its customers to benefit from similar price changes in their favor. The CFTC further finds that had FXDD employed an adequate supervisory system and diligently supervised its personnel, FXDD would have discovered these problems with the integrity of trades on the platform and would have had the opportunity to correct them before more than 24,900 customer accounts were deprived of $1,828,261.
Separately, FXDD also is paying a penalty of $914,131 to the National Futures Association (NFA) to settle the NFA’s charges arising from the same misconduct. In addition, the CFTC order requires FXDD to cooperate with the NFA in connection with the NFA’s review of FXDD’s compliance with its restitution obligation.
CFTC order Foremost Trading to pay $400,000
The CFTC issued filed and settled charges against Foremost Trading LLC a registered Introducing broker based in Geneva, Ill., for failing to supervise diligently the handling of certain trading accounts by its officers, employees, and agents. The CFTC requires Foremost to pay a $400,000 civil monetary penalty and cease and desist from violating CFTC regulation 166.3, as charged.
Specifically, the CFTC finds that Foremost failed to supervise diligently its officers’, employees’, and agents’ handling of accounts held by clients that were referred to Foremost from three unregistered entities that sold futures trading systems (the Systems Providers). Foremost’s officers, employees, and agents ignored warning signs that the Systems Providers were procuring their clients through fraudulent means and engaging in fraudulent business practices.
Foremost’s personnel received complaints and information from clients about the apparently fraudulent misrepresentations made by the Systems Providers and the unscrupulous business practices in which the Systems Providers were engaged, but failed to fully investigate all these claims or inform clients or prospective clients about these claims, the Order finds. Foremost continued to open accounts for clients referred by the Systems Providers, and additionally, on numerous occasions, Foremost vouched for the Systems Providers’ track records in conversations and correspondence with clients, according to the CFTC.
SEC charges 23 Firms with short selling violations
The Securities and Exchange Commission (SEC) took enforcement actions against 23 firms for short selling violations as the agency increases its focus on preventing firms from improperly participating in public stock offerings after selling short those same stocks. Such violations typically result in illicit profits for the firms. The enforcement actions are being settled by 22 of the 23 firms charged, resulting in more than $14.4 million in monetary sanctions.
The SEC’s Rule 105 of Regulation M prohibits the short sale of an equity security during a restricted period – generally five business days before a public offering – and the purchase of that same security through the offering. The rule applies regardless of the trader’s intent, and promotes offering prices that are set by natural forces of supply and demand rather than manipulative activity. The rule therefore helps prevent short selling that can reduce offering proceeds received by companies by artificially depressing the market price shortly before the company prices its public offering.
The firms charged in these cases allegedly bought offered shares from an underwriter, broker, or dealer participating in a follow-on public offering after having sold short the same security during the restricted period.
In a litigated administrative proceeding against G-2 Trading LLC, the SEC’s Division of Enforcement is alleging that the firm violated Rule 105 in connection with transactions in the securities of three companies, resulting in profits of more than $13,000. The Enforcement Division is seeking full disgorgement of the trading profits, prejudgment interest, penalties, and other relief as appropriate and in the public interest. The SEC charged the following firms in this series of settled enforcement actions:
- Blackthorn Investment Group – Agreed to pay disgorgement of $244,378.24, prejudgment interest of $15,829.74, and a penalty of $260,000.00.
- Claritas Investments Ltd. – Agreed to pay disgorgement of $73,883.00, prejudgment interest of $5,936.67, and a penalty of $65,000.00.
- Credentia Group – Agreed to pay disgorgement of $4,091.00, prejudgment interest of $113.38, and a penalty of $65,000.00.
- D.E. Shaw & Co. – Agreed to pay disgorgement of $447,794.00, prejudgment interest of $18,192.37, and a penalty of $201,506.00.
- Deerfield Management Company – Agreed to pay disgorgement of $1,273,707.00, prejudgment interest of $19,035.00, and a penalty of $609,482.00.
- Hudson Bay Capital Management – Agreed to pay disgorgement of $665,674.96, prejudgment interest of $11,661.31, and a penalty of $272,118.00.
- JGP Global Gestão de Recursos – Agreed to pay disgorgement of $2,537,114.00, prejudgment interest of $129,310.00, and a penalty of $514,000.00.
- M.S. Junior, Swiss Capital Holdings, and Michael A. Stango – Agreed to collectively pay disgorgement of $247,039.00, prejudgment interest of $15,565.77, and a penalty of $165,332.00.
- Manikay Partners – Agreed to pay disgorgement of $1,657,000.00, prejudgment interest of $214,841.31, and a penalty of $679,950.00.
- Meru Capital Group – Agreed to pay disgorgement of $262,616.00, prejudgment interest of $4,600.51, and a penalty of $131,296.98.00.
- Merus Capital Partners – Agreed to pay disgorgement of $8,402.00, prejudgment interest of $63.65, and a penalty of $65,000.00.
- Ontario Teachers’ Pension Plan Board – Agreed to pay disgorgement of $144,898.00, prejudgment interest of $11,642.90, and a penalty of $68,295.
- Pan Capital AB – Agreed to pay disgorgement of $424,593.00, prejudgment interest of $17,249.80, and a penalty of $220,655.00.
- PEAK6 Capital Management – Agreed to pay disgorgement of $58,321.00, prejudgment interest of $8,896.89, and a penalty of $65,000.00.
- Philadelphia Financial Management of San Francisco – Agreed to pay disgorgement of $137,524.38, prejudgment interest of $16,919.26, and a penalty of $65,000.00.
- Polo Capital International Gestão de Recursos a/k/a Polo Capital Management– Agreed to pay disgorgement of $191,833.00, prejudgment interest of $14,887.51, and a penalty of $76,000.00.
- Soundpost Partners – Agreed to pay disgorgement of $45,135.00, prejudgment interest of $3,180.85, and a penalty of $65,000.00.
- Southpoint Capital Advisors – Agreed to pay disgorgement of $346,568.00, prejudgment interest of $17,695.76, and a penalty of $170,494.00.
- Talkot Capital – Agreed to pay disgorgement of $17,640.00, prejudgment interest of $1,897.68, and a penalty of $65,000.00.
- Vollero Beach Capital Partners – Agreed to pay disgorgement of $594,292, prejudgment interest of $55.171, and a penalty of $214,964.
- War Chest Capital Partners – Agreed to pay disgorgement of $187,036.17, prejudgment interest of $10,533.18, and a penalty of $130,000.00.
- Western Standard – Agreed to pay disgorgement of $44,980.30, prejudgment interest of $1,827.40, and a penalty of $65,000.00.
CFTC orders futures broker employee Susan Butterfield to pay $50,000 penalty
The CFTC entered an order requiring Susan Butterfield of New Lenox, Ill., to pay a $50,000 civil monetary penalty for making false statements of material fact in testimony to CFTC staff during a CFTC Division of Enforcement investigation. The order enforces the false statements provision of the Commodity Exchange Act (CEA), which was added by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act).
According to the CFTC, Butterfield, an employee of a company registered with the commission as an introducing broker (IB), handled various clerical and administrative responsibilities concerning trading on the floor of the Chicago Board of Trade (CBOT). Her responsibilities included accepting and recording customer orders. When done properly, this involved time-stamping paper order tickets contemporaneously with the receipt of a customer commodity futures or options order to accurately record the time of day when the IB received the order.
On Jan. 31, 2013, Butterfield gave sworn testimony in an investigation being conducted by the CFTC’s Division of Enforcement. The CFTC finds that during that testimony, Butterfield knowingly made false and misleading statements regarding whether she had improperly pre-stamped order tickets, i.e., whether she stamped order tickets in blank, prior to the time when a customer order was actually received. This testimony was significant in that use of pre-stamped order tickets may violate regulations and CBOT rules and also may facilitate unlawful trade allocation schemes in which brokers decide who will receive trades only after they are executed, potentially allowing them to profit at their customers’ expense.
The CFTC finds that prior to her CFTC testimony, Butterfield told her supervisor, who was a principal at the IB, that “we pre-stamp orders and it’s something that is – that we should not be doing.” However, on Jan. 31, 2013, when the CFTC staff questioned Butterfield on the IB’s pre-stamping practice, Butterfield falsely told the staff that she “never pre-stamped any [order] tickets.” Later during the course of her testimony the same day, Butterfield admitted to various instances of pre-stamping order tickets, but only after she was confronted by documents that plainly contradicted her initial false testimony. Ultimately, having been confronted with evidence that demonstrated her falsehoods, Butterfield admitted by the end of her testimony that it was in fact her daily practice to pre-stamp order tickets from multiple futures commission merchants throughout the trading session, in numbers amounting to dozens of order tickets every day.
In addition to the $50,000 civil monetary penalty, the CFTC requires Butterfield to cease and desist from violating the relevant provision of the CEA, to never apply for or claim exemption from registration with the CFTC or engage in any activity requiring such registration or exemption, and to never act as a principal or officer of any entity registered or required to be registered with the CFTC.
NFA takes emergency enforcement action against Newport Private Capital, Jonathan M. Hansen, and David M. Giunta
The National Futures Association (NFA) has taken an emergency enforcement action against Newport Private Capital LLC,, a registered commodity pool operator and commodity trading advisor and NFA Member located in Newport Beach, Cal; Jonathan M. Hansen , an associated person and listed principal of Newport Private Capital; and David M. Giunta, a former listed principal and associated person of Newport Private Capital.
NFA has taken the Member Responsibility Action (MRA) and Associate Responsibility Action (ARA) to protect customers of Newport Private Capital, Hansen and Giunta because they have failed to fulfill their financial obligations to participants in the Financial Futures Fund, a commodity pool they operate.
Specifically, the Financial Futures Fund loaned $4 million via a Promissory Note dated March 1, 2009 to the Sure Fund, a real estate fund operated by Solidus Land Company, LLC, an entity operated, in part, by Hansen and Giunta, as managing members, and owned by a principal of Newport Private Capital, Newport Private Capital Holdings LLC, of which Hansen and Giunta each had a 50% ownership interest. Giunta executed the Promissory Note as "Manager of Sure Fund, LLC," and Sure Fund subsequently defaulted on the Promissory Note in 2012. Currently the Promissory Note remains unpaid with monies due to the Financial Futures Fund totaling approximately $6.1 million, including accrued interest.
At the time that Giunta executed the Promissory Note on behalf of Sure Fund, Hansen and Giunta also executed unconditional personal guarantees to repay the loan in the event Sure Fund defaulted on the Promissory Note. To date, despite the Sure Fund's 2012 default of the Promissory Note, neither Hansen nor Giunta have satisfied their personal guarantees.
The MRA/ARA orders Newport Private Capital, Hansen and Giunta to repay in full any monies borrowed plus accrued interest pursuant to the Promissory Note on or before January 15, 2014. In addition, Newport Private Capital, Hansen and Guinta and any other person acting on behalf of them will be prohibited from soliciting or accepting any funds from customers or for any managed accounts or commodity pools until Newport Private Capital, Hansen and Giunta have submitted new disclosure document(s) to NFA containing information about the Member and Associate Responsibility Actions, which have been accepted by NFA.
The MRA/ARA also prohibits Newport Private Capital, Hansen and Giunta from permitting any commodity pool they operate or control to use any means to make any direct or indirect loans or advances of pool assets to Newport Private Capital, Hansen or Giunta or any other person or entity affiliated with Newport Private Capital, Hansen or Giunta. They are also prohibited from disbursing or transferring any funds (other than to margin existing positions) from any trading accounts controlled by any of them or from any pool accounts (including bank, trading or any other types of accounts) without prior approval from NFA.
In the event that Newport Private Capital, Hansen and Giunta fail to comply with any of the requirements set forth in the MRA/ARA, they and any other person acting on behalf of them will be prohibited from placing trades for any pools that they operate or accounts that they own or control or which are held in either of their names, except for liquidation of existing positions.
The MRA/ARA will remain in effect until such time as Newport Private Capital, Hansen and Giunta have demonstrated to the satisfaction of NFA that they are in complete compliance with all NFA Requirements.
Goldman Sachs managing director to be arraigned in rape charge
A Goldman Sachs Group managing director faces arraignment on charges of raping a woman at his rental home in East Hampton, NY. For full Bloomberg story.
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