The Blotter: ICAP hit with yen Libor charges

Also, Vision Financial Markets fined for failure to properly segregate funds

According to the complaint, between September 2011 and August 2012, the defendants solicited retail customers by telephone to buy physical precious metals such as silver and palladium in off-exchange leverage transactions. Retail customers engaging in financed transaction with Yorkshire were allegedly told that they were borrowing money to purchase precious metals. Customers paid Yorkshire a portion of the purchase price for the metals, and Yorkshire financed the remainder of the purchase price, while charging the customers interest on the amount they purportedly loaned to customers. The Complaint further alleges that Yorkshire’s customers never took delivery of the precious metals they purportedly purchased and that the defendants neither bought, sold, loaned, stored, or transferred any physical metals for these transactions. 

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which expanded the CFTC’s jurisdiction over retail commodity transactions like these, prohibits fraud in connection with such transactions, and requires that these transactions be executed on or subject to the rules of a board of trade, exchange, or contract market.  Thus, since Yorkshire’s and Platto’s transactions were executed off exchange, they were illegal, according to the Complaint.  

When Yorkshire and Platto allegedly engaged in these illegal transactions, they were acting as a dealer for metals merchant Hunter Wise Commodities, LLC, which the CFTC charged with fraud and other violations in federal court in Florida on Dec. 5, 2012. 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.  

In its continuing litigation against Yorkshire and Platto, the CFTC seeks restitution to defrauded customers, a return of ill-gotten gains, civil monetary penalties, trading and registration bans, and permanent injunctions against further violations of the CEA, as charged. 


CFTC files enforcement action charging Daniel K. Steele with violations of forex regs 

The CFTC filed a civil Complaint against defendants Daniel K. Steele of Rolla, Mo., and his firm Champion Management International, LLC. The CFTC’s  charges Steele with, among other things, engaging in an act or practice which operated as a fraud or deceit under Section 4o(1)(B) of the CEA for failing to disclose material information, including that defendants were acting as unregistered commodity pool operators (CPO) for at least two commodity pools engaging in off-exchange retail foreign currency transactions. The CFTC also charges Steele with failing to disclose that the counterparty to the retail forex transactions that were offered or entered into with the respective pools was not registered as a Retail Foreign Exchange Dealer (RFED).  The CFTC charges Champion Management with acting as an unregistered CPO in connection with a third forex pool. Further, the CFTC alleges that neither defendant has ever been registered with the CFTC in any capacity.  

The complaint, filed on Sept. 25, 2013, in the U.S. District Court for the Eastern District of Missouri Eastern Division, alleges that from at least Feb. 28, 2011 through the present (relevant period), Steele individually and acting as an agent of Champion Management, solicited at least $1.7 million from at least 24 pool participants to participate in three forex pools. The complaint further alleges that Steele, during the relevant period, failed to disclose material information to pool participants, which operated as a fraud in that neither he nor Champion Management were properly registered with the CFTC and that he misappropriated a portion of pool participants’ funds.

 On Sept. 25, 2013, Judge Rodney W. Sippel, of the U.S. District Court for the for the Eastern District of Missouri, entered under seal an emergency order freezing the defendants’ assets and prohibiting the destruction or alteration of books and records. 


CFTC obtains permanent injunction against iFinix Futures, Inc. and Benhope Marlon Munroe

 Judge Leonard D. Wexler of the U.S. District Court for the Eastern District of New York entered an order of default judgment and permanent injunction against CFTC-registered independent introducing broker (IB) iFinix Futures, Inc.  of Plainview, N.Y., and its senior executive officer, Benhope Marlon Munroe of New Milford, Conn.  iFinix also has done business under the name Pro-Active Futures.  

The court’s order requires iFinix and Munroe to pay a $1,260,000 civil monetary penalty, imposes permanent trading and registration bans against them, and prohibits them from violating the CEA and CFTC regulations, as charged. 

The order, entered Sept. 16, 2013, stems from a CFTC complaint filed on Sept. 27, 2012, charging the defendants with making false statements to the National Futures Association (NFA), the futures industry self-regulatory organization, and with failing to meet minimum financial requirements for an independent IB.  

The order finds that, in and around July 2011, Munroe and iFinix willfully provided no fewer than five falsified bank account documents to the NFA during its audit of iFinix, to conceal iFinix’s failure to maintain adequate capital. In addition, the order finds that, during at least the months of July and August 2011, iFinix, with Munroe as its controlling person, failed to maintain adequate capital, failed to maintain current books and records, and failed to cease operations and provide notice of its inadequate capital. 


CFTC closes investigation on silver markets

The CFTC Division of Enforcement has closed the investigation that was publicly confirmed in September 2008 concerning silver markets. The Division of Enforcement is not recommending charges to the Commission in that investigation. For law enforcement and confidentiality reasons, the CFTC only rarely comments publicly on whether it has opened or closed any particular investigation. Nonetheless, given that this particular investigation was confirmed in September 2008, the CFTC deemed it appropriate to inform the public that the investigation is no longer ongoing. Based upon the law and evidence as they exist at this time, there is not a viable basis to bring an enforcement action with respect to any firm or its employees related to our investigation of silver markets.

In September 2008 the CFTC confirmed that its Division of Enforcement was investigating complaints of misconduct in the silver market.  At that time the CFTC had received complaints regarding silver prices. These complaints were focused on whether the silver futures contracts traded on the Commodity Exchange, Inc. (COMEX) were being manipulated.[1]  For example, the complaints pointed to differences between prices in the silver futures contracts and prices in other silver products, including retail silver products.  The complainants generally asserted that because the prices for retail silver products, such as coins and bullion, had increased, the price of silver futures contracts should have also experienced an increase.  By reference to publicly available information concerning large traders with short open positions in the silver futures contracts, the complaints also alleged that the large shorts in the silver market were responsible for lower futures prices. The Division of Enforcement conducted an exhaustive investigation of these and other complaints and focused on identifying and evaluating whether there was any trading activity in violation of the CEA and Commission regulations including the anti-manipulation provisions.

The Division of Enforcement’s investigation utilized more than seven thousand enforcement staff hours. The staff reviewed and analyzed position and transaction data, including physical, swaps, options, and futures trading data, and other documents and information, and interviewed witnesses.  The Division’s investigation included an evaluation of silver market fundamentals and trading within and between cash, futures and over the counter markets.  The investigation was also undertaken with assistance by the Commission’s Division of Market Oversight, the Commission’s Office of Chief Economist, and outside experts. 

Separately, the Division of Market Oversight continued surveillance of the silver market contemporaneously to the Division of Enforcement’s investigation. The Division of Market Oversight’s market surveillance function encompasses a robust monitoring of traders’ positions and transactions at the ownership and account levels to identify potential violations of the CEA and Commission regulations including, but not limited to, price manipulation, disruptive trading and trade practice violations. For example, after an episode of sharp price moves in any commodity, staff utilizes numerous visualization and analytical tools on data submitted daily to the Commission to discover indications of potential manipulation and other violations. Where questions remain, Division of Market Oversight staff regularly utilize the Commission authority such as the Special Call under Regulation § 18.05 to obtain additional detailed information from traders.

The Division of Enforcement takes complaints it receives seriously.  The Division will not hesitate to use its authority, including new manipulation authority in the Dodd-Frank Act, to bring market manipulation charges as supported by the evidence.

 [1] The CME Group now includes the New York Mercantile Exchange (NYMEX) as well as the Commodity Exchange, Inc. (COMEX).  Market participants generally still refer to the silver futures contracts offered by the CME Group as “COMEX silver futures.” 


CFTC orders Newbridge Metals to pay over $1.5 Million illegal, off-exchange precious metals transactions 

The CFTC filed and simultaneously settled charges against Newbridge Metals, LLC, based in Boca Raton, Fla., for engaging in illegal off-exchange precious metals transactions.

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