In addition to these new enforcement tools, the CFTC has now entered into the era of joint investigations that had already become standard in the world of securities. The CFTC reports that, over the past year, 93% of its “major fraud cases” have a parallel criminal case. In such actions, the civil and criminal authorities can act together to accomplish coordinated aims that either might find more difficult to accomplish alone.
For example, an asset freeze is more simply accomplished prior to a complaint being filed in a civil case than in a criminal case, in which the standards are much higher. “Asset Freezes and Forfeiture Procedures in Criminal and Civil Cases,” examines the Government’s authority to freeze assets held by private citizens—and provides some strategies and tactics for defense attorneys who find their clients left without funds for living expenses or to pay attorneys fees. In a combined investigation, the CFTC can obtain a court order freezing assets and appointing a receiver on an ex parte basis (in other words, before anyone appears in court for the defendants), before a complaint is even publicly available.
In a coordinated proceeding, the Federal Bureau of Investigations (FBI) often will even arrest the defendants on the morning the complaint and indictment against those defendants are made public. Lacking freedom and funds, such defendants are often quicker to settle the cases against them than are defendants with liberty and lucre to spend on their defenses.
Expect more of these coordinated proceedings going forward—particularly as the CFTC looks to extend its scant resources. In such coordinated proceedings, the CFTC can rely on criminal authorities to stop ongoing wrongdoing and the receiver (who is paid from the dwindling proceeds of the frozen estate) to marshal assets and even ferret out evidence of past wrongdoing. The CFTC ultimately brings the necessary action to obtain monetary penalties, restitution, and revocation of all applicable trading licenses. Then, the CFTC gets to issue a victorious press release with a minimal outlay of assets.
New tools + new partnerships = tough action
Recent enforcement actions—both the high-profile and the not-so-visible—demonstrate just what the CFTC can accomplish with its new tools and partnerships. In fact, the CFTC’s recent spate of LIBOR-related settlements stemmed from investigations that the CFTC conducted together with the Department of Justice, the FBI, as well as Dutch, Japanese and UK agencies. In these actions, the CFTC collected more than $1.8 billion in monetary penalties, while the Department of Justice has brought criminal charges against at least eight defendants. Of course, as some commentators have noted, the bulk of the manipulation or attempted manipulation underlying the CFTC’s actions appears to have taken place years ago—raising the question of whether or not these actions were shelved until resources were available.
Other, smaller, cases amplify these trends. On March 10, 2014, the CFTC issued a press release announcing a six-year criminal sentence for commodity pool operator Dimitry Vishnevetsky that had been obtained by the United States Attorney’s Office for the Northern District of Illinois. At the same time, the CFTC announced that it had obtained civil judgments, including a nearly $2 million monetary penalty and $1.6 million in restitution, against Vishnevetsky and his firm, Oxford Capital LLC. The sentence and judgments stem from a parallel indictment and civil complaint that were unveiled on May 1, 2012. In the underlying civil action, the CFTC had used its powers to obtain a pre-suit civil asset freeze and to preserve critical data needed for both the civil and criminal actions. The Vishnevetsky case is just one of many that follow the same basic playbook.
The CFTC is flexing its new tools, too. Amended Section 6(c) factored into the action brought last summer by the CFTC against MF Global, Inc., MF Global Holdings Ltd., Jon Corzine, and Edith O’Brien. The CFTC’s complaint, which focuses on the days leading up to MF Global’s collapse, identifies, among other ills, MF Global’s misreporting of its customer segregated funds. Under Section 6(c)(2), such false statements are actionable—based on a “knew or should have known” level of intent. In January 2014, the United States District Court for the Southern District of New York ruled that the CFTC’s complaint was sufficient and could go forward against the entities, Corzine and O’Brien.