On Monday, Nov. 10, the U.S. Commodity Futures Trading Commission (CFTC) reported on the agency’s enforcement results for fiscal year 2014.
The CFTC obtained a record $3.27 billion in monetary sanctions imposed against companies and individuals. The CFTC filed 67 new enforcement actions while continuing to devote significant resources to litigating a host of complex cases filed in prior years. A number of those litigations reached successful resolutions, either through settlement, the granting of summary judgment, or a finding of liability after trial.
Here are the highlights of these enforcements.
22. FirstRand Bank, Ltd.
Prearranged noncompetitive trades involving Chicago Board of Trade corn and soybean futures contracts.
Total fines (Civil Monetary Penalties and/or restitution): $150,000
Absa Bank, Ltd.
Prearranged noncompetitive trades involving CBOT corn and soybean futures contracts.
Total fines (CMPs and/or restitution): $150,000
21. Sean Stropp
Filed and settled charges that Stropp made false and misleading statements of material fact and omitted material facts to Commission staff during an investigation. Specifically, Stropp provided DOE staff a signed and notarized financial disclosure statement that omitted material facts, including both his control of, and his spouse’s ownership interest in, another entity selling leveraged metals contracts and his ownership and control of two of that other entity's bank accounts.
Total fines (CMPs and/or restitution): $250,000
Artem Obolensky
Filed and settled charges that Artem Obolensky, the President of a Russian bank and co-owner of a private investment fund located in Cyprus, made false and misleading statements of material fact to staff in an interview during an investigation.
Total fines (CMPs and/or restitution): $250,000
Fan Zhang
Prearranged noncompetitive trades involving Chicago Mercentile Exchange’s Las Vegas Housing Market and Cash-Settled Cheese futures contracts and CBOT’s Ethanol futures contract.
Total fines (CMPs and/or restitution): $250,000
20. Morgan Stanley Smith Barney, LLC
Filed and settled action against Morgan Stanley finding that it failed to meet its supervisory and recordkeeping obligations with regards to the opening and handling of certain accounts which were ultimately used as part of a $35 million Ponzi scheme. The Commission ordered MSSB to disgorge commissions it earned from the subject accounts.
Total fines (CMPs and/or restitution): $280,000
19. Attempted Manipulation of Crude Oil Markets — SHK Management
Filed and settled charges of attempted manipulation of NYMEX crude oil markets and violations of position limits on two days in 2008 against Daniel Shak and his former company, SHK Management LLC will be imposed with trading bans and restrictions, including prohibiting Shak from trading outright futures contracts in any market during the closing period for a period of two years.
Total fines (CMPs and/or restitution): $400,000
18. Morgan Stanley Smith Barney LLC
Filed and settled charges against Morgan Stanley finding that it committed violations pertaining to segregated and secured amount funds, including the commingling customer and firm funds.
Total fines (CMPs and/or restitution): $490,000
17. Energy Trader Fraud
Obtained a federal court order against former Citicorp North America Inc. employee John Aaron Brooks for defrauding Citigroup, Inc. and Citigroup Energy, Inc. by mismarking and inflating the value of his position in ethanol futures in Citi’s proprietary account. Brooks is subject to trading and registration bans.
Total fines (CMPs and/or restitution): $500,000
16. Multigrain SA and Agricola Xingu SA
Filed and settled charges that two Brazilian agricultural companies, who held or controlled reportable cotton positions, failed to submit weekly Form 304 Reports. The Commission ordered them to comply with their undertaking to adopt enhanced procedures and internal controls to ensure compliance.
Total fines (CMPs and/or restitution): $500,000
15. Kennith Wayne Thrasher and Kennith Luke Thrasher
Filed and settled charges of violation of position limit for CME live cattle futures.
Total fines (CMPs and/or restitution): $525,000
14. J.P. Morgan Securities LLC
Filed and settled action against J.P. Morgan finding that it submitted inaccurate “large trader” reports over an extended period of time despite being notified by the Commission about the problems. The Commission ordered J.P. Morgan to submit a certified statement of compliance that it has completed enhancements to, and testing of, its systems and procedures to ensure compliance.
Total fines (CMPs and/or restitution): $650,000
13. Capital Market Services, LLC, Global Futures & Forex, Ltd., and FXDirectDealer, LLC
Violation of minimum financial requirements and a prior Commission order. Filed and settled charges that these Futures Commission Merchants and Retail Foreign Exchange Dealers failed to maintain their required adjusted net capital (Charged $275,000, $200,000, and $600,000, respectively).
Total fines (CMPs and/or restitution): $1,075,000
12. Arrington, et al.; Summary Judgment Win
Won summary judgment against Michael B. Kratville, a Nebraska attorney, with the court finding that he personally and through his involvement with other defendants, defrauded commodity pool participants. The court ordered Kratville to pay $534,387 in restitution and a $1.17 million CMP. The court also entered a default order against the other defendants and ordered them to pay $3,833,982.02 in restitution (joint and several) and a total of $4,559,142.87 in CMPs.
Total fines (CMPs and/or restitution): $10,097,511.89
11. Crude Oil Manipulation Litigation — Parnon Energy Inc., et al.
Settled litigation against Parnon Energy Inc., Arcadia Petroleum Ltd., Arcadia Energy (Suisse) SA, Nicholas Wildgoose and James Dyer, alleging that from January 2008 through April 2008, the defendants manipulated and attempted to manipulate crude oil futures contract spreads traded on NYMEX. The defendants agreed to limit their physical market trading for three years, among other undertakings.
Total fines (CMPs and/or restitution): $13,000,000
10. Arista LLC, et al.
Obtained a federal court order against Arista LLC, a registered Commodity Pool Operator, and its principals Abdul Sultan Walji and Reniero Francisco, finding that they engaged in a fraudulent scheme to misappropriate millions of dollars from customers in commodity futures and options, and lied to both the CFTC and the National Futures Association.
Total fines (CMPs and/or restitution): $22,000,000+
9. Trading System Fraud — CTI Group, Cooper Trading, Stephen Craig Symons, and James David Kline
Obtained a federal court order for permanent injunction against CTI Group, LLC, Cooper Trading, Stephen Craig Symons and James David Kline, for fraudulent sales practices in connection with the sale of two automated trading systems. Permanent trading and registration bans were imposed.
Total fines (CMPs and/or restitution): $29,000,000+
8. Attempted Manipulation Through “Spoofing” — Eric Moncada, BES Capital, and Serdika
Resolved litigation against Eric Moncada and proprietary trading firms BES Capital LLC (BES) and Serdika LLC (Serdika), on charges of attempted manipulation through “spoofing” orders, fictitious and non-competitive transactions in the wheat futures market. After the Enforcement Division persuaded the court to grant summary judgment against Moncada on the charges of fictitious sales and non-competitive transactions, the parties settled the attempted manipulation charges with a $1.56 million CMP and permanent trading and registration bans.
Per the consent Order, Moncada attempted to manipulate the wheat futures market by entering and cancelling large lot orders without the intent to fill the orders. The CFTC also obtained default judgments against the firms with CMPs totaling $32.24 million and permanent trading and registration bans.
Total fines (CMPs and/or restitution): $33,800,000
7. JPMorgan London Whale Credit Default Swaps Manipulation
Filed and settled a landmark case charging the reckless use of a manipulative device in violation of new Dodd-Frank anti-manipulation authority. The Order found that JPMorgan Chase Bank, N.A. by selling a staggering volume of certain credit default swaps in a concentrated period, recklessly disregarded the fundamental precept that prices are to be established based on legitimate forces of supply and demand. JPMorgan was ordered to continue to implement written enhancements to its supervision and control system governing swaps trading.
Total fines (CMPs and/or restitution): $100,000,000
6. Successful Trial of Major Metals Dealer — Hunter Wise
Won a liability verdict after trial against a major off-exchange metals company Hunter Wise Commodities, LLC (Hunter Wise) on fraud charges in connection with financed transactions in precious metals that resulted in millions of dollars in customer losses. The court found that over 90% of Hunter Wise’s retail customers lost money, and Hunter Wise and its two principal owners had knowingly defrauded more than 3,200 retail customers.
The court ordered $52.6 million in restitution to the defrauded customers and a $55.4 million CMP, the maximum provided by law. Earlier, the CFTC had won summary judgment on charges that the defendants’ transactions violated the Dodd-Frank Act’s new provisions requiring this type of transaction to be executed on exchange. Along with the other precious metals cases described below, this action is a prime example of how the Enforcement Division is using its new authority under the Dodd-Frank Act to pursue wrong-doers who prey on people looking to make investments in commodities like gold and silver.
Total fines (CMPs and/or restitution): $108,000,000
5. Senen Pousa and Investment Intelligence Corporation (IIC) (d/b/a ProphetMax Managed FX)
Reached settlement in an off-exchange forex fraud scheme in which Pousa and IIC defrauded over 960 clients of over $32 million. The Order requires Pousa and IIC to each pay a $79.5 million CMP and to also pay, jointly and severally, $33,299,821 in restitution.
Total fines (CMPs and/or restitution): $112,799,821
4. Manipulation of Interest Rate Benchmarks (LIBOR)
Filed and settled three actions on charges of manipulation, attempted manipulation and false reporting of market information relating to LIBOR and other interest rate benchmarks. Required internal controls improvements to strengthen benchmark setting process. In re: Lloyds Banking Group plc and Lloyds Bank plc; In re: RP Martin Holdings Ltd., et al.; and In re: Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A (Rabo).
Total fines (CMPs and/or restitution): $580,000,000+
3. Cooperative Enforcement
During FY 2014, the Enforcement Division maintained its long-standing active cooperative enforcement work with federal and state criminal and civil law enforcement authorities, self-regulatory organizations, and international civil and criminal authorities. Approximately 95 percent of the Enforcement Division’s major fraud and manipulation cases filed in FY 2014 involved a parallel criminal proceeding. During the past year, judgments were entered in 12 federal criminal proceedings related to CFTC enforcement cases, which resulted in prison sentences against 17 persons.
Total fines (CMPs and/or restitution): $793,000,000
2. MF Global Inc.
Pursuant to the settlement obtained by the CFTC against MF Global Inc., the Trustee for MF Global began making final distributions to its customers to satisfy its obligation of full restitution for $1.212 billion in losses sustained by customers of MF Global when the company failed in 2011.
The enforcement action was filed on June 27, 2013 against MF Global, MF Global Holdings Ltd. (Holdings), former Chief Executive Officer of MF Global and Holdings Jon S. Corzine, and former Assistant Treasurer of MF Global Edith O’Brien based on, among other violations, MF Global’s unlawful use of customer funds that harmed thousands of customers and violated fundamental customer protection laws on an unprecedented scale. The Enforcement Division continues in its suit against the remaining defendants, MF Global Holdings Ltd., Jon S. Corzine, and Edith O’Brien.
Total fines (CMPs and/or restitution): $1,212,000,000
1. Manipulative conduct via banks and interdealer brokers
CFTC has now imposed penalties of over $1.87 billion on banks and interdealer brokers for manipulative conduct with respect to LIBOR and other benchmark interest rates. Actions filed during previous fiscal years include: In re: ICAP Europe Limited; In re: The Royal Bank of Scotland plc and RBS Securities Japan Limited; In re: UBS AG and UBS Securities Japan Co., Ltd., and In re: Barclays PLC, Barclays Bank PLC, and Barclays Capital Inc.
Total fines (CMPs and/or restitution): $1,870,000,000
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