Big shots & screenshots

November 23, 2016 11:00 AM
Not all bad actors reside in Hollywood

We have our own theory as to what the “A” stands for

In 2007, the CFTC filed a Complaint in the Southern District of Texas, alleging that Aden Rusfeldt, through his company Rusfeldt Investments, fraudulently solicited members of the retail public. In 2008, the Southern District of Texas entered a consent order of Permanent Injunction and Other Equitable Relief ordering Alan Rusfeldt and Rusfeldt Investments to pay restitution and a civil monetary penalty, and permanently prohibited them from engaging, directly or indirectly, in any activity related to trading in any commodity interest.

One less bad actor, right? Not quite.

This past September, the CFTC issued an order that despite the permanent injunction in the prior consent order, Rusfeldt, often using the alias “Big A,” sold a variety of commodity interest related services and educational materials to more than 500 customers through ETF Trend Trading as recently as April 2015. Rusfeldt did not disclose to any prospective or current customers that he had been permanently prohibited from engaging in any commodity interest related activity. Rusfeldt continued to omit these facts until he sold ETF Trend Trading in April 2015.  The CFTC Order finds that Rusfeldt defrauded customers by failing to disclose material facts to customers. 

The CFTC Order permanently prohibits Big A from trading on any registered entity, or registering with the CFTC; and bars Rusfeldt permanently from engaging in any commodity interest related activities. However, he is not required to wear scarlet “A” emblazoned attire.

Note to risk management teams: Screenshots can be doctored

In September, the CFTC filed a civil enforcement complaint, charging Chicago Board of Trade member Thomas C. Lindstrom with fraud in connection with his trading of options on 10-year U.S. Treasury notes. The Complaint alleges that, from at least Jan. 1, 2014 to Jan. 27, 2015, Lindstrom falsely inflated the value and profitability of his options position, and lied about the quantity of options and the risk associated with his position, in order to defraud his employer, proprietary trading firm Rock Capital Markets LLC into paying him $285,000 in draws to which he was not entitled.
 
The complaint alleges that Lindstrom’s scheme exploited the exchange pricing convention, whereby deep out-of-the-money (OTM) options settled each day at the minimum tick value of $15.625 prior to expiration. Thereby, Lindstrom allegedly generated millions in phony profits by acquiring hundreds of thousands of options which were virtually assured to expire worthless.  

 Even though the options were so far OTM as to be essentially worthless, they settled each day up until expiration at $15.625. The Complaint states that as the options expired worthless and phony profits were wiped out, Lindstrom allegedly acquired  more OTM options to cover the realized losses and create more phony profits. When this was discovered, Lindstrom accumulated a position of more than 950,000 deep OTM T-Note options, and held nearly all  of the open interest in at least 10 contracts. 

How exactly was this supposed to go on unnoticed? 

Lindstrom hid his scheme from and defrauded Rock Capital by sending Rock Capital doctored screenshots from trading software to omit his huge position. Lindstrom allegedly took draws of $285,000 from Rock Capital based on his phony profits, which failed to disclose his huge position that was not accurately valued on his trading statements, the risk that the position posed to the firm, and that he had exceeded his $500,000 margin limit by millions of dollars.  

When Lindstrom’s alleged scheme was uncovered -- just days before he was to receive an additional payment of more than $500,000 -- his account had a net liquidation value inflated by more than $15 million, the Complaint alleges. The U.S. Attorney’s office in Chicago has issued an indictment against Lindstrom, charging him with criminal violations of the commodities and wire fraud statutes.

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