CFTC Cases Over Commodity Pool Fraud, Misappropriation, and Illegal Wash Sales Lead to Civil Penalties and Other Consequences

Illegal Wash Sales Charges Result in $5M Penalty
The US Commodity Futures Trading Commission recently announced that it has reached a settlement with Rosenthal Collins Capital Markets LLC, now named DV Trading LLC (RCCM), for illegal wash sales that were conducted to create rebates of exchange fees determined by growing trading volumes. As part of the settlement, the trading company will pay a $5M penalty and must cease and desist from the violations charged.

According to the regulator’s order, from early 2013 through July 2015, proprietary traders at Rosenthal Collins Capital Markets took place in multiple wash trading strategies to generate rebates via the Eurodollar Pack and Bundle Market Maker Program. The Chicago Mercantile Exchange offers the program, which allows for rebates as credit fees for meeting certain quoting obligations.

However, according to the order, in early 2013, to make enough rebates, a firm trader was able to circumvent Rosenthal Collins Capital Market’s own wash blocking system so he could trade against himself and earn the rebates separate from actual market conditions. He kept doing this until he was caught. A few months later, said the CFTC, two of the firm’s traders engaged in scratch trading for extended periods, again to earn rebates. This involved buying and selling opposite one another.

Not long after that, another trader at Rosenthal Collins Capital Markets named Brandon Elsasser used the CME’s implied matching engine to sell and purchase contracts. This made it possible to trade against himself in products that were eligible for rebate while allowing him to avoid getting caught. The CFTC has brought a separate order against Elsasser, accusing him of taking part in fictitious trading strategies to earn rebates.

$1.5M Commodity Pool Fraud Charges Brought Against Owner of GDLogic
In another CFTC case, the regulator has brought an enforcement action against Daniel Winston LaMarco and his GDLogix Inc. It is accusing them of commodity pool fraud and off-exchange foreign currency derivatives fraud.

The CFTC’s Oder accuses LaMarco of soliciting and accepting nearly $1.5M from 13 individuals under fraudulent conditions. The money was supposed to “trade off-exchange leveraged or margined retail derivatives forex contracts” in a commodity pool that LaMarco and his company ran. According to the regulator, he falsely represented to them not just his track record of success in forex trading but also the risks involved in his investment strategy.

The CFTC alleges that all the representations he made were false and he hid the fraud and kept it going through fabricated monthly statements that included inaccurate information about the commodity trading pool’s losses, profits, and each participant’s respective net balance. He spent some of investors’ funds on his own expenses.

The CFTC said that Marco lost almost all of participants’ money by trading unsuccessfully and diverted over $630K to some participants as supposed “profits” in a Ponzi-like scam. Many of the pool participants were his own friends and family.

Earlier this year, LaMarco pleaded guilty to related criminal charges of wire fraud and commodity fraud and will serve 42 months in person. He must pay $872,600 in restitution in that case.

Federal Court Orders Over $2.4M in Restitution and Penalties In Commodity Pool Fraud
In another commodity pool fraud, the CFTC has entered a final judgment by default order against Lindsey Heim, Anthony Klatch II, and their Assurance Capital Management LLC. The CTFC said that they bilked pool participants, misappropriating their money.

Klatch and Heim are accused of setting up ACM to fraudulently market Assurance Capital Management so as to improperly solicit potential commodity pool investors. The two of them and the firm must pay more than $459K in restitution and an over $1.5M penalty. Klatch also must pay almost $97K in restitution and an over $335K penalty for two other fraud scams. Heim and ACM are permanently barred from trading, as is Klatch over a Ponzi Scam he previously ran. In that case he was ordered to pay about $12.9M in restitution.

In April, Klatch pleaded guilty to wire fraud in a related criminal case. The month, before Heim pleaded guilty to obstruction of justice, also in a related criminal case.

If you suspect that your investment losses may be due to securities fraud, contact the SSEK Partners Group today.

The CTC Order in the Illegal Wash Sales Case (PDF)

The CFTC Complaint in the GD Logic Case (PDF)

Federal Court in Florida Orders Anthony J. Klatch II, Lindsey Heim, and their Company Assurance Capital Management, LLC to Pay More than $2.4 Million in Restitution and Civil Monetary Penalties for Commodity Pool Fraud and Misappropriation, CFTC, July 11, 2017