Articles Posted in CFTC

CFTC Secures $4.5M Default Ruling in Investor Fraud Case Against STA Opus
The US Commodity Futures Trading Commission was able to get a default judgment that orders Gerard Suite and his STA Opus to pay over $1.1M in restitution and almost $3.4M in penalties for an alleged commodity pool fraud. Another defendant, Frank Collins, agreed to pay a $50K penalty and $50K in restitution over allegations that he misappropriated at least $50K from investors.

According to court filings, from 2013 through July 2016, Suite marketed an STA Opus commodity pool that touted yearly returns of 57% to almost 133% despite that nearly all of the money traded was lost. The CFTC said that Suite concealed the losses by sending investors bogus account statements.

The investors were purportedly told that they could invest even more if they sent over personal checks that were voided. Suite allegedly used the routing and account information to get new checks. This made it possible for his company to make withdrawals that were not authorized from the account of at least one customer.

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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.

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Former Citigroup Global Markets Traders Accused of Spoofing Arrive at Non-Prosecution Deals
The US Commodity Futures Trading Commission has reached non-prosecution agreements with three ex-Citigroup Global Markets Inc.(C) traders. Daniel Liao, Jeremy Lao, and Shlomo Salant admitted to engaging in spoofing in US treasury futures markets while working for the firm. The three of them also provided information about misconduct that was committed by others.

According to the non-prosecution deals, each trader submitted big orders on the opposite of orders that were smaller with the intention of cancelling the bigger orders. They engaged in spoofing to fill their smaller orders at prices they preferred.

The agreements with the ex-Citigroup traders comes nearly six months after the bank settled with the CFTC allegations over spoofing and supervisory-related deficiencies. A number of unlawful incidents at Citigroup were identified in the non-prosecutorial deals.

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Former Citigroup Global Markets Traders to Pay Penalties for Spoofing
Ex-Citigroup Global Markets Inc. (C) traders Jonathan Brims and Stephen Gola have settled spoofing charges that the US Commodity Futures Trading Commission brought against them. According to the regulator, the two men engaged in spoofing while trading for the firm, and they must now pay $200K and $350K in civil monetary penalties, respectively. They also are temporarily “banned from trading in futures markets.” Goal and Brims won’t be allowed to resume trading in the futures markets until six months after they’ve paid their penalties in full.

According to their respective orders, the two men engaged in spoofing, which involves making a bid or offer with the intention to cancel the bid or offer prior to execution of the bid. They did this over 1,000 times in different Chicago Mercantile Exchange US Treasury futures products. They would make offers or bids of at least 1,000 lots even though they planned to cancel the orders before they actually occurred.

The orders were made after another small offer or bid was made on the other side of the same market “or a correlated futures or cash market.” The CFTC said that the two men initiated the orders in order set up or increase an already existing imbalance in the order book. They purportedly canceled the orders after the smaller orders were filed or if they determined that there was too high a risk that their orders might actually go through.

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Citigroup Global Markets Inc. (C) has been ordered to pay $25M penalty by the U.S. Commodity Futures Trading Commission to settle charges alleging spoofing in US Treasury futures markets. The regulator is also accusing the firm of not doing a diligent enough job of supervising agents and employees that were involved with the spoofing orders, which purportedly took place between 7/16/2011 and 12/31/2012.

Spoofing

Spoofing involves a trader making an offer or bid but with the intention of calling off the bid or offer before it actually goes through. According to the CFTC’s order, through five traders, Citigroup took part in spoofing over 2500 times in different Chicago Mercantile Exchange (CME) U.S. Treasury futures products. The spoofing strategy purportedly applied involved making offers or bids of at least one thousand lots but with no intention of allowing them to be executed.

In London, six traders have pleaded not guilty to charges accusing them of trying to rig Euribor, which is the Brussels-based equivalent of the London Interbank Offered Rate (Libor). Euribor is key in establishing the rates on financial contracts, loans, and other financial products around the world.

The defendants include former Deutsche Bank (DB) trader Christian Bittar, current Deutsche trader Achim Kraemer, and former Barclays (BARC) traders Philippe Moryoussef, Colin Bermingham, Carlo Palombo, and Sisse Bohart. They are charged with one count of conspiracy to defraud through the making or obtaining of false or misleading Euribor rates in order allegedly enhance trading profits.

The criminal charges are related to a probe by the Serious Fraud Office. Five other traders from Deutsche Bank and Societe Generale were previously charged.

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Goldman Sachs Group and Goldman, Sachs & Co. (GS) will pay a $120M penalty to settle Commodity Futures Trading Commission Charges accusing the firm of trying to manipulate the U.S. Dollar International Swaps and Derivatives Association Fix, as well as of falsifying related reports to enhance its derivatives positions. The USD ISDAFIX is the global benchmark is for interest rate products. Its rates and spreads are tied to benchmarks for interest swaps and related derivatives, which in turn impact a number or currencies’ daily market rate. A number of local and state governments in this country, as well as pension funds, depend on instruments determined by USD ISDAFIX when hedging against certain interest rate changes.

Now, the CFTC wants Goldman to not only pay the civil penalty but also to cease and desist from the violations charged. The regulator contends that multiple Goldman traders, including the firm’s Interest Rate Products Trading Group head in the US, were involved in the alleged misconduct.

The CFTC said that Goldman, via its traders, engaged in transactions involving US treasuries, interest rate swap spreads, and Eurodollar futures contracts in a way specifically designed to impact the published interest rate benchmark. Goldman also purportedly tried to rig and make false reports about the USD ISDAFIX through these employees’ actions. These alleged acts were at the expense of clients and derivatives counterparties.

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A British day trader has pleaded guilty to spoofing and wire fraud involved the 2010 Flash Crash. Navinder Singh Sarao was accused of making $40M while spoofing the stock futures market of CME Group Inc. (NASDAQ: CME)  for more than five years. He also will forfeit $12.9M of the ill-gotten gains that he made from trading. Sarao is facing a maximum of 30 years in prison. It was during the 2010 Flash Crash that a trading frenzy briefly took down nearly $1 trillion from American equities.

To face the 22 criminal charges against him for market manipulation and fraud, Sarao had to be extradited from the United Kingdom to the United States. US prosecutors accused him of rigging the futures on the S & P 500 Index.

Spoofing involves manipulating prices by placing trade orders but with no plans of executing them. The purpose is to send prices moving in one direction but then canceling the trades prior to execution in order to make money off the prices going back to where they originally were before the manipulation.

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IB Capital FX, Two Dutch Citizens to Pay Over $35M to Customers
IB Capital FX, LLC, Emad Echadi, and Michel Geurkink must pay, severally and jointly, a $420K civil penalty and $35M in restitution for soliciting at least $50M from 1,850 customers internationally and in the US even though they lacked the required registration for trading that involved off-exchange margined retail foreign (forex) currency. Also, the firm should have been registered with the US Commodity Futures Trading Commission.

It was the CFTC that obtained the consent order, which permanently prevents the defendants from violating CFTC Regulations and the Commodity Exchange Act further. They also are now subject to permanent registration and trading bans.

$21.8M Default Judgment Issued is in Ponzi Scam
In a default judgment, Puerto Rico resident Alvin Guy Wilkinson and his Wilkinson Financial Opportunity Fund, LP and Chicago Index Partners, LP—both are Connecticut-based financial firms—will jointly and severally pay $21.8M for misappropriating commodity pool funds in a purported Ponzi scam. According to the CFTC’s order, the defendants committed fraud, did not register with the SEC, engaged in misappropriation, and made misrepresentations to the National Futures Association.

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Ex-Wall Street Executive Admits to Bilking Friends and Relatives
Andrew Caspersen has pleaded guilty to federal criminal charges accusing him of defrauding relatives, friends, and Moore Charitable Foundation of $40M. Caspersen is an ex-Wall Street executive and a member of the wealthy Caspersen family. The charitable foundation he bilked belongs to billionaire hedge fund manager Louis Bacon and his investment firm Moore Capital Management.

Caspersen, 39, pleaded guilty to one charge of wire fraud and one charge of security fraud. Each criminal charge comes with a maximum term of 20 years behind bars.

Caspersen’s defense team initially argued that he was addicted to gambling and suffered from mental illness, which were what supposedly compelled him to run his multi-million dollar Ponzi-like scam. His mother, close friends, the family of an ex-girlfriend, and others were among those whom he bilked.

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