CFTC Enforcement

June 15, 2023

Wisconsin woman Kay Yang and her companies AK Equity Group LLC and Xapphire LLC have agreed to pay almost $13.7 million in restitution and over $10.4 million in civil monetary penalty in connection with a fraudulent scheme targeting the Hmong community.  Yang’s husband, Chao Yang, was also ordered to pay $1.42 million in disgorgement.  From 2017 until the pandemic hit in March 2020, the defendants solicited and received at least $15.7 million from 67 victim individuals or entities, many from the Hmong community.  The funds were intended for retail forex transactions, but the defendants misappropriated at least $4.8 million.  Under the settlement order, there is a permanent injunction against Kay Yang and her companies from participating in commodity exchange.  CFTC

May 12, 2023

HSBC Bank USA, N.A. has been ordered to pay $45 million to settle charges involving a number of violations of the Commodity Exchange Act.  Over an eight-year period beginning in 2012, HSBC traders systematically structured their trading to move the market prices of issuer swaps in a direction that was favorable to HSBC and unfavorable to its counterparties.  Over several months beginning in 2015, HSBC’s supervisor for its U.S. dollar swap desk repeatedly engaged in spoofing.  Lastly, over a couple months beginning in 2020, HSBC failed to make or keep recordings of mobile phone calls involving swap transactions.  CFTC

May 12, 2023

HSBC Bank USA, N.A., HSBC Securities (USA) Inc., and HSBC Bank plc (collectively HSBC Affiliates) have been ordered to pay $30 million to the CFTC and $15 million to the SEC to settle charges of violating recordkeeping and supervisory requirements.  As part of the settlement, HSBC Affiliates admitted that it failed to stop employees from communicating internally and externally through unapproved mediums, and failed to preserve those messages as business records even if they pertained to the businesses.  CFTC; SEC

May 11, 2023

The Bank of Nova Scotia and Scotia Capital USA Inc. (collectively BNS Affiliates) have been ordered to pay $15 million to the CFTC and $7.5 million to the SEC to settle charges of violating recordkeeping and supervisory requirements.  BNS Affiliates admitted that its employees often communicated internally and externally through unapproved channels, and though some messages pertained to the businesses, failed to preserve those messages as records, and would be unable to produce them if requested.  CFTC; SEC

March 8, 2023

A registered introducing broker, Coquest Inc., its owners Dennis Weinmann and John Vassallo, and trading firms Buttonwood LLC and Weva Properties Ltd. have been ordered to pay almost $3 million for using block trade order information from Coquest’s brokerage customers to obtain profits for Buttonwood and Weva accounts in which Weinmann had a financial interest.  The misconduct ran between 2015 and 2019 and involved more than 2,000 instances where Weinmann traded against his own customers’ interests.  CFTC

February 16, 2023

Derivative clearing organization (DCO) The Options Clearing Corporation (“OCC”) has been ordered to pay $17 million to the SEC and $5 million to the CFTC for its failure to establish, implement, maintain, and enforce policies and procedures to manage operational risks related to its automated systems, in violation of numerous rules and regulations, including the Commodity Exchange Act and CFTC regulations called DCO Core Principles.  Due to those deficiencies, between 2019 and 2021, OCC’s Clearing Fund was underfunded by $200 million to nearly $600 million.  OCC previously settled other charges with the SEC for $15 million and the CFTC for $5 million.  SEC; CFTC

December 21, 2022

Precious metals firm Monex Deposit Company, together with related entities and individual owners, have been ordered to pay a civil penalty of $5 million, and customer restitution of $33 million, to resolve claims arising from the defendants’ operation of a retail over-the-counter trading platform, known as “Atlas,” which allowed customers to speculate on precious metals price movements, with Monex acting as the counterparty to every transaction. While the defendants claimed in marketing that leveraged trading of precious metals was highly profitable, in fact, the majority of the trades resulted in losses for customers.  CFTC

December 20, 2022

Futures commission merchant CHS Hedging LLC will pay civil penalty of $6.5 million to resolve claims that it failed to implement an adequate AML program and failed to implement risk-based limits concerning trading in an account controlled by one of its customers that owned and controlled a ranching company and other related businesses.  The customer engaged in speculative trading that was inconsistent with its financial resources and hedging needs, and, over the course of four years, made net margin payments of more than $147 million to CHS Hedging.  The government alleged that the company did not adequately investigate the source of the customer’s funds or report the transactions as suspicious.  CFTC

October 13, 2022

Daniel Adam Hewko and his company, Main & Prospect Capital, LLC (MPC), have been ordered to pay over $7.9 million and be permanently barred from registering and trading with the CFTC, after they were found to have failed to register as an associate of a commodity pool operator, misappropriated client funds, and committed fraud.  Rather than invest client funds into a MPC-managed pooled investment vehicle called the Global Opportunity Fund, Hewko used the funds to benefit himself, his family, and unrelated companies, while issuing false statements to clients that showed false growth.  CFTC

September 30, 2022

BGC Derivative Markets, L.P. (BGCD) has been ordered to pay $1.9 million in civil penalties and to comply with certain undertakings in order to settle charges of failing to accurately report nearly 16,000 swap transactions to the CFTC.  The failures were a result of 14 separate reporting systems issues.  As a result of the settlement, BGCD will have to conduct a review of its swaps reporting program, implement a reconciliation process for those transactions, and submitted a written report to the CFTC in a year.  CFTC