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CFTC Enforcement Actions

The Commodity Futures Trading Commission (CFTC) is the United States agency with primary responsibility for enforcing the Commodity Exchange Act (CEA) and regulating commodity futures and related markets. Whistleblowers with knowledge of violations of laws and regulations enforced by the CFTC can submit a claim under the CFTC Whistleblower Reward Program, and may be eligible to receive a monetary reward and protection against retaliation by employers.

Below are summaries of recent CFTC settlements or successful enforcement actions. If you believe you have information about fraud which could give rise to a CFTC enforcement action and claim under the CFTC Whistleblower Reward Program, please contact us to speak with one of our experienced whistleblower attorneys.

October 2, 2020

Jon Barry Thompson of Pennsylvania has been ordered to pay approximately $7.4 million in restitution for making false representations to two customers regarding purchases of Bitcoin.  According to the CFTC press release, Thompson induced the customers to send him the funds by assuring them he had the Bitcoin in hand.  However, after receiving the funds, he distributed the money to third parties, failed to provide the customers with any Bitcoin, and made false representations regarding the location of the Bitcoin and the status of the funds.  Thompson pleaded guilty to one count of commodities fraud in a parallel action relating to this matter, and will be sentenced in January 2021.  CFTC

September 30, 2020

Morgan Stanley & Co. LLC will pay a total of $10 million in civil monetary penalties to the SEC and CFTC.  In an agreement with the SEC, the company will pay a $5 million civil monetary penalty arising from charges that the firm violated the short sale procedures of Regulation SHO. Specifically, Morgan Stanley improperly used “long” and “short” aggregation units when it hedged synthetic exposure to swaps by purchasing or selling the securities referenced in the swaps.  The aggregation units were not independent and did not have separate trading strategies.  As a result, Morgan Stanley should have netted the long and short positions of both units together or across the entire broker-dealer and marked the orders as long or short based on that netting. The CFTC, which also imposed a $5 million penalty, charged that Morgan Stanley failed to comply with swap data reporting obligations, inaccurately reporting swap data for approximately three million swaps. SEC; CFTC

September 30, 2020

Marcus Schulz will pay over $1 million – a $670,000 penalty and $427,000 in disgorgement – to resolve CFTC allegations that, while employed as an energy trader, he passed on confidential information to an outside broker, including information about his employers block trade orders.  The broker would then arrange to take the other side of the order at prices that allowed the broker and others involved in the scheme to make a profit on offsetting trades, which profits they shared with Schulz.  CFTC

September 29, 2020

JPMorgan Chase & Co. has agreed to pay $920 million to the CFTC and $35 million to the SEC, as well as enter into a three-year deferred prosecution agreement with the DOJ, in order to resolve charges of fraudulently engaging in unlawful trading in both the precious metals and U.S. Treasury futures contracts.  Between at least 2008 through 2016, numerous traders in JPMorgan’s New York, London, and Singapore offices—including the heads of both the precious metals and Treasuries sections—placed hundreds of thousands of spoof orders to artificially drive up supply and demand, ultimately succeeding in manipulating market prices.  Additionally, JPMorgan failed to identify, investigate, and stop the misconduct; JPMorgan also initially responded to government requests in a manner that was misleading.  The penalties imposed by the CFTC—which includes the highest restitution ($311.7 million), disgorgement ($172 million), and civil monetary penalty ($436.4 million) —amount to the highest monetary relief ever imposed by the CFTC in a spoofing case.  CFTC; SEC; USAO CT

September 28, 2020

Citibank N.A. and its related entities Citigroup Energy Inc. and Citigroup Global Markets, Inc. will pay a $4.5 million penalty for maintaining an inadequate telephone audio recording and preservation system.  According to the charges, Citibank internal reporting described the audio preservation system as having a flaw that was a “ticking time bomb” that could lead to the deletion of audio recordings.  When Citibank was required to produce recordings in response to a CFTC subpoena, the company disclosed that millions of audio files for 982 users had been deleted as a result of the flaw.  CFTC

September 11, 2020

Two whistleblowers who made specific, credible, and timely reports to the CFTC of an ongoing fraud have been awarded an undisclosed sum.  The first whistleblower, based in the U.S., made the first report and provided information and documents that would have otherwise been difficult to obtain.  The second whistleblower, based abroad, provided additional information, including the wrongdoers’ attempts to avoid detection.  According to the CFTC, the whistleblowers’ joint efforts helped lead to a successful enforcement action.  CFTC

September 4, 2020

An anonymous individual received a whistleblower reward in an unspecified amount, after providing information that caused the CFTC to open an investigation into ongoing fraudulent activity affecting individual investors.  The whistleblower provided assistance and documentation, enabling the Commission to act quickly to stop fraud that would have been difficult to detect without the whistleblower's information. CFTC

August 19, 2020

The Bank of Nova Scotia (Scotiabank) has been ordered to pay $127.4 million to the CFTC and $60.4 million in criminal fines, forfeiture, and restitution to the DOJ for attempting to manipulate prices and spoofing in precious metals futures contracts, making false and misleading statements to investigators, and failing to comply with swap dealer conduct and supervision requirements.  The alleged misconduct occurred over the eight years ending in 2016 and involved four precious metals traders in New York, London, and Hong Kong.  From the penalty paid to the CFTC, a record-breaking $42 million will go toward resolving the price manipulation and spoofing allegations, and a record-breaking $17 million will go toward resolving the false and misleading statements allegations.  In addition to the fines, Scotiabank has entered into a deferred prosecution agreement and agreed to retain an independent monitor.  CFTC; DOJ; USAO NJ 

August 10, 2020

Greenwich, Connecticut-based brokerage firm Interactive Brokers LLC will pay fines and disgorgement totaling $23.7 million to the SEC and CFTC, as well as a $15 million penalty to the Financial Industry Regulatory Authority (FINRA), to resolve allegations related to the firm's anti-money laundering policies.  The SEC penalty of $11.5 million resolves charges that over the course of one year the brokerage failed to file more than 150 Suspicious Activity Reports (SARs) for U.S. microcap securities trades it executed on behalf of its customers.  The SEC order finds that defendant failed to recognize red flags concerning transactions, failed to properly investigate suspicious activity, and failed to file SARs even when suspicious transactions were flagged by compliance personnel. The $11.5 CFTC penalty, together with over $700,000 in restitution, resolves charges including that the firm, which is a registered futures commission merchant, failed to detect and report suspicious transactions, including in its handling of the accounts of Haena ParkSEC; CFTC
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