Fraud in CFTC-Regulated Markets

March 26, 2021

British citizen Benjamin Reynolds, who did business as Control-Finance Limited, has been ordered to pay a total of $571 million – $143 million in restitution and $429 million as a civil penalty – by default judgment in an enforcement action brought by the CFTC.  Reynolds solicited customers on the internet and by e-mail, falsely representing that Control-Finance would engage in virtual currency trades on their behalf, with a guaranteed profit.  Reynolds also created an affiliate marketing network, falsely claiming that he would pay referral bonuses to customers.  In fact, Reynolds made no trades on customers’ behalf, earned no trading profits for them, and paid no referral rewards or bonuses. Over the course of six months in 2017, Reynolds secured at least 22,191 bitcoin, worth $143 million at the time, from more than 1,000 customers worldwide, including at least 169 residing in the U.S.  CFTC

March 19, 2021

The CFTC has ordered digital asset exchange operator Coinbase Inc. to pay a civil monetary penalty of $6.5 million to settle charges of reporting false, misleading, or inaccurate information on the company’s GDAX electronic trading platform, which is published by various reporting firms and used by market participants to gauge the volume and liquidity of digital assets.  The CFTC also found Coinbase vicariously liable for a former employee who placed deceptive orders in Litecoin in order to artificially generate market interest.  CFTC

January 8, 2021

Deutsche Bank Aktiengesellschaft entered into a deferred prosecution agreement and agreed to pay over $130 million to resolve charges that the financial services company violated the FCPA and engaged in a commodities fraud scheme.  The SEC charged that Deutsche Bank made payments to individuals including foreign officials, their relatives, and their associates as third-party intermediaries and consultants to obtain and retain global business, and lacked sufficient internal accounting controls related to the use and payment of such intermediaries, resulting in millions in bribe payments or payments for unknown, undocumented, or unauthorized services that were inaccurately recorded as legitimate business expenses with documentation falsified by Deutsche Bank employees. The agreed payment represents a $79.6 million criminal penalty and $43.3 million in disgorgement in prejudgment interest to the SEC.   Separately, in connection with a spoofing scheme undertaken by Deutsche precious metals traders in New York, Singapore, and London the bank agreed to a total of $7.5 million in criminal penalties, disgorgement, and restitution, the penalty amount of which will be credited against a 2018 $30 million CFTC civil penalty for substantially the same conduct.   SEC; DOJ

December 14, 2020

Interdealer brokers TFS-ICAP LLC and TFS-ICAP Ltd. will pay $7 million and admit that between 2014 and 2015 its employees engaged in  “flying” prices and “printing” trades on FX options by representing to clients bids and offers that had not been made, and communicating to clients trades that had not occurred. CFTC

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