Fraud in CFTC-Regulated Markets

November 29, 2021

Denari Capital LLC and its principals Travis Capson and Arnab Sarkar have been ordered to pay a total of $4 million in penalties and restitution based on findings that they engaged in foreign exchange (forex) pool fraud and failed to register with the CFTC as a commodity pool operator and associated persons.  Defendants misrepresented Denari’s trading and performance in fraudulent solicitations, issued false account statements, and improperly commingled pool funds.  CFTC

November 22, 2021

Two whistleblowers received awards totaling approximately $1 million, with the CFTC finding that the first claimant voluntarily provided specific, credible, and timely information that led the CFTC to open an investigation, and the second claimant voluntarily provided information that significantly contributed to the success of the covered action.  In support of a larger award for the first claimant, the CFTC cited their submission of documents and sharing of knowledge during the earliest stages of the CFTC’s investigation, which focused investigative efforts and conserved government time and resources.  CFTC

November 17, 2021

In relation to CFTC charges against Digital Platinum, Inc. and related entities arising from the dissemination of fraudulent solicitations promising free access to purportedly successful automated trading systems that traded on behalf of clients in binary options involving commodity interests and digital assets, a court has ordered Daniel Fingerhut, Itay Barak, Tal Valariola and Digital Platinum Limited to pay a combined $7 million in disgorgement and civil monetary penalties for violations of the Commodity Exchange Act (CEA) and CFTC regulations.  CFTC

November 8, 2021

United States Commodity Funds LLC, a registered commodity pool operator , and United States Oil Fund LP, an exchange-traded product whose general partner is United States Commodity Funds LLC, will pay a total of $2.5 million to resolve charges by the SEC and CFTC.  USO’s stated investment objective was to track changes in the spot price of oil; however, during oil market turmoil in early 2020, USO’s sole futures commission merchant told USO it would not execute any new oil futures positions for USO. As a result of this limitation, USO was restricted from investing the proceeds generated by the future sale of newly created shares in oil future contracts, creating the risk that USO would not be able to meet its stated investment objective. The SEC and CFTC alleged that the defendants failed to fully disclose these limitations to commodity pool participants.  CFTC; SEC

October 21, 2021

The CFTC has issued a final award of nearly $200 million to a whistleblower whose information significantly contributed to government investigations resulting in successful enforcement actions by the CFTC, another U.S. federal regulator, and a foreign regulator.  In making the award, the CFTC noted that the information provided by the whistleblower was specific and credible, leading to important, direct evidence of wrongdoing, as well as voluntarily provided and timely, even though the CFTC already had an open investigation at the time of the whistleblower’s report.  The CFTC had first issued a preliminary order denying the individual’s application; the whistleblower requested reconsideration and provided information about how his information was utilized, including in the parallel investigations.  CFTC

October 15, 2021

iFinex Inc. and related entities doing business as cryptocurrency trading platform Bitfinex, agreed to pay $1.5 million to resolve charges that they operated as an unregistered futures commission merchant (FCM) and engaged in illegal, off-exchange retail commodity transactions in digital assets with U.S. persons that were not eligible contract participants (ECPs).  The CFTC found that Bitfinex allowed margin trading financed through a peer-to-peer funding program through which Bitfinex customers who held fiat or cryptocurrency in their Bitfinex account would “lend” those funds to other Bitfinex customers who would then use those funds to buy, sell, and trade on the Bitfinex platform, in violation of a 2016 CFTC order.  CFTC

October 15, 2021

Tether Holdings Limited and related entities, issuers of the “Tether Token” or USDt, have agreed to pay a civil monetary penalty of $41 million to resolve allegations that they violated the CEA and CFTC regulations by making untrue or misleading statements and/or omitting material facts through statements that Tether maintained sufficient U.S. dollar and other fiat currency reserves in bank accounts to back every USDt in circulation.  In fact, Tether did not hold sufficient currency reserves at all times.  The reserves were inadequate in amount, and were not held in currency in bank accounts, but instead included unsecured receivables and non-fiat assets, which were held by unregulated entities and third-parties including Bitfinex, which commingled reserve funds with operational and customer funds.  The CFTC also found that Tether failed to perform routine professional audits as represented.  CFTC

September 29, 2021

Société Générale S.A. has been ordered to pay a $1.5 million civil monetary penalty for its failure to comply with certain swap dealer requirements, reporting inaccurate swap valuation data, and other failures.  The alleged failures occurred between 2013 and 2021 and involved failing to disclose pre-trade or mid-market marks, failing to accurately report certain swap valuation data, and failing to maintain adequate supervision over mid-market mark disclosures.  CFTC