The Commission protects market participants and other members of the public from fraud, manipulation and other abusive practices in the commodities, futures and swaps markets. Its cases range from quick strike actions against Ponzi enterprises that victimize investors across the country, to sophisticated manipulative and disruptive trading schemes in markets the Commission regulates including oil, gas, precious metals and agricultural goods. The importance of the Commission's enforcement responsibilities are specifically addressed in Strategic Plan Goal Three, which emphasizes cooperative enforcement to increase the Commission's effectiveness in identifying and deterring illegal conduct.
The Commission has the authority to: 1) shut down fraudulent operations and immediately preserve customer assets through asset freeze and receivership orders, 2) terminate manipulative and disruptive schemes, 3) ban defendants from trading and being registered in its markets, and 4) seek restitution, disgorgement and monetary penalties up to the greater of three times the amount of a defendant's gain or a fixed statutory amount.
The Commission continuously opens investigations in response to the approximately 2,000 leads it receives. The scope and level of effort associated with investigations varies widely. Manipulation investigations are generally more time consuming than fraud and other types of investigations.
Enforcement of the Dodd-Frank Act and associated regulations will increase the Commission's enforcement burdens for a number of reasons. For example, the Dodd-Frank Act extends the Commission's anti-fraud jurisdiction to the swaps markets, and clarifies its jurisdiction with respect to certain retail off-exchange transactions, including transactions in precious metals. This expansion is expected to translate into more investigations, and more enforcement actions.
As a result of the Dodd-Frank Act, there will be new types and an increase in the number of CFTC registrants including exchanges, SEFs, SDRs, clearing organizations, intermediaries and dealers that require the Commission to issue concomitant regulations. The Commission's enforcement workload will now include investigations concerning any violations by these new registrants of these new rules.
In addition, the Dodd-Frank Act established anti-manipulation authority over swaps and new broader anti-manipulation authority in the futures markets. While preventing manipulation is critical to the Commission's mission to help protect taxpayers and the markets, as noted above manipulation investigations and litigations are time consuming. The Dodd-Frank Act also includes a prohibition on disruptive trading. The Commission anticipates that disruptive trading investigations and litigation will also be time intensive, particularly when high-frequency and algorithmic trading is involved, due to an inherent complexity comparable to that of market-wide manipulation investigations.
The Commission will continue to aggressively pursue domestic and international cooperative enforcement efforts. The Commission routinely works with domestic and international financial regulatory and criminal counterparts on multi-jurisdictional and multi-national investigations. There has been a significant increase in both the number of outgoing and incoming international requests each year since FY 2008. This change is directly related to the increase in enforcement cases in general, but is likely to be accelerated given the global nature of the swaps marketplace.
The Commission seeks to sustain its investment in its enforcement related activities between 2013 and 2014.
CFTC's Enforcement Annual Results
CFTC filed 102 enforcement cases in FY 2012. During the past two fiscal years, the Commission filed a total of 201 enforcement actions, representing a significant increase from past years. The Commission also opened more than 350 new investigations in FY 2012, among the highest annual count of new investigations in the Commission's history. In addition, the Commission obtained orders imposing more than $931 million in sanctions, including orders imposing more than $475 million in civil monetary penalties and directing the payment of more than $456 million in restitution and disgorgement.
Overview of FY 2012 CFTC Enforcement Actions:
Cases Involving Manipulation, False Reporting, Wash Trades and Position Limits
- In a landmark case, CFTC filed charges against Barclays PLC and two affiliates for attempted manipulation and false reporting concerning LIBOR and other global benchmark interest rates. The charges were simultaneously settled pursuant to an Order requiring Barclays to pay $200 million, the largest fine ever imposed by the CFTC, and requiring Barclays to implement a number of measures to ensure the integrity of the bank's benchmark submissions.
- CFTC settled charges previously filed in federal court against a global proprietary trading company Optiver Holding BV, two of its subsidiaries and three then company officers for manipulating and attempting to manipulate crude oil and other energy futures contracts. The court-approved settlement required the defendants to pay $14 million and included trading limitations for one of the corporate defendants and the three individual defendants.
- CFTC filed charges against Joseph F. Welsh, a former broker with MF Global, alleging that Welsh attempted to manipulate prices of palladium and platinum futures contracts, and with aiding and abetting the attempted manipulations of Christopher L. Pia, a former portfolio manager of Moore Capital Management, LLC. Both Pia and Moore Capital settled the separate actions against them prior to FY 12. The case against Welsh is pending in federal court in New York.
- The Commission filed charges against Royal Bank of Canada (RBC), alleging a multi-hundred million dollar wash trading scheme involving stock futures contracts. The CFTC's complaint, which is pending in federal court in New York, also alleged that RBC made false statements concerning material aspects of its wash sale scheme to OneChicago, LLC, an electronic futures exchange, and to CME Group, Inc.
- The Commission filed a number of separate actions against traders who exceeded the limits on the quantity of futures contracts they were lawfully permitted to hold, in the cotton, wheat, corn and soybean markets. The penalties imposed in these cases pursuant to settlement orders ranged from $140,000 to $600,000, and in one case the sanction included disgorgement of $1 million in profits made from the excessively large position.
Cases Involving Customer Funds Safeguards and Supervision Obligations
- The CFTC filed charges against Peregrine Financial Group Inc., a futures commission merchant, and its owner, Russell R. Wasendorf, Sr. alleging misappropriation of customer funds, violations of customer fund segregation laws, and making material false statements to the CFTC. The suit, which is pending in federal court in Chicago, was filed within 24 hours after the fraud came to light.
- The Commission filed charges against JPMorgan Chase Bank for its unlawful handling of Lehman Brothers, Inc.'s customer funds prior to and after Lehman filed for bankruptcy in the midst of the financial crisis of 2008. The charges were simultaneously settled pursuant to an Order requiring JPMorgan to pay $20 million, the largest CFTC sanction for a segregated fund violation to date.
- The CFTC filed charges against MBF Clearing Corp. (MBF), a registered futures commission merchant, alleging that MBF violated laws requiring the segregation of customer funds and that the firm failed to adhere to its supervision obligations. The case is pending in federal court in New York.
- CFTC filed charges against Forex Capital Markets LLC (FXCM), a retail foreign exchange dealer, for failing to supervise the handling of more than 57,000 customer accounts that were disadvantaged by FXCM's system that allowed for one-sided "slippage" in forex prices. The charges, which also included a separate violation for FXCM's failure to produce certain records promptly to the Commission, were settled simultaneously pursuant to an Order requiring FXCM to pay more than $14 million.
- The Commission filed charges against Goldman Sachs Execution & Clearing, L.P. (GSEC), a futures commission merchant, for supervision violations arising from GSEC's failure to investigate signs of questionable conduct by a GSEC client. The charges were simultaneously settled pursuant to an Order requiring GSEC to pay $7 million.
- The Commission filed charges against Rosenthal Collins Group, LLC (RCG), a futures commission merchant, for failing to supervise an RCG account that an RCG client was using to perpetrate a multi-million dollar commodity futures Ponzi scheme. (The CFTC charged the RCG client, Enrique F. Villalba, and his company for the underlying fraud prior to FY 12.) The charges against RCG were simultaneously settled pursuant to an Order requiring RCG to pay $2.5 million.
Cases Involving Ponzi and other Fraud Schemes, and False Statements to the CFTC
- The Commission filed charges against Ronnie Wilson and Atlantic Bullion & Coin, Inc. alleging that they operated a $90 million Ponzi scheme involving fraudulent contracts for purchases and sales of silver. The complaint, which is pending in a federal court in South Carolina, uses the agency's new Dodd-Frank authority prohibiting fraud schemes in connection with a contract of sale of a commodity in interstate commerce.
- The CFTC filed charges against Nikolai S. Battoo and his four companies alleging fraud in connection with commodity pools that allegedly accepted over $140 million from U.S. investors. The case is pending in federal court in Chicago.
- CFTC filed charges against Steven Pousa of Australia, Joel Friant of the United States and their company Investment Intelligence Corp, alleging they conducted a global fraudulent off-exchange forex scheme, allegedly accepting at least $53 million from at least 960 clients. The case is pending in a federal court in Texas.
- CFTC filed charges against Donald Newell and his company Quiddity LLC, a registered commodity pool operator and trading advisor, alleging that they fraudulently allocated more profitable trades to themselves and less profitable trades to their customers. The Commission also charged Newell under the agency's new Dodd-Frank authority with making material false statements to the Commission during its investigation of this matter. The case is pending in federal court in Chicago.
Cooperation with Law Enforcement Partners
In FY 2012, the CFTC worked actively with federal and state criminal and civil law enforcement authorities, including by assisting them in more than 200 investigations and prosecutions, 50 of which were related to separate actions commenced by the CFTC. The Commission also continued to work with international regulators. For example, the Commission received responses to more than 300 requests for assistance that the CFTC made of more than 70 different regulators under the International Organization of Securities Commission (IOSCO) Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information, and other information-sharing arrangements. The international regulatory community has been instrumental to the CFTC's success in a number of important actions.
Organizationally, the Commission's enforcement-related resources will support the requirements of four Divisions:
Breakout of Enforcement Request by Division
Dollars in Thousands
||Salaries and Expenses
|Data and Technology
Enforcement Request by Division