Release Number 7344-16
March 16, 2016
CFTC Orders Equinox Fund Management, LLC to Pay over $5.65 Million for Material Misstatements and Omissions
Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today issued an Order filing and settling charges against Equinox Fund Management, LLC (Equinox). The Order finds that Equinox, a CFTC-registered Commodity Pool Operator (CPO), made material misstatements and omissions in its disclosure documents and annual and quarterly reports concerning its operation of a multi-advisor commodity pool, the Frontier Fund (TFF), which offered investments in several separate and distinct series.
The CFTC Order requires Equinox to pay a $250,000 civil monetary penalty and disgorgement in the amount of $5,404,004. The Order also requires Equinox to cease and desist from further violations of the Commodity Exchange Act, as charged.
The Order finds that TFF’s disclosure documents prepared by Equinox wrongly disclosed the basis on which management fees were charged, leading to overcharges of management fees of $5.4 million. Additionally, TFF’s annual and quarterly reports misstated that its valuation of certain options was corroborated by the counterparty’s settlement values; failed to disclose a material subsequent event; and misstated that an option had been transferred between two series of TFF in accordance with TFF’s valuation policies.
As set forth in the Order, from 2004 through March 2011, disclosure documents for TFF disclosed that Equinox charged management fees based upon the net asset value (NAV) of each series, when Equinox actually charged TFF management fees based upon the value of the notional assets it was managing in each series, thereby charging TFF $5.4 million more than what would have been charged based upon NAV.
Additionally, the 2010 annual report for TFF disclosed that its methodology of valuing certain options was “corroborated by weekly counterparty settlement values,” when in fact, Equinox received information during that timeframe showing that its valuation of certain options was materially higher than the counterparty’s indicative settlement valuations. Moreover, TFF’s quarterly reports to pool participants were misleading in that (1) a report for the second quarter of 2011 failed to disclose as a material subsequent event a series’ early termination of an option at a valuation that was materially different than the value that had been recorded for that option, and (2) a report for the third quarter of 2011 disclosed that an option had been transferred between two series in accordance with TFF’s valuation policies, when, in reality, Equinox transferred the option using a valuation methodology that differed from the methodology used to value substantially identical options held by other TFF series, in violation of TFF’s valuation policies.
Equinox was also registered as an investment adviser with the U. S. Securities and Exchange Commission (SEC), and the offering of units for each TFF series was registered under the Securities Act. The SEC on January 19, 2016, settled charges for related conduct, and the CFTC Order provides credit for any amount of disgorgement Equinox pays pursuant to the SEC settlement.
The CFTC appreciates the assistance of the SEC in this matter.
The CFTC Division of Enforcement staff members responsible for this case are Gabriella Geanuleas, Neel Chopra, Lara Turcik, Christopher Giglio, Patryk Chudy, Jordon Grimm, Lenel Hickson, and Manal Sultan.
Last Updated: March 16, 2016