September 28, 2018
CFTC Charges Interdealer Broker with Fraud
CEO and a Senior Manager Also Charged with Responsibility for Fraudulent Conduct
Washington, DC — The Commodity Futures Trading Commission (CFTC) today charged interdealer broker TFS-ICAP LLC and TFS-ICAP Ltd. (TFS-ICAP) with fraud and supervision failures. In a Complaint filed in the U.S. District Court for the Southern District of New York, the CFTC alleges that, from approximately 2008 through 2015, brokers at TFS-ICAP offices in the United States and the United Kingdom routinely attempted to deceive — and did deceive — their clients by engaging in the practices of communicating to them fake bids and offers and fake trades in the foreign exchange options market. In addition, the Complaint charges the Chief Executive Officer, Ian Dibb, and the Head of Emerging Markets broking, Jeremy Woolfenden, with the underlying violations and supervisory failures due to their alleged knowledge and/or encouragement of the fraudulent practices.
CFTC Director of Enforcement Comments
James McDonald, CFTC Director of Enforcement commented: “We are committed to policing the integrity of our markets and to ensuring that pricing information communicated to market participants accurately reflects supply and demand. As this case shows, we will continue to vigorously enforce the law, and to hold accountable not just the company, but also the individuals responsible.”
Summary of Allegations
The Complaint alleges that the practices — known as “flying prices” and “printing trades” — were a core part of TFS-ICAP’s broking business. It alleges that brokers flew prices and printed trades to clients over the phone, in instant message chats, and on TFS-ICAP’s proprietary electronic trading platform, Volbroker. According to the Complaint, the purpose of “flying” fake bids and offers and “printing” fictitious trades was to give clients the impression that there was more liquidity on TFS-ICAP’s platform than there actually was and to induce traders to transact at times and at prices that they would not otherwise have transacted. The Complaint alleges that when a client attempted to trade with a fake bid or offer and the TFS-ICAP broker could not find a real counterparty to step into the trade, the broker would lie — making up an excuse as to why the bid or offer was not available.
The Complaint alleges that senior managers at TFS-ICAP either encouraged flying and printing or knowingly allowed the practices to continue. According to the Complaint, Woolfenden explicitly encouraged brokers under his supervision to fly prices and print trades. The Complaint further alleges that Dibb had actual knowledge and/or reason to know of the pervasive, fraudulent practices, but failed to take appropriate steps to discourage or prevent the practices.
In 2015, according to the Complaint, brokers in TFS-ICAP’s New York office flew prices and printed trades on Volbroker under the name of a CFTC-registered swap dealer (Bank A), without Bank A’s knowledge or consent. The Complaint alleges that Woolfenden was aware of the conduct and did not do anything to stop it. The Complaint further alleges that when Dibb became aware of it, he and others undertook efforts to pass off the fake trades in Bank A’s name as legitimate. Moreover, according to the Complaint, Dibb hesitated to terminate the responsible brokers because, according to a recorded telephone conversation, “we don’t want whistleblowers.”
In its continuing civil litigation, the CFTC seeks, among other relief, disgorgement of benefits from violations of the Commodity Exchange Act and CFTC Regulations, civil monetary penalties, registration bans, and permanent injunctions against future violations of federal commodities laws, as charged.
The CFTC today separately issued an order filing and simultaneously settling charges against the Chairman of the Board of TFS-ICAP for failing to diligently supervise the handling by brokers on the emerging markets desks at TFS-ICAP of foreign exchange options trades, arising out of the conduct as alleged in the Complaint (see CFTC Release 7815-18, September 28, 2018).
The CFTC appreciates the cooperation and assistance of the Office of the Attorney General of the State of New York and the United Kingdom’s Financial Conduct Authority.
CFTC Division of Enforcement staff members responsible for this case are, Elizabeth May, Christopher Giglio, Sam Wasserman, K. Brent Tomer, Lenel Hickson, Jr., and Manal M. Sultan.