CFTC: Portfolio Manager Found Liable for Making False or Misleading Statements

Regulatory and Legal News

April 19, 2022

Washington, D.C. — The Commodity Futures Trading Commission today announced that on April 15, a jury in the U.S. District Court in the Western District of Wisconsin issued a verdict finding Edward S. Walczak liable for engaging in conduct that operated as a fraud or deceit upon investors, potential investors, or investment advisors, in violation of Section 4o(1)(B) of the Commodity Exchange Act (CEA).

The verdict was obtained after a 5-day trial that was the culmination of an action brought by the CFTC against Walczak on January 27, 2020, that alleged he misrepresented how he managed risk in the Catalyst Hedged Futures Strategy Fund. [See CFTC Press Release No. 8901-20] The jury found Walczak not liable for violations of CEA Sections 4o(1)(A) and 6(c)(1) and CFTC Regulation 180.1. Further proceedings will follow regarding sanctions.

“True and accurate disclosures are critical to investor protection,” said Acting Director of Enforcement Vincent McGonagle. “As we said at the outset of this case, the CFTC is committed to holding accountable individuals that misstate the risks of investing in their products.”

For the trial, the CFTC’s case was consolidated with a Securities and Exchange Commission (SEC) action against Walczak relating to the same conduct. The CFTC thanks the SEC and its staff for their hard work and cooperation through the consolidated trial. 

The Division of Enforcement staff members responsible for this action are Sam Wasserman, Peter Janowski, Meredith Borner, David Acevedo, Michael Cazakoff, John Buffington, Shantel Ogbuagu, Shelley Evans, and former staff member, Candice Aloisi. The trial team was also assisted by trial technician Dawn Miller.

Source: Commodity Futures Trading Commission

Traders should keep in mind creating alternate systems

Is there a value play or logic in using regulated, fiat money? The arguments for the use and role of money, a physical or digital representation of the value of one’s wealth or work, are plausible. It would be disingenuous to say that society should go back to a bartering system for exchanging goods and services given the consequences of impaired logistics and issues surrounding the storage of the items kept in reserve for bartering. However, I believe a crucial question regarding the definition of money needs to be revisited in order to bring certainty into trade and the value of the items we trade for.

I see money as private. Money started out as private and should go back to that status. The only reason humans engage is to trade value and as a medium for trade between private individuals, money itself should be private. Money should reflect the energy, intellect, data, commercial value, and knowledge of the individual who generates it and issues it. Fiat currency relegates the common consumer to regulated markets that may or may not meet a consumer’s need for certain goods, services, or privacy. And poor monetary policy by the issuers of fiat currencies are only leading to a devalued currency that lays at the core of inflated consumer prices.

As much as we tout competition in American society, this is where American government, a mechanism employed by American society to ensure the smooth flow of commerce, should be forced to compete with alternative payment systems. Traders should promote the use and acceptance of alternative payment systems and currencies by multiple vendors. Traders should also advocate for the exchange of alternative and fiat currencies where such exchanges reflect the necessity to engage in trade on alternative platforms or purchase goods and services that are only offered on alternative platforms.

For example, a consumer may purchase food and clothing items from a digital Walmart or Amazon store, but can only afford the police protection services offered by state or federal governments. An end-user may, like today’s central banks, maintain her own portfolio of “reserve currencies” for use on numerous platforms.

Expanding the payment system scheme can also make government more efficient by requiring government to expend resources on the activities it is most expert at and leaving other activities to the private corporate sector.

The concept of “government” is not going away. The concept can be refined and one ideal way is to have it co-exist with alternative payment systems.

Alton Drew

19 April 2022

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Disclaimer: The above is provided for informational purposes and should not be construed as financial or legal advice or as creating an agreement to provide financial or legal advice.

NASAA Announces Speakers and Agenda for May 4 “NASAA’s Senior Issues and Diminished Capacity Committee Presents” Webcast

Investor Protection

WASHINGTON, D.C. – (April 13, 2022) – The North American Securities Administrators Association (NASAA) today announced the speakers and agenda for the next installation in the webcast series, “NASAA’s Senior Issues and Diminished Capacity Committee Presents.” The webcast is scheduled for May 4 at 2:30 p.m. ET to 3:45 p.m. ET and is open to the public. The program will feature speakers from the financial services industry discussing how they work within their firms and with other stakeholders to mitigate vulnerable investor harm.

“NASAA’s mission to protect investors from fraud and abuse is more important than ever,” said Melanie Senter Lubin, North American Securities Administrators Association (NASAA) President and Maryland Securities Commissioner. “Our ‘Senior Issues and Diminished Capacity Committee Presents’ webcast provides an important and timely platform for members of the public to learn to how detect, prevent and report financial exploitation of vulnerable investors.”

The webcast will begin with opening remarks from President Lubin. Richard Szuch, Chair, NASAA’s Senior Issues and Diminished Capacity Committee, and Enforcement Chief, New Jersey Bureau of Securities, will host and moderate the webinar.

Session 1: How Firms Work to Mitigate Exploitation

Panelists: Nancy Heffner, The Lincoln Investment Companies, Director of Compliance; Ron Long, Wells Fargo Advisors, Director of Elder Client Initiatives; Heather Murphy, Commonwealth Financial Network, Director, Deputy Chief AML Officer; Thomas W. Mierswa Jr., Morgan Stanley, Executive Director in the Branch Advisory Group of the Legal and Compliance Division; and Debbie Noury, Fidelity Investments, Senior Director of Elder Financial Investigations.

Session 2: Centralized Reporting of Exploitation

Panelists: Marin E. Gibson, SIFMA Managing Director and Associate General Counsel, State Government Relations; Ron Long, Wells Fargo Advisors, Director of Elder Client Initiatives; and Debbie Noury, Fidelity Investments, Senior Director of Elder Financial Investigations.

To register for the webcast, visit the NASAA website.

 NASAA–

For More Information:
Jeanne Hamrick | Director of Communications
202-737-0900 

Karen Grajales | Communications & Investor Outreach Manager
202-737-0900 

Source: North American Securities Administrators Association

Renewed Statement of Commitment to the FX Global Code

Foreign Exchange

(Originally published 4 April 2022)

The Federal Reserve Bank of New York (New York Fed) today released its renewed Statement of Commitment to the FX Global Code (Code). The Code, which was initially published May 2017, is a set of global principles of good practice in the foreign exchange market, developed to provide a common set of guidelines to promote the integrity and effective functioning of the wholesale foreign exchange market. It was developed by a partnership between central banks and Market Participants from around the globe and most recently was updated in July 2021.

The New York Fed has reviewed the content of the updated Code and, in issuing this Statement of Commitment, has confirmed that it acts as a Market Participant as defined by the Code. The New York Fed is committed to conducting its foreign exchange market activities, when acting as a Market Participant, in a manner consistent with the principles of the Code.

The purpose of the Code is to promote a robust, fair, liquid, open, and appropriately transparent market in which a diverse set of Market Participants, supported by resilient infrastructure, are able to confidently and effectively transact at competitive prices that reflect available market information and in a manner that conforms to acceptable standards of behavior. The Code is promoted, maintained and updated on a regular basis by the Global Foreign Exchange Committee (GFXC).

Source: Federal Reserve Bank of New York

CFTC Charges Tennessee Trader and Two Entities with Engaging in Cross-Market and Single-Market Spoofing and Manipulative Schemes

Regulatory and Legal News

April 14, 2022

Washington, D.C. — The Commodity Futures Trading Commission today filed a civil enforcement action in the U.S. District Court for the Northern District of Illinois against David SkudderGlobal Ag LLC, and Nesvick Trading Group LLC for spoofing—bidding or offering with the intent to cancel the bid or offer before execution—and for the use of manipulative schemes. The schemes involved both soybean futures contracts and options on soybean futures contracts traded on the Chicago Board of Trade. Some of their misconduct involved cross-market spoofingi.e., spoofing in one market to benefit a position in another market, where the price of the two markets is correlated. Skudder is a founder, principal, and registered associated person of Global, a registered commodity trading advisor. Skudder is also a registered associated person of Nesvick, a registered introducing broker.       

The CFTC seeks, among other things, monetary penalties, restitution, disgorgement, registration and trading bans, and a permanent injunction against further violations of the Commodity Exchange Act (CEA) and CFTC regulations.

“Through this action, the CFTC shows it continues to vigorously detect and prosecute spoofing and manipulation, including when actors attempt to obscure their misconduct by using different markets or financial products,” said CFTC Acting Director of Enforcement Vincent McGonagle. 

Case Background

The complaint alleges that from approximately September 2014 through March 2019 Skudder carried out his schemes by placing hundreds of large orders for soybean futures that he intended to cancel before execution (spoof orders) while placing orders on the opposite side in the soybean futures market, or cross-market in the options on soybeans futures market (genuine orders), that would benefit from market participants’ reactions to his spoof orders. By placing the spoof orders, Skudder allegedly deceived other traders about supply and demand, misleading market participants about the likely direction of the commodity’s price, which made Skudder’s genuine orders appear more attractive to market participants and allowed Skudder to execute his genuine orders in larger quantities and at better prices than he otherwise would have, absent the spoof orders.

This case is brought in connection with the CFTC Division of Enforcement’s Spoofing Task Force, and the staff members responsible are Nicholas Sloey, Clemon Ashley, Brandon Wozniak, Allison Sizemore, Jeff Le Riche, Jordon Grimm, Christopher Reed, and Charles Marvine.

Source: Commodity Futures Trading Commission

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NFA orders Connecticut-based Interactive Brokers LLC to pay a $250,000 fine

Regulatory and Legal News

April 14, Chicago—NFA has ordered Connecticut-based futures commission merchant and forex dealer Member Interactive Brokers LLC to pay a $250,000 fine.

The Decision, issued by NFA’s Business Conduct Committee (BCC), is based on a Complaint issued by the BCC and a settlement offer submitted by Interactive Brokers, in which the firm neither admitted nor denied the allegations in the Complaint. In its Complaint, the BCC alleged that Interactive Brokers canceled retail customer forex orders contrary to the reasons permitted under NFA Compliance Rule 2-43(a)(1) and failed to adequately supervise its employees in the conduct of their forex activities on behalf of the firm to ensure compliance with the relevant NFA requirements, contrary to NFA Compliance Rule 2-36(e). In its Decision, the BCC found that Interactive Brokers violated NFA Compliance Rules 2-43(a)(1) and 2-36(e).

The complete text of the Complaint and Decision can be viewed on NFA’s website.

Source: National Futures Association

To stay ahead of the regulator, be prepared to offer some TEA …

In my years serving on regulatory staffs, I always appreciated the industry liaison that presented a new product or explained their company’s position on public policy or a consumer complaint in the clearest and most cogent manner. These professionals were selling me TEA: Thought, Education, Advocacy.

The best advocates for any position are aware that they must paint a picture for the regulator that depicts how the position or product best serves the public, the regulator, and the company. In the public utility space, for example, an advocate has to make the argument that the regulator’s need to maintain balance between the company’s goal of a reasonable return and the consumer’s interest in reasonable prices and clear terms and conditions. When an advocate engages regulatory staff, the first words out of the advocate’s mouth, post the usual pleasantries, should reflect acknowledgment of this balance of stakeholder interests.

Keep in mind that while regulatory staff has a heavy docket, it doesn’t mean that staff wants to be led with fast talk. No staffer wants to feel like they are being sold on an idea or proposal even though the reality is the advocate is doing that. Remember, the staffer has to present your company’s position to other decision makers in the agency before your position gets approved. The TEA has to be served just right. Clarity has to be a priority.

Keep in mind that the staffer looks forward to being educated on what’s happening in the markets. The staffer’s ability to comprehend the information you present, combine the information with what he or she has learned on their own, and present information and insights to policymakers serves the staffer’s interest in growing their own expert power. This expert power can be leveraged by them when pursuing future opportunities within or outside their agency.

Presenting the best TEA also facilitates the advocates access to staff. Again, staff looks forward to the opportunity for further education and expert growth and is more than willing to listen to an advocate that is clear, concise, cogent. This is an exchange of ideas and insights; an opportunity to garner trust through transparency and clarity.

So, brew the TEA with the best ingredients of knowledge and serve it with clarity.

Alton Drew

14 April 2022

CFTC Charges Wisconsin Woman and Her Companies with Fraud and Misappropriation

Enforcement and Legal Action

April 13, 2022

Washington, D.C. — The Commodity Futures Trading Commission today filed a civil enforcement action in the U.S. District Court for the Eastern District of Wisconsin against Kay Yang of Mequon, Wisconsin, and her companies, AK Equity Group LLC and Xapphire LLC. The complaint charges Yang, AK Equity, and Xapphire with fraud and misappropriation related to an off-exchange foreign currency (forex) trading scheme in which they solicited funds totaling at least $15.7 million from at least 67 investors. Yang’s husband, Chao Yang, is named as a relief defendant for receiving investor funds to which he was not entitled. 

Case Background

According to the complaint, from approximately April 2017 through March 2020, the defendants solicited and pooled millions of dollars of investors’ funds in bank and trading accounts for the purported purpose of trading forex.

The complaint alleges, among other things, the defendants falsely represented to existing and potential pool participants that they successfully managed hundreds of millions of dollars in a variety of investment vehicles; consistently achieved positive monthly returns; would allocate 100% of pool participants’ funds to forex trading; and would adhere to a trading strategy that included low leverage ratios and moderate trading frequencies. These were false claims and the defendants routinely suffered trading losses using high leverage and high frequency trading strategies. The defendants also failed to disclose they misappropriated significant amounts of pool participants’ funds to pay for Kay Yang’s personal expenses. For example, Yang spent over $700,000 at casinos and on gambling-related purchases, more than $439,000 on travel and luxury hotels, and at least $248,000 on cars and car-related expenses. Furthermore, Yang made net transfers of approximately $200,000 to bank accounts in her name, at least $1.4 million to bank accounts in her husband’s name  and more than $1 million to joint bank accounts she shared with her husband.         

In continuing its litigation, the CFTC seeks full restitution to defrauded pool participants, disgorgement of any ill-gotten gains, a civil monetary penalty, permanent registration and trading bans, and a permanent injunction against future violations of the Commodity Exchange Act, as charged.  

Related Civil Actions

In a separate, parallel matter, the Securities and Exchange Commission (SEC) today filed a civil complaint against Yang in connection with this scheme. 

On July 13, 2020, the State of Wisconsin Department of Financial Institutions, Division of Securities (WDFI), issued a Final Order by Consent to Cease and Desist, Revoking Exemptions, and Imposing Disgorgement, Restitution, and Civil Penalties on Yang in connection with her operation of AK Equity and Xapphire.

Source: Commodity Futures Trading Commission

Michael Held Resigns from the New York Fed

Central Bank News

April 07, 2022

NEW YORK—The Federal Reserve Bank of New York today announced that Michael Held has decided to step down from his role as General Counsel and Head of the Legal Group. He will be leaving the Bank in June 2022 and in the interim will move to an advisor role to help facilitate a smooth transition. YoonHi Greene and James Bergin, both Deputy General Counsel, will co-lead the group until a successor is named.

“For two and a half decades, Mike has been a dedicated public servant whose efforts have had a meaningful impact supporting the New York Fed’s mission,” said John C. Williams, President and Chief Executive Officer of the New York Fed. “With sound judgment and deep expertise, Mike has leveraged his leadership skills to better the work that we do and how we do it. I want to thank him for his impressive career and the legacy that he leaves behind.”

As General Counsel, Mr. Held has been a member of the Bank’s Executive Committee and has served as Deputy General Counsel of the Federal Open Market Committee.

“It has been an honor to work with such a talented and committed group of central bankers,” said Mr. Held. “I count myself lucky to have had the privilege to be part of this incredible team for as long as I have.”

During his tenure, Mr. Held advised the Bank’s senior leaders on a wide range of matters, including regulation and supervision of financial institutions, anti-money laundering and OFAC, corporate investigations, corporate governance and ethics, director responsibilities, and litigation. In addition, he developed the New York Fed’s first pro bono program and was an executive sponsor of the Financial Institutions Culture & Conduct initiative. He previously served as the Bank’s Corporate Secretary and has been a Deputy General Counsel in the Legal Group. Mr. Held joined the New York Fed in 1998 as a staff attorney.

The New York Fed will soon launch a search for Mr. Held’s successor.

Contact
Suzanne Elio
(212) 720-6449
suzanne.elio@ny.frb.org

Betsy Bourassa
(212) 720-6885
betsy.bourassa@ny.frb.org

Source: Federal Reserve Bank of New York

Order, final judgment entered against Danish resident for forex fraud.

Regulatory News

April 08, 2022

Washington, D.C. — The Commodity Futures Trading Commission today announced the U.S. Court for the Southern District of New York entered an order and a final judgment against Danish resident Casper Mikkelsen, a/k/a Carsten Nielsen, a/k/a Brian Thomson, a/k/a Thomas Jensen, a/k/a Casper Muller, permanently prohibiting him from trading commodity interests, and ordering him to pay $1,191,286 in restitution and a $3,573,860 penalty, which is triple the profits Mikkelsen made committing this fraud.

“The CFTC will continue to partner with foreign regulators and other agencies to aggressively pursue individuals who use our markets to misappropriate funds from unsuspecting victims no matter where these individuals may reside,” said CFTC Acting Director of Enforcement Vincent McGonagle.

Case Background

The order and final judgment resolve a CFTC enforcement case filed on May 18, 2020. [See CFTC Press Release No. 8164-20

The order found that Casper Mikkelsen falsely promised clients he would use his discretion to trade forex on their behalf. In turn, his clients invested at least $1,536,782.47 with GNTFX. Rather than using those funds for forex trading as promised, Casper Mikkelsen misappropriated the funds. The order found that Mikkelsen used the clients’ funds for his own benefit and to pay certain clients purported forex trading profits as is typical in a Ponzi scheme. The order also found that Mikkelsen was required to register as a commodity trading advisor but was not registered.

The CFTC cautions that orders requiring repayment of funds to victims may not result in the recovery of any money lost because the wrongdoers may not have sufficient funds or assets. The CFTC will continue to fight vigorously for the protection of customers and to ensure the wrongdoers are held accountable.

The CFTC appreciates the assistance of the U.S. Customs and Border Protection, the Australian Securities and Investment Commission, International Financial Services Commission of Belize, British Virgin Islands Financial Services Commission, Cyprus Securities and Exchange Commission, Czech National Bank, Danish Financial Supervisory Authority, Central Bank of Ireland, Financial and Capital Market Commission of the Republic of Latvia, Securities Commission Malaysia, Ontario Securities Commission, Comissão do Mercado de Valores Mobiliários (the Portuguese Securities Market Commission), Monetary Authority of Singapore, and UK Financial Conduct Authority.

The Division of Enforcement staff responsible for this matter are Xavier Romeu-Matta, Judith M. Slowly, Christopher Giglio, James G. Wheaton, Steven I. Ringer, Lenel Hickson, Jr., and Manal M. Sultan.

* * * * * * *

CFTC’s Forex Fraud Advisory

The CFTC has issued several customer protection Fraud Advisories and Articles, including the Foreign Currency Trading (Forex) Fraud Advisory, which provides information about a type of fraud involving the trading of foreign currencies and how customers can detect, avoid, and report these scams.

The CFTC also strongly urges the public to verify a company’s registration with the CFTC before committing funds. If unregistered, a customer should be wary of providing funds to that company. A company’s registration status can be found using NFA BASIC.

Customers and other individuals can report suspicious activities or information, such as possible violations of commodity trading laws, to the Division of Enforcement via a toll-free hotline 866-FON-CFTC (866-366-2382), file a tip or complaint online, or contact the CFTC Whistleblower Office. Whistleblowers are eligible to receive between 10 and 30 percent of the monetary sanctions collected paid from the CFTC Customer Protection Fund financed through monetary sanctions paid to the CFTC by violators of the CEA.

Source: Commodity Futures Trading Commission