On October 5, 2012, the CFTC announced the results of its enforcement program for fiscal year 2012 (“FY12”), and they are revealing. The most significant point is the numbers – the CFTC filed a record-breaking 102 enforcement cases, bringing the agency’s two-year total to more than 200 enforcement actions. While the numbers are smaller than the 735 cases that the SEC brought in FY11, they suggest that the CFTC is working hard to bring more cases, particularly in light of new authority the agency gained through the Dodd-Frank Act.
For FY11, the CFTC’s Division of Enforcement obtained orders imposing more than $585 million in sanctions, composed of more than $416 million in civil monetary penalties and $169 million in restitution and disgorgement. The CFTC also announced that it opened 350 new investigations in FY12 which is among the highest annual totals in the agency’s history.
The cases spanned a wide spectrum of conduct, but some notable actions are tied to the LIBOR and MF Global Scandals. Among the more high-profile cases was the action against Barclays PLC and some affiliates for false reporting concerning LIBOR and other global benchmark interest rates. The CFTC obtained a settlement with Barclays that included a $200 million penalty, which is the largest in the agency’s history. The CFTC also charged Joseph Welsh, who was a broker with MF Global, accusing him of attempting to manipulate the prices of futures contracts.
The CFTC filed a significant number of cases related to safeguarding customer funds. For example, the Enforcement Division sued 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 CFTC also filed an action against JPMorgan Chase Bank for its 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 settled with JPMorgan paying $20 million which is the largest CFTC sanction for a segregated fund violation to date. In a third case, the CFTC 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 settled with GSEC being ordered to pay $7 million.
The CFTC also continued its pursuit of Ponzi and other investment schemes, suing Ronnie Wilson and Atlantic Bullion & Coin, Inc. for operating a $90 million Ponzi scheme involving fraudulent contracts for purchases and sales of silver. The case was brought pursuant to new Dodd-Frank authority prohibiting fraud schemes in connection with a contract of sale of a commodity in interstate commerce. The CFTC brought an action against Steven Pousa of Australia, Joel Friant of the United States and their company Investment Intelligence Corp, for conducting a fraudulent forex scheme in which they obtained at least $53 million. The CFTC sued 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 Division also charged Newell under the agency’s new Dodd-Frank authority with making material false statements to the Enforcement Division during its investigation of this matter.
The CFTC’s numbers over the last two years are clearly a harbinger of what will come. As the agency continues to flex its new Dodd-Frank muscles, it is very likely that next year, the CFTC will be even more active and will break even more agency records.