On October 24, 2013, the CFTC announced the results of its enforcement program for fiscal year 2012 (“FY13”), and they are revealing. The most significant point is the numbers – the CFTC filed 82 enforcement cases, which is just 20 shy of their record of 102 enforcement actions last year. The agency’s three-year total is 283 enforcement actions, nearly double the number of cases brought in the prior three years.
For FY12, the CFTC’s Division of Enforcement obtained orders imposing more than $1.7 billion in sanctions, including orders for more than $1.5 billion in civil monetary penalties and more than $200 million in restitution and disgorgement. The Division also reported that it opened more than 290 new investigations in FY 13.
The cases spanned a wide spectrum of conduct, but some notable actions are tied to the LIBOR scandal. Among the more high-profile cases was the action against UBS finding that it engaged in manipulation and false reporting of LIBOR and other benchmark interest rates for at least six years. The CFTC obtained a $700 million civil monetary penalty.
The CFTC had some other high-profile cases. The agency sued MF Global Inc., MF Global Holdings Ltd., former Chief Executive Officer Jon S. Corzine, and former Assistant Treasurer of MF Global Edith O’Brien alleging, among other violations, MF Global’s unlawful use of customer funds that harmed thousands of customers and violated fundamental customer protection laws on an unprecedented scale. MF Global settled and agreed to pay about 100% restitution of the approximately $1 billion lost by all commodity customers when the firm failed on October 31, 2011.
The CFTC also obtained federal court orders against Peregrine Financial Group, Inc. (PFG), and its owner, Russell Wasendorf, Sr., finding that they misappropriated more than $200 million of customer funds. The Court enjoined further violations and ordered trading and registration bans, while reserving for future consideration the issues of a civil monetary penalty for both PFG and Wasendorf and restitution from Wasendorf.
In the first case under Dodd-Frank Act’s spoofing prohibition (bidding or offering with intent to cancel before execution), the Commission simultaneously filed and settled charges against Panther Energy Trading LLC and Michael J. Coscia. According to the Order, Defendants utilized a computer algorithm designed to illegally place and quickly cancel large bids and offers in futures contracts on CME Group’s Globex trading platform. These orders gave the impression of significant trading interest, which Defendants exploited. The CFTC ordered Panther and Coscia to pay a $1.4 million civil monetary penalty, and disgorge $1.4 million in trading profits.
The CFTC also used new Dodd-Frank authority prohibiting the making of false and misleading statements and filed settled charges against a defendant who gave false testimony in a Division investigation, imposing a $50,000 penalty on the defendant.
Under the Dodd-Frank Act and implementing regulations, the CFTC also filed charges in federal court against Hunter Wise Commodities, LLC, and related entities, charging them with fraudulently marketing illegal, off-exchange retail commodity contracts involving physical metals, including gold, silver, platinum, palladium, and copper. The complaint alleges that Hunter Wise Commodities, the orchestrator of the fraud, has taken in at least $46 million in customer funds since July 2011.
The CFTC’s numbers over the last three 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 continue to be very active and will meet or perhaps break agency records.