CFTC Enforcement and Investigation Examples

The CFTC will investigate whistleblower tips involving violations of the Commodity Exchange Act and the CFTC Rules. Typical investigations brought by the CFTC involve prohibited trade practices or fraud involving products in the derivatives market, including futures, swaps and options. Deceptive or manipulative trading practices such as price manipulation, front-running customer orders and wash sales have all been the subject of CFTC enforcement actions. The CFTC also brings enforcement actions to protect retail customers against off exchange frauds conducted by commodity pool operators or involving forex. On Form TCR, the CFTC asks for information related to misconduct involving theft/misappropriation; misrepresentations/omissions; ponzi and pyramid scheme; off exchange fraud; registration violations; trading practices; fees, markups and commissions; sales and advisory practices; and customer accounts.

Our CFTC whistleblower lawyers represent individuals reporting violations of the Commodity Exchange Act and CFTC rules. Call 1-800-590-4116 for a free, confidential initial consultation.

The CFTC has announced a few bounty payments under the CFTC whistleblower program, but it hasn’t provided substantial information about these actions due to their commitment to confidentiality.  However, past investigations and enforcement actions can provide insight into the types of information that are likely to lead to successful enforcement actions and a whistleblower award. Here are some notable CFTC investigations and enforcement actions from the last few years:

Precious Metals Fraud Action – September 2017
The CFTC filed an enforcement action seeking the return of more than $290 million by entities based in Newport Beach, California for defrauding retail customers by pitching precious metals as a safe, secure and profitable investment without registering as a Futures Commission Merchant.

Citi Manipulation Settlement – May 2016
Citibank settled manipulation charges of the ISDAfix, Yen LIBOR and Euroyen TIBOR brought by the CFTC for $425 million.

Barclays ISDAfix Manipulation – May 2015
This settlement involved allegations of manipulation of the ISDAfix benchmark rate between 2007 and 2012. Barclays was one of the panel banks submitting information for the calculation of the rate.

Deutsche Bank Libor Manipulation – April 2015
The CFTC fine of $800 million against Deutsche Bank set a record for the largest single penalty issued by the Commission. In total, U.S. and international regulators settled their investigations with Deutsche Bank over benchmark interest rate manipulation for manipulation of LIBOR for $2.5 billion.

Forex Settlements – November 2014
The CFTC and the United Kingdom Financial Conduct Authority (FCA) announced more than $3 billion in the settlement of allegations concerning manipulation of the foreign exchange market by Citibank, JPMorgan, HSBC, UBS and the Royal Bank of Scotland. According to the allegations, traders at the banks were sharing information about pending client orders in order to alter the price of currencies set during the 4 PM fix in London.

Bank of America – Futures Trade Front Running – January 2014.
The CFTC is investigating BOA for front running futures trades. The FBI announced an investigation of market manipulation and front running of Fannie Mae and Freddie Mac orders by a U.S. bank and Canadian bank in January 2014. A Reuters news article concluded the bank practices under investigation happened at Bank of America.

DRW – Interest Rate Price Manipulation – November 2013
DRW Investments was charged by the CFTC with price manipulation in November 2013. It allegedly manipulated the settlement price on a Three-Month Interest Rate Swap Futures Contract by regularly placing bids which became the settlement price according to exchange rules. The bids never resulted in a transaction.

MF Global – Client Funds Segregation – November 2013
A Federal Court ordered MF Global Inc. to pay over $1 billion in restitution to customers and a $100 million sanction as part of a CFTC enforcement action. MF Global violated a number of laws and regulations when it used customer funds to support its proprietary trading operations in October 2011.

J.P. Morgan – Credit Default Swap Price Manipulation – October 2013
The financial institution agreed to pay $100 million to the CFTC in October 2013 to resolve claims of market manipulation following efforts to avoid losses in its derivatives portfolio by London traders. Traders sold a large number of credit default swaps in a short period in order to avoid larger losses on their short position from rising prices.

UBS – Interest Rate Manipulation – December 2012
The CFTC ordered UBS to pay $700 million for interest rate manipulation in December 2012. UBS made false submissions to interest rate benchmarks in order to benefit their derivatives positions or thwart negative media coverage. The CFTC specifically cited Yen and U.S. Dollar LIBOR rates. The Yen LIBOR rate submissions were manipulated by an influential senior trader in the Yen market who influenced the rate submissions of UBS and other banks in order to benefit his trading position. The U.S. Dollar LIBOR submissions were issued at the direction of managers in UBS Group Treasury and Asset and Liability Management to maximize public perception of UBS during the financial crisis. Initially, low rates were submitted in order to suggest that UBS was a strong bank. When the Wall Street Journal questioned its low submissions in April 2008, their rate submissions were subsequently in the middle of the pack despite events suggesting that the submissions were too low.

Investment Intelligence Corp. – Fraudulent Misrepresentations – September 2012.
The CFTC brought an enforcement action against Investment Intelligence Corp. and its owners for fraud in the operation of its managed forex trading platform. The company executed trades for clients that violated the representations made when they provided funds to IIC.

If you have discovered misconduct involving a violation of the Commodity Exchange Act or the CFTC Rules, Eric L. Young and McEldrew Young Purtell Merritt can help you report it to the CFTC. Call 1-800-590-4116 or contact us for a free case evaluation.

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