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Financial Services Law Insights and Observations


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  • Enforcement Actions Announced by CFTC for Fraud, Registration Violations in Florida


    On July 11, the CFTC announced that the U.S. District Court for the Middle District of Florida entered an order for final judgment by default against two individuals and their company for fraudulently soliciting investors in a commodity pool, misappropriating pool participants’ funds, and committing futures fraud, among other things. According to the CFTC complaint filed on January 26 of 2017, the defendants fraudulently marketed their company to prospective participants, materially misrepresented their past trading success using fabricated high rates of return, provided account statements to investors showing fictitious increases in value, and failed to disclose defendant’s previous permanent injunction on trading.

    In addition to imposing a permanent injunction on trading and registration, the Court ordered defendants to pay civil monetary penalties of almost $1.85 million as well as restitution of $459,613. An appointed monitor will oversee the defendants’ payment of restitution. The Court also required one of the defendants to affirmatively disclose his violations in any future marketing materials, presentations, speeches or websites. The required disclosure names his violations, the amount of restitution and civil penalties he must pay, along with the case numbers of his CFTC actions.

    Both of the defendants recently pleaded guilty to related criminal charges. One defendant was sentenced to one year and one day in prison in connection with her guilty plea to one count of obstruction of justice, and the other defendant is awaiting sentencing in connection with his guilty plea to one count of wire fraud.

    Courts Federal Issues CFTC Securities Enforcement Fraud Litigation

  • CFTC Enters into First-Ever Non-Prosecution Deals in Spoofing Investigation


    On June 29, the Commodity Futures Trading Commission (CFTC) entered into non-prosecution agreements with three futures traders who admitted to engaging in “spoofing” in the U.S. Treasury futures market between 2011 and 2012 (see non-prosecution agreements here, here, and here). Spoofing involves placing bids or offers with the intent to cancel before execution. Here, the traders placed a small bid or offer on one side of the market and a large bid or offer on the opposite side of the market to be cancelled almost immediately (often in less than one second). The traders used the strategy to get smaller orders filled (and filled more quickly) at favorable prices.

    This is the first time the CFTC has used non-prosecution agreements, which the Director of Enforcement called “a powerful tool to reward extraordinary cooperation in the right cases, while providing individual and organizations strong incentives to promptly accept responsibility for their wrong doing and cooperate with the Division’s investigation.” In announcing the agreements, the CFTC lauded the traders’ “timely and substantial cooperation,” noting that their efforts provided assistance in connection with a $25 million settlement with the multinational bank they worked for earlier this year.

    Securities Litigation Federal Issues CFTC Broker-Dealer Enforcement

  • CFTC Announces Initiative for Fintechs


    On May 17, the U.S. Commodity Futures Trading Commission (CFTC) announced an initiative called “LabCFTC” designed to engage innovators in the financial technology industry and “promot[e] responsible [fintech] innovation to improve the quality, resiliency, and competitiveness of the markets the CFTC oversees.” Located in New York, LabCFTC will address the regulatory challenges of increasingly automated trading and foster a regulatory environment more receptive to emerging fintech companies. The initiative will consist of two major components:

    • GuidePoint will offer opportunities for fintech companies to engage with the CFTC on how to implement innovative technology into existing regulatory framework and navigate the regulatory process.
    • CFTC 2.0 will initiate the adoption of emerging technologies in order to improve the CFTC's effectiveness and efficiency.

    In prepared remarks issued before the New York FinTech Innovation Lab, CFTC Acting Chairman J. Christopher Giancarlo stated that LabCFTC is “[t]wenty-first century regulation for 21st century digital markets and will help the CFTC cultivate a regulatory culture of forward thinking . . . , become more accessible to emerging technology innovators . . . , discover ways to harness and benefit from [fintech] innovation . . ., and become more responsive to our rapidly changing markets.”

    Securities Fintech Agency Rule-Making & Guidance CFTC

  • CFTC Extends Public Comment Period for Regulation Automated Trading (Reg AT) to May 1

    Federal Issues

    On January 23, the CFTC extended the comment period for the supplemental proposal for Regulation Automated Trading (Regulation AT) from January 24 to May 1. Acting CFTC Chairman Chris Giancarlo recently announced his intention to “allow more time for public comments on the proposal” in light of “the complexity of the supplemental notice and the well-reasoned requests from interested parties.”  Initially proposed in November 2015, the CFTC released a revised version of the rule in November 2016 in response to concerns expressed by trading firms over, among other things, the requirement that they make their source code available to the agency without a subpoena. All comments will be posted on the CFTC’s website.

    Federal Issues Digital Commerce CFTC Fintech Virtual Currency

  • GOP Senators Introduce Bill to Create Five-member Board of Directors at CFPB

    Federal Issues

    Last week, Sens. Deb Fischer (R-Neb.), Ron Johnson (R-Wis.) and John Barrasso (R-Wyo.) introduced a bill (S. 105) that would amend the Consumer Financial Protection Act of 2010 to replace the CFPB’s current single director with a bipartisan, five-member board. The proposed leadership structure would be similar to that of other financial regulators, including the FDIC, SEC and CFTC.

    Federal Issues FDIC Consumer Finance CFPB SEC CFTC

  • Financial Stability Oversight Council will hold its first post-election meetings on November 16

    Federal Issues

    On November 16, Treasury Secretary Jack Lew will preside over a meeting of the Financial Stability Oversight Council (FSOC). The agenda will include both an open and an executive session. The preliminary agenda for the open session includes an update on the work of the Alternative Reference Rates Committee, an update on the council's review of the asset management industry and revisions to the council's regulations under the Freedom of Information Act. The preliminary agenda for the executive session includes a presentation on stress tests of central counterparties conducted by the CFTC, a discussion of confidential data related to the Council’s review of asset management products and activities, and an update on the annual re-evaluation of the designation of a non-bank financial company.

    Open session Council meetings are made available to the public via live webcast and also can be viewed after they occur here. Meeting minutes for the most recent Council meeting are generally approved at the next Council meeting and posted online soon afterwards. Meeting minutes for past Council meetings are available here. Readouts for past Council meetings are available here.

    Federal Issues Consumer Finance Nonbank Supervision CFTC FSOC Department of Treasury

  • CFTC Commissioner Urges Regulators to "Do No Harm" as Blockchain Technology Develops


    On March 29, CFTC Commissioner J. Christopher Giancarlo delivered remarks before the Depository Trust and Clearing Corporation 2016 Blockchain Symposium. According to Giancarlo, blockchain technology — also known as distributed ledger technology — has the ability to “revolutionize the world of finance” by potentially linking networks of legal recordkeeping in a similar fashion to how the “Internet connects data and information.” Giancarlo spent much of his remarks heralding the technology’s potential, opining that blockchain technology may (i) “be able to provide regulators with visibility into the trading portfolios of swaps counterparties that they lacked during the financial crisis and that Dodd-Frank mandated”; (ii) “make possible new ‘smart’ securities and derivatives that can value themselves in real time”; and (iii) “help market participants manage the enormous operational, transactional and capital complexity brought about by the legion of disparate mandates, regulations and capital requirements promulgated globally in the wake of the 2008 financial crisis.” In light of the potential benefits of blockchain technology, the speed at which it is developing, and the vast interest it has garnered within the financial industry, Giancarlo advocated that regulators take a uniformed, encouraging, and principle-based approach toward their regulation of the industry, likening it to the “do no harm” framework implemented during the comparatively relaxed regulatory framework at the onset of the Internet. This approach will foster innovation, according to Giancarlo : “[o]nce again, the private sector must lead and regulators must avoid impeding innovation and investment and provide a predictable, consistent and straightforward legal environment. Protracted regulatory uncertainty or an uncoordinated regulatory approach must be avoided, as should rigid application of existing rules designed for a bygone technological era.”

    CFTC Digital Assets Fintech Blockchain Distributed Ledger

  • CFTC Issues Cease and Desist Order to Unregistered Bitcoin Options Trading Platform, States Bitcoin and Other Virtual Currencies are Commodities


    On September 17, the Commodity Futures Trading Commission (CFTC) issued an Order against an unregistered San Francisco-based bitcoin options trading platform and its CEO for alleged violations of the Commodity Exchange Act (CEA) and CFTC Regulations. According to the Order, from March 2014 to at least August 2014, the company and its CEO operated an online website that allowed for the trading or processing of swaps between buyers and sellers of bitcoin options contracts. For the first time, bitcoin and other virtual currencies “are encompassed in the definition and properly defined as commodities,” making them subject to the same regulations as options or swaps. According to the CFTC, the company operated without being properly registered as a swap execution facility or designated contract market, violating the CEA and CFTC regulations. The CFTC’s Director of Enforcement Aitan Goelman noted, “While there is a lot of excitement surrounding Bitcoin and other virtual currencies, innovation does not excuse those acting in this space from following the same rules applicable to all participants in the commodity derivatives markets.” The Order did not impose any monetary sanctions on the company, but required the company to cease and desist any action violating the CEA and CFTC regulations and to cooperate in future investigations conducted by the CFTC or other governmental agencies.

    CFTC Enforcement Virtual Currency

  • DOJ and International Investment Bank Enter Into Plea Agreement to Resolve LIBOR Manipulation Claims, Bank Agrees to Pay $2.5 Billion Penalty

    Federal Issues

    On April 23, the DOJ announced that an international investment bank and its subsidiary agreed to plead guilty to wire fraud for its alleged conduct, spanning from 2003 through 2011, in manipulating the London Interbank Offered Rate (LIBOR), which is used to set interest rates on various financial products. In addition, the DOJ announced that the bank entered into a deferred prosecution agreement to resolve wire fraud and antitrust claims for manipulating both the U.S. Dollar LIBOR and Yen LIBOR. Under terms of the agreement, the $2.5 billion in penalties will be divided among U.S. and U.K. authorities - $800 million to the Commodity Futures Trading Commission, $775 million to the DOJ, $600 million to the New York Department Financial Services, and roughly $340 million to the U.K.’s Financial Conduct Authority. The authorities also ordered the bank to install an independent compliance monitor.

    CFTC DOJ Enforcement LIBOR NYDFS False Claims Act / FIRREA

  • CFTC Holds Open Meeting to "Fine-Tune" Derivatives Rules


    On October 27, the CFTC announced that it will hold an open meeting on November 3 to clarify: (i) when residual interest must be posted by futures merchants; (ii) record keeping requirements of commodity interest and related cash or forward transactions; and (iii) the  interpretation of when an agreement, contract, or transaction that contains embedded volumetric optionality falls outside the exception of being considered a swap. The November 3 meeting will be held at the CFTC headquarters in Washington, DC and will be available via webcast or conference call.



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