CFTC Enforcement: A Busy Q1 in "Ponzimonium"
The Commodity Futures Trading Commission has had a busy first quarter: the CFTC’s Division of Enforcement brought 21 new enforcement actions in Q1 2012, and settled several matters pending from prior years. By CFTC standards, this is a significant volume of enforcement activity. The numbers, however, comport with a recent surge in enforcement activity by the Commission in its bid to “to rid the markets of fraud, manipulation and other abuses.”
Last summer, according to a Reuters report, the CFTC’s Director of the Division of Enforcement, David Meister, promised to take “aggressive, quick, and efficient” enforcement action against illegal activity in the futures and swaps markets. The Division of Enforcement, he said, would rely on “a bigger arsenal of [enforcement] weapons” and “a very wide jurisdictional landscape” in rooting out violations of the Commodities Exchange Act and CFTC regulations.
The impact of Meister’s commitment to ramp up enforcement activity was almost immediately apparent. In fiscal year 2011, the Commission announced in October, “[the] Division of Enforcement filed 99 enforcement actions . . . , the highest yearly tally in the agency’s history and a 74 percent increase over the prior fiscal year.” The trend appears to be continuing in 2012.
In a recent speech, CFTC Commissioner Bart Chilton explained that “there are mini-Madoff Ponzi scams going on all the time.” He continued:
Did you know that in fiscal year 2011, our agency investigated more Ponzi scams than at any time in history? So did other regulators. The FBI had more than 1,000 such cases. So, it’s still Ponzimonium out there.
The CFTC, for its part, is committed to stamping out these “mini-Madoff Ponzi scams” in the futures and swaps markets. Indeed, of the 21 enforcement actions initiated in 2012, at least seven involve fraudulent, Ponzi-like investment schemes. And another four involve so-called investment advisors’ solicitation of customers through fraudulent misrepresentations, including one case in which a commodity trading advisor offered prospective clients a “money back guarantee.”
But “Ponzimonium” isn’t the whole story in 2012. While it is clear that fraud actions make up the bulk of the CFTC’s work, a number of other noteworthy trends emerge from the Commission’s enforcement actions in 2012:
- The CFTC continues to aggressively pursue foreign exchange currency (Forex) matters. In FY2011, Forex matter accounted for ~23% of the CFTC enforcement cases. Forex matters do not appear to be as prevalent in 2012 as they were in FY2011, but they still account for about 10% of the new actions filed.
- Actions based on false statements are on the rise. In the first quarter, the CFTC filed several actions in which a regulated person or entity allegedly made false statements to a government regulator, principally to the National Futures Association.
- Market manipulation cases continue to prove difficult. The CFTC is tasked with policing market manipulation schemes, but enforcement actions have sparse in recent years. In keeping with this trend, the CFTC has filed only one market manipulation case in 2012.
- The CFTC continues to cooperate with criminal and civil law enforcement authorities, and the trend is going global. In 2011, CFTC listed “requests and referrals to and from foreign authorities” as a growth area. In its 2012 enforcement press releases, the CFTC lists the UK’s Financial Services Authority, the Ontario Securities Commission, and the Swiss Financial Market Supervisory Authority, among others, as agencies with which it cooperated during investigations.
The volume of CFTC enforcement actions in 2012 appears to consistent with the Commission’s commitment to ramp up enforcement activity. And if the CFTC’s Q1 2012 activity is any indication, the Division of Enforcement will continue, as Meister puts it, “to work[ ] every day to rid the markets of fraud, manipulation and other abuses.”