Record Civil Monetary Penalties Levied for Spoofing, False Statements, and Other Violations

August 21st| 2020

The CFTC recently settled two cases, one for spoofing and one for making false statements and other compliance violations, for a total of $127.4 million. This case is notable because the firm had been sanctioned for the spoofing activity back in 2018. In that case, the CFTC expressly recognized the firm’s cooperation and credited such cooperation in the form of a substantially reduced civil monetary penalty of $800,000. It turns out, however, that the firm had not identified all traders and activity that were involved. Thus, the firm’s statements in settling the prior case turned out to be false.

In the 2020 case, the firm noted that it was winding down the precious metals trading business where the spoofing took place and represented that it had undertaken the following:

  1. Nearly doubling its annual compliance operating budget and adding more than 200 full-time equivalent compliance positions;

  2. Hiring and promoting compliance personnel with the necessary experience and skills;

  3. Improving its compliance technology infrastructure; and

  4. Implementing industry-standard trade surveillance tools.

Also notable is CFTC Chairman Heath P. Tarbert’s statement about the case, which sends a strong message to market participants who may be engaged in manipulative activity and the firms responsible for surveilling for such activity:

“These record-setting penalties reflect not only our commitment to being tough on those who break the rules, but also the tremendous strides the agency has made in data analytics. Our ability to go through the electronic order book and look across markets has enabled the CFTC to not only spot misconduct, but also to uncover false and misleading statements,” said CFTC Chairman Heath P. Tarbert.

“Over the last year, we have ushered in a new era of enforcement at the CFTC. Wrongdoers now have increasingly fewer ways to conceal their misconduct and face an even more unified front from civil and criminal authorities.”

The Chairman’s statement appears spot-on and is indicative of a trend that is not limited to the futures markets. Indeed, FINRA’s new consolidated audit trail (CAT) is expected to revolutionize its cross-market surveillance capabilities for equities and options. It is not hard to imagine that the CAT may one day capture other products, like futures and fixed income, and enable comprehensive cross market and cross product surveillance.

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