CFTC Fines Hedge Funds for Failure to File Annual Report with NFA

Certain hedge funds which trade futures and/or commodities as part of their investment program are deemed to be commodity pools and the hedge fund management company must register with the NFA as a commodity pool operator (CPO).  Registered CPOs must file annual reports with the NFA and such reports must be sent to investors in the fund.  Generally this will need to be done within either 45 or 90 days after the end of the fund’s fiscal year.  If a CPO needs extra time to file the report, it can request an extension from the CFTC.

In the cases below, each of the CPOs had filed for and were granted extensions.  Even with these extensions, however, they were not able to file their reports.  The NFA evidently takes such an infraction very seriously as the fines were stiff – ranging from $75,000 to $135,000.  Such a potential monetary penalty should make CPOs especially eager to file the appropriate reports on time.

CFTC Rule 4.22 includes the following major provisions.

  • must distribute an Annual Report to each participant in each pool that it operates, and must electronically submit a copy of the Report and key financial balances from the Report to the National Futures Association pursuant to the electronic filing procedures of the National Futures Association
  • Annual Report must be sent to pool participants within 45 calendar days after the end of the fiscal year
  • financial statements in the Annual Report must be presented and computed in accordance with generally accepted accounting principles consistently applied and must be certified by an independent public accountant

If you are a hedge fund manager registered as a CPO you should make sure you understand this and other CFTC rules.  If you have any questions on the rules or other CPO requirements, including possible CPO exemptions, you should have a conversation with your attorney so that you know what needs to be filed and when so that you can avoid harsh fines like the ones below.

The CFTC release below can be found here.

Release: 5555-08
For Release: September 24, 2008

CFTC Sanctions Four Registered Commodity Pool Operators for Failing to File Timely Commodity Pool Reports with the National Futures Association

Mansur Capital Corp., Persistent Edge Management, LLC, Stillwater Capital Partners, Inc., and Stillwater Capital Partners, LLC Ordered to Pay a Total of $330,000 in Civil Monetary Penalties

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today simultaneously filed and settled charges against four registered commodity pool operators (CPOs), charging them with failing to distribute to investors and file with the National Futures Association (NFA) one or more of their respective commodity pools’ annual reports in a timely manner. Mansur Capital Corporation of Chicago, Persistent Edge Management, LLC of San Francisco, California, and Stillwater Capital Partners, Inc. and Stillwater Capital Partners, LLC, both of New York, were charged in the CFTC action.

The CFTC orders require the CPOs to pay civil monetary penalties in the following amounts: Mansur, $75,000; Persistent Edge, $120,000; and Stillwater I and Stillwater II to jointly and severally pay $135,000.

Under CFTC regulations, CPOs are required to file annual reports with the NFA and distribute them to each pool participant. This must be done within a prescribed period after the close of their pools’ fiscal years. An annual report is designed to “provide [pool] participants with the information necessary to assess the overall trading performance and financial condition of the pool.” (See Commodity Pool Operators and Commodity Trading Advisors, Final Rules, 44 Fed. Reg. 1918 [CFTC Jan. 8, 1979], re the adoption of Rule 4.22.) According to the CFTC orders, without timely reporting, the CFTC’s goal of providing pool participants with complete and necessary data is hampered.

The CFTC orders find that each of the four CPOs operated one or more commodity pools, including pools that operated as funds-of-funds. While each of the CPOs had obtained extensions of the prescribed deadlines for various pools and reporting years, each failed to timely comply with its obligations, in violation of CFTC regulations.

The following CFTC Division of Enforcement staff are responsible for this case: Camille M. Arnold, Alan I. Edelman, Ava M. Gould, Susan J. Gradman, James H. Holl, III, Diane M. Romaniuk, Scott R. Williamson, Rosemary Hollinger, Gretchen Lowe, and Richard B. Wagner.


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