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NFA Discusses Recent Forex Regulations

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Answers Regarding Prohibition of Hedging Spot Forex Transactions

(www.hedgefundlawblog.com)  The NFA has certainly taken a lot of heat over its controversial rule to ban the practice of “hedging” in a single spot forex account.  Many retail investors have already begun establishing brokerage accounts offshore in order to utilize this trading strategy.  I recently talked with a compliance person at the NFA and they said that they are aware that US persons are going to offshore forex brokers in order to utilize this trading strategy.  We will see if in the future the NFA relents on this issue, but for now the NFA has provided guidance on some of the more technical aspects of the new Compliance Rule 2-43.

The NFA guidance is reprinted in full below and can also be found here.

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NFA Compliance Rule 2-43 Q & A

NFA has received a number of inquiries regarding the application of new NFA Compliance Rule 2-43. This Q & A answers the most common questions.

CR 2-43(a), Price Adjustments[1]

Q. Section (a)(1)(i) of the rule provides an exception from the prohibition on price adjustments where the adjustment is favorable to the customer and is done as part of the settlement of a customer complaint. Does that mean a Forex Dealer Member (“FDM”) can’t make a favorable adjustment if the customer does not complain?

A. It depends on the circumstances. The intent of this provision is to ensure that FDMs can settle customer complaints before or after they end up in arbitration. It was not meant to prohibit FDMs from adjusting prices on customer orders that were adversely affected by a glitch in the FDM’s platform. A firm may not, however, adjust prices on customer orders that benefited from the error (except as provided in section (a)(1)(ii)). Furthermore, an FDM may not cherry-pick which accounts to adjust.

Q. An FDM operates several trading platforms. Two provide exclusively straight-through processing, but one does not. Can the FDM make section (a)(1)(ii) adjustments for trades placed on the two platforms that provide straight-through processing?

A. No. The Board intended to limit the relief to those firms that exclusively operate a straight-through processing business model, and the submission letter to the CFTC uses this language when explaining the rule’s intent. NFA recognizes, however, that the use of the word “platform” in the rule itself may be confusing, and we intend to ask the Board to eliminate that word at its August meeting.

Q. For price adjustments made under section (a)(1)(ii), the rule requires written notification to customers within fifteen minutes. If the liquidity provider informs an FDM of the price change twenty minutes after the orders are executed, can the FDM still make the adjustment?

A. No. The rule provides that customers must be notified within fifteen minutes after their orders are executed, and it was written that way intentionally. Since a customer’s subsequent trading decisions may be based on the customer’s belief that a particular trade was executed at a particular price, the rule provides a narrow window for price adjustments.

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[1] For purposes of this discussion, the term “adjustment” also refers to cancellations.

CR 2-43(b), Offsetting Transactions

Q. CR 2-43(b) states that an FDM cannot carry offsetting positions. If a customer with a long position executes a sell order or a customer with a short position executes a buy order, does the FDM have to close the position immediately or can it wait until the end of the day?

A. The FDM may wait until the end of the day to offset the positions, but it must do so before applying roll fees.

Q. The rule provides that positions must be offset on a first-in-first-out (FIFO) basis. If the customer places a stop order on a newer likesize position and the stop is hit, may the FDM offset the executed stop against that position?

A. No. The only exception to the FIFO rule is where a customer directs the FDM to offset a same-size transaction, but even then the offset must be applied to the oldest transaction of that size.
Related Issues

Related Issues

Q. One of an FDM’s platforms is offered exclusively to eligible contract participants (ECPs). Does Rule 2-43 apply to transactions on that platform?

A. No. Rule 2-43 does not apply to transactions with ECPs.

Q. May an FDM transfer foreign customers to a foreign entity that allows customers to carry offsetting positions in a single account?

A. Yes. If done as a bulk transfer, however, the Interpretive Notice to NFA Compliance Rule 2-40 (located at ¶ 9058 of the NFA Manual) requires that the foreign entity must be an authorized counterparty under section 2(c) of the Commodity Exchange Act (CEA).

Q. May an FDM transfer U.S. customers to a foreign entity that allows customers to carry offsetting positions in a single account?

A. Only if the transactions are not off-exchange futures contracts or options. The legal status of “spot” OTC transactions that are continually rolled over and almost always closed through offset rather than delivery is currently unsettled. Therefore, if an FDM chooses to transfer U.S. customers to a foreign entity so they can continue “hedging,” it does so at its own risk. In any event, a bulk transfer can only be made to a counterparty authorized under the CEA.

Q. If the transactions are not futures or options, does that mean none of NFA’s rules apply?

A. Most of NFA’s forex rules do not depend on how the off-exchange transactions are classified. This includes Compliance Rule 2-36(b)(1), which prohibits deceptive behavior, and Compliance Rule 2-36(c), which requires FDMs to observe high standards of commercial honor and just and equitable principles of trade. An FDM that misrepresents the characteristics of “hedging” transactions (e.g., by touting their “benefits”) or NFA’s purpose in banning them or that implies that transferring U.S. customers offshore will make the transactions legal violates those sections of CR 2-36. Furthermore, NFA Compliance Rule 2-39 applies these same requirements to solicitors and account managers.

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Please feel free to contact us if you are interested in starting a forex hedge fund or a forex managed account.  Other related forex law and regulation articles include:

NFA Proposes New Amendments to Bylaw Governing NFA Membership

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Proposes Amendments to Bylaw 301(a)(iii)

On June 9th, 2009, the National Futures Association (NFA)  submitted to the Commodity Futures Trading Commission (CFTC) proposed amendments to NFA’s Bylaw 301(a)(ii) regarding eligibility for membership.  The proposed addition states that if any member fails to have at least one principal that is registered as an “associated person”, the NFA shall deem that member’s failure to be a request to withdraw from NFA membership and shall notify that member accordingly. The purpose of this requirement is to ensure that NFA has jurisdiction over at least one principal of every member, and the proposed amendment calls for an assumption of membership withdrawal for any member that terminates its last associated person or principal.

The full NFA proposal can be viewed below.

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June 9, 2009

Via Federal Express
Mr. David A. Stawick
Office of the Secretariat
Commodity Futures Trading Commission
Three Lafayette Centre
1155 21st Street, N.W.
Washington, DC 20581

Re: National Futures Association: Eligibility for Membership: Proposed Amendments to NFA Bylaw 301(a)(iii)

Dear Mr. Stawick:

Pursuant to Section 17(j) of the Commodity Exchange Act (“Act”), as amended, National Futures Association (“NFA”) hereby submits to the Commodity Futures Trading Commission (“CFTC” or “Commission”) proposed amendments to NFA’s Bylaw 301(a)(iii) regarding eligibility for membership. This proposal was approved by NFA’s Board of Directors (“Board”) on August 21, 2008.

NFA is invoking the “ten-day” provision of Section 17(j) of the Commodity Exchange Act (“CEA”) and will make this proposal effective ten days after receipt of this submission by the Commission unless the Commission notifies NFA that the Commission has determined to review the proposal for approval.

PROPOSED AMENDMENTS
BYLAWS
CHAPTER 3
BYLAW 301. REQUIREMENTS AND RESTRICTIONS.

Mr. David A. Stawick June 9, 2009

(a) Eligibility for Membership

(iii) No person, unless eligible for membership in the contract market category, shall be eligible to become or remain a Member unless at least one of its principals is registered as an “associated person” under the Act and Commission Rules.

(1) If any Member fails to have at least one principal that is registered as an “associated person” NFA shall deem that Member’s failure to be a request to withdraw from NFA membership and shall notify that Member accordingly.

EXPLANATION OF PROPOSED AMENDMENTS

NFA Bylaws currently require that each NFA Member must have an associated person who is also a principal (“AP/Principal”). The purpose of this requirement is to ensure that NFA has jurisdiction over at least one principal of every Member. However, the Bylaws are silent regarding what should happen if, after NFA membership is granted, the Member no longer has an AP/Principal affiliated with it. To prevent the situation in which an approved Member no longer has a principal over whom NFA has jurisdiction, the proposed amendment to Bylaw 301(a)(iii) provides that any NFA Member that terminates its last AP/Principal will be deemed to have requested withdrawal of its NFA membership.

As mentioned earlier, NFA is invoking the “ten-day” provision of Section 17(j) of the Commodity Exchange Act. NFA intends to make the proposed amendments to NFA’s Bylaw 301(a)(iii) regarding eligibility for membership effective ten days after receipt of this submission by the Commission, unless the Commission notifies NFA that the Commission has determined to review the proposal for approval.

Respectfully submitted,

Thomas W. Sexton
Vice President and General Counsel

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Please contact us if you have any questions or would like to start a hedge fund. Other related hedge fund law articles include:

NFA Takes Regulatory Aim at Spot Commodities Markets

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Asks Congress to Increase Scope of Regulation for CFTC and NFA

Last week various employees of the CFTC and the NFA talked with members of Congress regarding certain aspects of the markets regulated by these groups.  Below is testimony from the Chief Operating Officer of the NFA, Daniel Discroll.  In the testimony, Mr. Discoll actually asks Congress to allow the CFTC and the NFA to regulate MORE markets – specifically the off exchange spot metals and energy markets.  While it is commendable that the NFA wants more power to help protect the investors, there are many reasons why this is not a good idea including:

  • The CFTC is underfunded already underfunded (see remarks by Commissioner Gary Gensley, “Specifically, the Commission [CFTC] needs more resources to hire and retain professional staff and develop and maintain technological capabilities as sophisticated as the markets we regulate.”)
  • In 2008 the CFTC was charged with promulgating proposed regulations to require forex managers to register with the CFTC.  This was supposed to be complete by late 2008 – we have yet to see any proposed regulations.  Are we likely to see any quick movements by the CFTC in the spot commodities markets?  Probably not.
  • The CFTC is likely to play a large role in reforming the regulatory framework for the OTC dervitives markets.  See our post on this issue.
  • The NFA, which must be commended for having staff who are generally cheerful and easy to deal with, is nonetheless a slow organization.  Managers who are registered with the CFTC and who have to interact with the NFA face long start-up times because of the overly onerous NFA review requirements.
  • Much of what the NFA does is ineffective – we probably see the most scams from CFTC/NFA regulated entities than we do from SEC/FINRA regulated entities.  Of note was another Ponzi scheme by a CFTC registered FCM, CPO and CTA (see press release).

I am not saying that the CFTC and the NFA should not have the power to regulate these markets.  I am saying that the CFTC and the NFA need to be pursuing the most egregious offenses and that Congress needs to ensure that the CFTC has the funding it needs in order to do its job propoerly.  If Congress does decide to grant jurisdiction over these markets to the CFTC then Congress should also make sure that a funding grant is included in any such rulemaking bill.

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TESTIMONY OF DANIEL A. DRISCOLL
EXECUTIVE VICE PRESIDENT AND CHIEF OPERATING OFFICER
NATIONAL FUTURES ASSOCIATION

BEFORE THE COMMITTEE ON AGRICULTURE, NUTRITION & FORESTRY
UNITED STATES SENATE

JUNE 4, 2009

My name is Daniel Driscoll, and I am Executive Vice President and Chief Operating Officer of National Futures Association. Thank you Chairman Harkin and members of the Committee for this opportunity to appear here today to present our views on closing a regulatory gap that allows fraudsters to sell unregulated OTC derivatives to retail customers.

Since 1982, NFA has been the industry-wide self-regulatory organization for the U.S. futures industry, and in 2002 it extended its regulatory programs to include retail over-the-counter forex contracts. NFA is first and foremost a customer protection organization, and we take our mission very seriously.

Congress is currently expending significant time and resources to deal with systemic risk and to create greater transparency in the OTC derivatives markets. Those are important economic issues, and we support Congress’ efforts to address them. Understandably, most of the debate centers around instruments offered to and traded by large, sophisticated institutions. However, there is a burgeoning OTC derivatives market aimed at unsophisticated retail customers, who are being victimized in a completely unregulated environment.

For years, retail customers that invested in futures had all of the regulatory protections of the Commodity Exchange Act. Their trades were executed on transparent exchanges and cleared by centralized clearing organizations, their brokers had to meet the fitness standards set forth in the Act, and their brokers were regulated by the CFTC and NFA. Today, for too many customers, none of those protections apply. A number of bad court decisions have created loopholes a mile wide, and retail customers are on their own in unregulated, non-transparent OTC futures-type markets.

The main problem stems from a Seventh Circuit Court of Appeals decision in a forex fraud case brought by the CFTC. In the Zelener case, the District court found that retail customers had, in fact, been defrauded but that the CFTC had no jurisdiction because the contracts at issue were not futures, and the Seventh Circuit affirmed that decision. The “rolling spot” contracts in Zelener were marketed to retail customers for purposes of speculation; they were sold on margin; they were routinely rolled over and over and held for long periods of time; and they were regularly offset so that delivery rarely, if ever, occurred. In Zelener, though, the Seventh Circuit ignored these characteristics and based its decision on the terms of the written contract between the dealer and its customers. Because the written contract in Zelener did not include a guaranteed right of offset, the Seventh Circuit ruled that the contracts at issue were not futures. As a result, the CFTC was unable to stop the fraud.

Zelener created the distinct possibility that, through clever draftsmanship, completely unregulated firms and individuals could sell retail customers forex contracts that looked like futures, acted like futures, and were sold like futures and could do so outside the CFTC’s jurisdiction. For a short period of time, Zelener was just a single case addressing this issue. Since 2004, however, various Courts have continued to follow the Seventh Circuit’s approach in Zelener, which caused the CFTC to lose enforcement cases relating to forex fraud.

A year ago, Congress closed the loophole for forex contracts. Unfortunately, the rationale of the Zelener decision is not limited to foreign currency products. Customers trading other commodities-such as gold and silver-are still stuck in an unregulated mine field. It’s time to restore regulatory protections to all retail customers.

Back in 2007, NFA predicted that if Congress plugged the Zelener loophole for forex but left it open for other products, the fraudsters would simply move to Zelener-type contracts in other commodities. That’s just what has happened. We cannot give you exact numbers, of course, because these firms are not registered. Nobody knows how widespread the fraud is, but we are aware of dozens of firms that offer Zelener contracts in metals or energy. Recently, we received a call from a man who had lost over $600,000, substantially all of his savings, investing with one of these firms. We have seen a sharp increase in customer complaints and mounting customer losses involving these products since Congress closed the loophole for forex.

NFA and the exchanges have previously proposed a fix that would close the Zelener loophole for these non-forex products. Our proposal codifies the approach the Ninth Circuit took in CFTC v. Co-Petro, which was the accepted and workable state of the law until Zelener. In particular, our approach would create a statutory presumption that leveraged or margined transactions offered to retail customers are futures contracts unless delivery is made within seven days or the retail customer has a commercial use for the commodity. This presumption is flexible and could be overcome by showing that delivery actually occurred or that the transactions were not primarily marketed to retail customers or were not marketed to those customers as a way to speculate on price movements in the underlying commodity.

This statutory presumption would not affect the interbank currency market dominated by institutional players, nor would it affect regulated instruments like securities and banking products. It would also not apply to those retail forex contracts that are already covered (or exempt) under Section 2(c). It would, however, effectively prohibit leveraged non-forex OTC contracts with retail customers when those contracts are used for price speculation and do not result in delivery.

I should note that NFA’s proposal does not invalidate the 1985 interpretive letter issued by the CFTC’s Office of General Counsel, which Monex International and similar entities rely on when selling gold and silver to their customers. That letter responded to a factual situation where the dealer purchased the physical metals from an unaffiliated bank for the full purchase price and left the metals in the bank’s vault. The dealer then turned around and sold the gold or silver to a customer, who financed the purchase by borrowing money from the bank. Within two to seven days the dealer received the full purchase price and the customer received title to the metals. In these circumstances the metals were actually delivered within seven days, so the transactions would not be futures contracts under NFA’s proposal.

In conclusion, while NFA supports Congress’ efforts to deal with systemic risk and create greater transparency in the OTC markets, Congress should not lose sight of the very real threat to retail customers participating in another segment of these markets. This Committee can play a leading role in protecting customers from the unregulated boiler rooms that are currently taking advantage of the Zelener loophole for metals and energy products. We look forward to further reviewing our proposal with Committee members and staff and working with you in this important endeavor.

NFA Cracks Down on CPO Fraud with New Compliance Rule

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Proposes Amendments to Compliance Rule 2-45

The National Futures Association (NFA) proposed new amendments to Compliance Rule 2-45 regarding prohibition of loans by pools to commodity pool operators and related parties.  The amendment states that no Member CPO may permit a commodity pool to use any means to make a direct or indirect loan or advance of pool assets to the CPO or any other affiliated person or entity.  The amendment is proposed in response to a recent NFA investigation which revealed that CPOs  had misappropriated pool funds through improper loans from pools to the CPOs or related entities.  The full NFA proposal can be viewed below.

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May 27, 2009
Via Federal Express

Mr. David Stawick
Office of the Secretariat
Commodity Futures Trading Commission
Three Lafayette Centre
1155 21st Street, N.W.
Washington, DC 20581

Re: National Futures Association: Prohibition of Loans by Pools to Commodity Pool Operators and Related Parties – Proposed Adoption of Compliance Rule 2-45

Dear Mr. Stawick:

Pursuant to Section 17(j) of the Commodity Exchange Act, as amended, National Futures Association (“NFA”) hereby submits to the Commodity Futures Trading Commission (“CFTC” or “Commission”) proposed Compliance Rule 2-45 regarding prohibition of loans by pools to commodity pool operators and related parties. This proposal was approved by NFA’s Board of Directors (“Board”) on May 21, 2009. NFA respectfully requests Commission review and approval.

PROPOSED AMENDMENTS

(additions are underscored)

COMPLIANCE RULES

* * *

PART 2 – RULES GOVERNING THE BUSINESS CONDUCT OF MEMBERS REGISTERED WITH THE COMMISSION

* * *

RULE 2-45. PROHIBITION OF LOANS BY COMMODITY POOLS TO CPOS AND AFFILIATED ENTITIES.

No Member CPO may permit a commodity pool to use any means to make a direct or indirect loan or advance of pool assets to the CPO or any other affiliated person or entity.

EXPLANATION OF PROPOSED AMENDMENTS

In February, NFA took two Member Responsibility Actions (“MRAs”) against three NFA Member commodity pool operators (“CPOs”). Although the basis of both MRAs was the CPOs’ failure to cooperate with NFA in an investigation, the limited investigation that NFA was able to perform revealed that the CPOs had misappropriated pool funds through improper loans from pools to the CPOs or related entities. The CFTC charged all three of the CPOs with misappropriating pool assets through improper loans, and all three were charged criminally with fraud.

These two matters are not the first instances of CPOs misappropriating pool participant funds through direct or indirect loans from a pool to the CPO or a related entity. Over the years, there have been a number of regulatory actions involving this type of fraud. Given the significant losses suffered by pool participants as a result of these improper loans, NFA is proposing to prohibit direct or indirect loans from commodity pools to the CPO or any affiliated person or entity.

NFA staff discussed this matter with NFA’s CPO/CTA Advisory Committee, which supported prohibiting loans because it believes that absent extraordinary circumstances there is no legitimate reason for a pool to make a direct or indirect loan to its CPO or a related party. The Committee indicated, however, that participants, including a CPO’s principal, should not be prevented from borrowing against their equity interest in the pool.

NFA Compliance Rule 2-45 provides for a complete prohibition of direct or indirect loans or any advance of pool assets between a pool and its CPO or any other affiliated person or entity. NFA recognizes that there may be circumstances where a carve out to this prohibition may be appropriate, such as where a CPO permits participants, including a pool’s general partner, to borrow against their equity interest in the pool in lieu of a withdrawal, provided that the loan is collateralized by the participant’s interest in the pool. NFA believes that these types of situations are best handled on a case by case basis, with the CPO seeking a no-action letter from NFA.

NFA respectfully requests that the Commission review and approve proposed Compliance Rule 2-45 regarding prohibition of loans by pools to commodity pool operators and related parties.

Respectfully submitted,

Thomas W. Sexton
Senior Vice President and General Counsel

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Please contact us if you have any questions or would like to start a hedge fund.  Other related hedge fund law articles include:


Offshore Forex Brokers Race To Fill “Hedging” Gap

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NFA Compliance Rule 2-43 Outlaws Forex “Hedging” For NFA Registered Forex Dealers

(www.hedgefundlawblog.com) The new forex regulations have affected the industry in a number of ways.  Rule 2-43 especially has been a source of ire for some forex managers who have utilized a “hedging strategy” as part of their investment program.  In the forex hedging strategy a trader will have both a long and a short position in a single currency pair.  While these positions are essentially offsetting, some trend following forex traders will hold such positions in order to profit once a trend has been detected.  This strategy was effectively eliminated by the passage of Rule 2-43 for managers trading with forex firms which are registered with the CFTC and NFA Member firms.

This rule provides an opening for offshore forex dealers (who are not NFA Members) to offer this strategy to forex traders.  What you are likely to see, then, is an exodus of trading capital to those brokers which allow hedging strategies (see the two press releases below).  I can think of no clearer example of how regulation is actually forcing capital to go overseas where forex brokers may face lower levels of regulation.  This in turn may actually make forex traders more susceptible to fraudulent practices at the brokerage level (when they trade in countries with less regulation).  Interestingly enough, this movement of money to offshore forex dealers was predicted by the US forex dealers when the rule was announced.

From NFA Release on Compliance Rule 2-43

Although many of the FDMs admit that customers receive no financial benefit by carrying opposite positions, some FDMs believe that if they do not offer the strategy they will lose business to domestic and foreign firms that do.

While some traders may move money to offshore forex dealers, these traders should, however, beware that by trading forex with a non-NFA member firm, they may become subject to state level regulation (and accordingly CFTC registration).  As this is a developing and complex area of law, I always advise forex managers to discuss their business operations with an experienced forex attorney.

Please contact us if you have a question on this issue or if you would like to start a forex hedge fund.  If you would like more information, please see our articles on starting a hedge fund.

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InvestTechFX To Continue Forex HEDGING For Traders After NFA Ruling

InvestTechFX released today that the 1 PIP Forex Corporation will continue to allow all types of hedging after the NFA (National Futures Association) ruling against hedging goes into effect on May 15, 2009. As InvestTechFX is not an NFA regulated broker, it is not obligated to adhere to the NFA’s anti-hedging policies. www.investtechfx.com

Toronto, Canada (PRWEB) April 24, 2009 — InvestTechFX the leading 1 PIP Forex Corp commented on the NFA’s new anti-hedging law (NFA Compliance Rule 2-43 regarding Forex orders) currently scheduled to take effect on May 15th, 2009, and released that the No Dealing Desk Forex broker and Software Solutions Corp will be immune to the new law. InvestTechFX’s industry expert noted that the NFA’s move is not entirely unexpected; the spirit of the new regulation is to protect traders from wasteful over-hedging, but the practical implications of the new regulations will likely be counter-productive. Traders who rely on hedging in their strategies will simply take their business to brokers outside the influence of the NFA, such as InvestTechFX. Ironically, the NFA may put US Forex brokers at a disadvantage by barring them from providing the hedging options that their international competitors will not hesitate to offer.

InvestTechFX the leading 1 PIP Forex Corp welcoming hedging explained that “hedging” generally refers to the practice of taking opposite positions against a previous open position in order to reduce risk. In a broader sense, hedged trading means investing to limit exposure and reduce risk. There are several methods of hedging Forex positions, particularly opening short and long positions within the same currency pair at the same time. This type of hedging will be much more difficult after May 15th, 2009, as the new regulations will put strict limits on such strategies. Positions opened prior to May 15th will not be penalized under the new rule, but all positions opened after the initiation date will be effected. Traders who want to continue hedging while staying with an NFA-regulated broker may now have to open separate accounts for their long positions and short positions; something not all traders can afford to do.

InvestTechFX the leading 1 PIP Forex Corp. welcoming hedging strategies noted that new restrictions on hedging are not the only new regulations set forth in the NFA’s new ruling. After May 15th, 2009, all NFA brokers will have to notify traders in writing prior to adjusting or manipulating trades, with the exception of instances in which the adjustment is favorable to a trader or at a trader’s request. Furthermore, the written notification of intent to adjust must take place within 15 minutes or less of the time of execution. This new regulation (Rule 2-43a) will not be going into effect until June 12th, 2009. In regard to customer orders adjusted because of changes in the price structure of a liquidity provider, written notification must be given to customers prior any initial trading (price increases on the account of transaction clearing must be stated before trading takes place, not after or during trading). InvestTechFX’s analyst explained that these new regulations are likely an attempt to increase cost transparency and reduce the hidden fees that many brokers, particularly market makers, rely upon to limit customer profits. Since market makers must always provide the counterparty for a trade (always buy from a seller and sell to a buyer), there is a strong ulterior motive to undercut customer profits, as customer profits always come at the market maker’s expense.

InvestTechFX the leading 1 PIP Forex Corp. welcoming hedging’s analyst elaborated on the threat of expanding regulation in the Forex market, and the unforeseen consequences that well-meaning regulation agencies can impose upon the market. Forex trading is a fast-growing, highly competitive industry, and because of its inherently global nature, traders are not limited to the Forex providers in their own countries. While many would likely work with a local broker, traders can relatively easily move their business abroad if regulation in their own regions becomes more of a burden than a protection. Government guidelines regarding trading clear policies and risk disclosure can serve to keep the industry legitimate and transparent, but regulating hedging in this way borders on telling traders what strategies they can and can’t use. There is ongoing debate over who the NFA is “protecting” with the new policies, as many of the larger regulatory bodies have a reputation for acting out of the long-term interests of companies instead of retail traders. InvestTechFX’s representative explained that the company could not decisively endorse or condemn the use of mirror position hedging, but did state that the position of InvestTechFX is that the decisions regarding trading strategies should be left to the traders, not the regulators.

InvestTechFX the leading 1 PIP Forex Corporation welcoming hedging is a No Dealing Desk Forex Broker and Federal Canadian Corporation. InvestTechFX offers a 1 PIP fixed spread on 6 major currency pairs, along with a comprehensive account groups system, including interest free, scalping, EA, Micro, and VIP accounts. As a No Dealing Desk, InvestTechFX never takes positions against customers, and has no interest or influence over the trades executed by its customers. www.investtechfx.com

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New Forex Trading Rule by NFA About Hedging Positions Will Change the Trading Game

Forex market is getting revised by continuous trade rule changes. In such uncertain times, Forex Profit Farm may be the perfect solution for people looking to succeed in forex trading.

New York, NY (PRWEB) April 30, 2009 — The forex market is booming with addition of new players every minute because of the high and lucrative potential of making money. Such fast growth poses its own challenges, but at the same time also present with the opportunity to redefine the industry by writing new rules or guidelines.

One such rule that NFA came up with recently is regarding Anti-Hedging. This rule is coming into effect starting 15 may 2009. As per this new law, the trader community cannot create hedged trades.

Rahul Gupta, owner of Forex Profit Farm says, “Currently a forex trader can have two opposite directional trades open at the same time on a single currency pair. So say if you are trading EUR/USD currency pair, you can have short as well as a long trade opened at the same time, which is what is called hedging. The traders do that mostly to judge the direction of the market. Though a hedged open long and short trade on a single currency pair will offset the gain of one position against the other, but when the direction of market trend becomes clear, traders close the losing trade and keep the winning one going. It is a cruel way to trade, but it is very common.”

With that now going to be not possible come May 15, 2009, all traders who use such forex trading practices, will now have to come up with different trading strategies. This is a clear concrete step by NFA to make the forex industry more mature and keep the exponential growth under check.

But Rahul says “Traders who are using best forex trading system don’t have to worry about anything at all. A good trading strategy is independent of such techniques and always remain non-effected from changing rules of similar nature. Traders who use sound trading principles, won’t feel the effect of this new rule at all.”

This is very true because National Future Association (NFA) has passed this new rule to make the unfair practices offered by some of the traders as ineffective, but at the same time preserve the interest of the experienced traders who trade forex for a living.

Like any new rule which is introduced by a governing body, this one also has its share of traders opposing it, but most of the experienced traders see it as a positive step towards regulating the forex trading industry. In such time, a sound trading strategy is all that a trader needs to keep making money by selling one currency against other.

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Forex Profit farm is one of the Best forex system available which can help traders achieve the financial independence they always wanted. The system not only comes with an accurate trading strategy with clearly defined instructions on when to enter and when to close the trade, but it also covers the important aspect of trade management that will help traders to make maximum profit from their trades. Covered in multiple manuals and videos, Forex Profit Farm is a must-have system for anyone looking to make money by trading forex.

Series 30 Exam Information

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Overview of Series 30 Exam

The Series 30 exam is a National Futures Association sponsored exam which is required for those persons who are branch office managers of a NFA member firm (see our post on CPO and CTA Branch Office Information).  Generally if a NFA Member firm (such as a CPO or CTA) has a branch office (any place of business other than the main office), the firm will need to make sure that a branch office manager is employed at each such branch office.

Exam Specifics

  • Branch Manager Examination.
  • 50 True/False and Multiple Choice questions.
  • One hour long.
  • $70.
  • 70% correct answers required to pass

Signing up for the Exam

The Series 30, like all of the other exams sponsored by the NFA, is administered by FINRA.  Accordingly, an applicant will need to first register to take the exam by completing a FINRA Form U-10.  After the U-10 has been completed, submitted and processed, the applicant will be “in the FINRA system” and will be able to sign up for an exam time at either a Prometric or Pearson testing facility.  Applicants can determine available times and locations by visiting these websites.  The test is generally given a number of times a day, six days a week.

Series 30 Exam Topics

BRANCH MANAGER EXAM—FUTURES

SERIES 30

The following is a general listing of the major subject areas covered by the examination and does not represent an exhaustive list of the actual test questions.

A. General

  • Books and records, preparation and retention
  • Order tickets, preparation and retention
  • Written option procedures
  • Handling of customer deposits
  • NFA Compliance Rule 2-9, supervision of employees
  • Business Continuity and Disaster Recovery Plan
  • Registration requirements—who needs to be registered, sponsor verifi cation, NFA Bylaw 1101, AP termination notices, temporary licenses
  • NFA disciplinary process
  • Reportable positions
  • NFA Arbitration Rules
  • On-site audits of branch offices
  • Bona fide hedging transactions
  • Trading on foreign exchanges

B. CPO/CTA General

  • Registration requirements
  • Books and records to be maintained
  • Reports to customers
  • Bunched orders

C. CPO/CTA Disclosure Documents

  • Management and incentive fees
  • Performance records
  • How long a CPO or CTA can use a disclosure document
  • Conflicts of interest
  • Pool units purchased by principals
  • Business backgrounds of principals
  • Amendments to disclosure documents
  • Disclosure of disciplinary actions
  • NFA review of document before each use

D. NFA Know Your Customer Rule

  • Client information required
  • Responsibility to obtain additional client information
  • Risk disclosures

E. Disclosure by CPOs and CTAs Required for Costs Associated with Futures Transactions

  • Disclosure of upfront fees and expenses
  • Effect of upfront fees and organizational expenses on net performance

F. Disclosure by FCMs and IBs Required for Costs Associated with Futures Transactions

  • Explanation of fees and charges to customers

G. IB General

  • Accepting funds from customers
  • Guarantee agreements
  • Responsibilities of guarantor FCM
  • Minimum net capital requirements
  • Time stamping of order tickets
  • Books and records to be maintained

H. General Account Handling and Exchange Regulations

  • Risk Disclosure Statement
  • Margin requirements
  • Stop loss orders
  • Preparing orders
  • Proprietary accounts
  • Positions limits and reporting requirements
  • Trade confirmations

I. Discretionary Account Regulation

  • Requirements relating to discretionary accounts
  • Supervision and review of discretionary accounts

J. Promotional Material (Compliance Rule 2-29)

  • Definition of promotional material
  • Standardized sales presentations
  • Use of a third-party consulting or advertising firm
  • Reprints of articles from industry publications
  • Recordkeeping of promotional material
  • Past performance
  • Hypothetical trading results
  • Written procedures for promotional material
  • Supervisory review of promotional material

K. Anti-Money Laundering Requirements

  • Developing policies, procedures and internal controls
  • Customer identification program and recordkeeping
  • Detection and reporting of suspicious activity
  • Training staff to monitor trading activity
  • Recordkeeping
  • Designation of individual or individuals (“compliance officer”) to be responsible for overseeing the program
  • Employee training program Independent audit function

Other NFA Information

The NFA also has this to say about the Series 30 exam:

Branch Manager Examination – Futures (Series 30)

NFA must receive evidence that individuals applying to be a branch office manager have passed the Series 30. However, NFA will not require evidence that they have passed the Series 30 if, since the date they last ceased acting as a branch office manager, there has not been a period of two consecutive years during which they have not been registered as an AP. Additionally, individuals whose sponsor is a registered broker-dealer may, in lieu of the Series 30, provide proof that they are qualified to act as a branch office manager or designated supervisor under the rules of FINRA.

Please contact us if you have a question on this issue or if you would like to start a hedge fund, CPO or CTA.  If you would like more information, please see our articles on starting a hedge fund.  Other related hedge fund law articles include:

CFTC Uncovers More Frauds and Ponzi Schemes

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This week alone the Commodities Futures Trading Commission issued 5 separate press releases regarding various frauds and ponzi schemes.   As we have noted many times before investors should make sure they conduct adequate due diligence into their managers.  It also goes without saying, but managers should not engage in fraudulent conduct, make misrepresentations to investors, lie to investors or regulators, or do anything that is contrary to what is stated in the investment program offering documents.  Four of the press releases are reprinted below.

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Release: 5646-09
For Release: April 9, 2009

New York Court Enters Order Imposing a $240,000 Fine and Other Sanctions against New York State Resident Michael Vitebsky in a Foreign Currency Scam

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) announced today that it obtained $240,000 in sanctions and a permanent injunction in a consent order against Michael Vitebsky, a resident of New York State, in connection with his participation in an illegal foreign currency (forex) boiler room operation and for violating the anti-fraud provisions of the Commodity Exchange Act. The order also imposes permanent trading and registration bans on Vitebsky.

Vitebsky is obligated to pay the $240,000 civil monetary penalty upon satisfaction of a $220,000 forfeiture obligation entered in a parallel criminal proceeding, U.S. v. Vitebsky, E.D.N.Y. Docket No. 04 Cr. 0419.

The order was entered by Judge Leo I. Glasser of the U.S. District Court for the Eastern District of New York and stems from a CFTC complaint filed in 2003 (see CFTC News Release, 4852-03, October 16, 2003). The order enters findings of fact that Vitebsky and others participated in a scheme in which Vitebsky used A.S. Templeton Group, Inc., a company of which he was the president and treasurer, to fraudulently solicit funds from customers for forex transactions.
According to the order, Vitebsky helped divert customer funds for unauthorized purposes and willfully made false representations to customers regarding the profitability of their accounts.

The CFTC would like to thank the U.S. Attorney’s Office for the Eastern District of New York for their assistance.

The following CFTC staff members are responsible for this case: Sheila Marhamati, Philip Rix, Steven Ringer, Lenel Hickson, Jr., and Vincent McGonagle.

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Release: 5645-09
For Release: April 9, 2009

CFTC Charges Austin, Texas Resident Steven Leigh Shakespeare and His Company, Guardian Futures, Inc., With Fraud and Unauthorized Trading

WASHINGTON, DC — The U.S. Commodity Futures Trading Commission (CFTC) announced today that it charged Steven Leigh Shakespeare, and his company, Guardian Futures, Inc., both of Austin, Texas, with fraud and unauthorized trading of customer accounts, resulting in combined customer trading losses of at least $196,000.

The CFTC complaint, filed on April 8, 2009, in the U.S. District Court for the Western District of Texas, alleges that Shakespeare engaged in a series of unauthorized transactions and fraudulent acts in the accounts of Plains Grain Company, Inc. and Evans Grain Marketing LLC. The complaint charges that Shakespeare, throughout the course of the unauthorized transactions, made misrepresentations and omitted material facts to customers and to Alaron Trading Corporation, the futures commission merchant to whom Shakespeare had introduced the customer accounts.

On the same day the complaint was filed, the court entered a statutory restraining order preserving books and records and providing the CFTC immediate access to such books and records.

In its continuing litigation, the CFTC seeks restitution to customers, disgorgement of all ill-gotten gains, civil monetary penalties, a permanent injunction, and trading prohibitions, among other sanctions.

The CFTC appreciates the assistance of the office of the United States Attorney for the Western District of Texas.

The following CFTC Division of Enforcement staff are responsible for this case: Timothy J. Mulreany, David Reed, Michael Amakor, Paul Hayeck, and Joan Manley.

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Release: 5644-09
For Release: April 9, 2009

William D. Perkins of St. George, Utah Ordered to Pay More Than $2 Million in Sanctions in CFTC Ponzi Scheme Action

Universe Capital Appreciation Commodity Pool, Operated by Perkins, Part of Larger CFTC Action that Has Resulted in More than $45 Million in Judgments

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) announced that it obtained a federal court order against William D. Perkins of St. George, Utah and Tax Accounting Office (TAO), Perkins’ private bookkeeping service, for more than $2 million in an anti-fraud action brought by the CFTC in 2006. The CFTC action alleged that Perkins fraudulently solicited $3.4 million from investors in a commodity pool he operated under the name Universe Capital Appreciation LLC. (See CFTC Release 5240-06 October 5, 2006.)

The opinion and order were entered on March 25, 2009, by U.S. District Judge Robert B. Kugler of the District of New Jersey.

Specifically, the order requires Perkins to repay $1.6 million to investors and a civil monetary penalty of $354,462, and prohibits Perkins from engaging in any business activities related to commodity futures or options trading. The court also ordered relief defendant TAO to repay $76,000 of investor money in which TAO had no legitimate interest.

In the opinion, Judge Kugler found that Perkins was reckless to solicit funds for his commodity pool without making a reasonable inquiry into the validity of representations that third parties made regarding the performance of the “superfund”, especially where Perkins had personal experience in three previous failed high yield investment schemes with one of the parties in which they had lost over $2 million of participant funds.

The CFTC complaint alleged that Perkins touted Universe Capital Appreciation LLC as a way for investors with less than $100,000 to participate in a so-called “superfund” that Perkins claimed was making “astonishing” profits of approximately 100 percent annually trading financial futures contracts. In fact, the CFTC complaint alleged that the “superfund” was itself a massive fraud that was the subject of other CFTC actions resulting in over $45 million in judgments. (See CFTC Press Releases 5447-08 February 7, 2008 and 5357-07, July 23, 2007.)

The following Division of Enforcement staff members are responsible for this case: Elizabeth M. Streit, Joy McCormack, Venice Bickham, Scott R. Williamson, Rosemary Hollinger, and Richard Wagner.

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Release: 5642-09
For Release: April 7, 2009

Federal Court Issues Preliminary Injunction Against Two Nevada Corporations in $20 Million Commodity Pool Ponzi Scheme Operated by Tennessee Resident, Dennis Bolze

Court Freezes Assets of Centurion Asset Management and Advanced Trading Services; Bolze Is Arrested

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) announced today that on April 1, 2009, a federal court judge in Knoxville, Tennessee issued a preliminary injunction against defendant Centurion Asset Management, Inc. (Centurion) and relief defendant Advanced Trading Services, Inc. (ATS), both located in Las Vegas, Nevada.

Judge Thomas A. Varlan issued the order that freezes the assets of Centurion and ATS and prohibits Centurion from further violations of the Commodity Exchange Act, as charged. The court determined that the preliminary injunction was necessary to protect the public from further loss and damage and to enable the CFTC to fulfill its statutory duties.

The order stems from a CFTC complaint filed on March 3, 2009, charging Dennis Bolze of Gatlinburg, Tennessee, and Centurion, with fraud and misappropriation in operating a $20 million commodity pool Ponzi scheme. (See CFTC v. Bolze, et. al., No. 09 C 88 [E.D. Tenn. 2009] and CFTC Press Release 5634-09, March 12, 2009).

As alleged, Bolze and Centurion operated a Ponzi scheme for at least six years that defrauded more than 100 investors and caused approximately $20 million in investor losses. ATS was charged as a relief defendant for receiving funds from defendants to which it was not entitled. Bolze and Centurion told investors that they were pooling and investing customer money in S&P 500 and NASDAQ 100 stock index commodity futures, but instead misappropriated most of the funds, according to the complaint.

Bolze Arrested on March 12

On March 12, 2009, Bolze was arrested in Pennsylvania by federal authorities in connection with a related criminal complaint. However, Bolze was in the custody of the U.S. Marshal’s Service at the time of the March 31 hearing. As a result, Judge Varlan’s preliminary injunctive order did not address the CFTC’s charges against him.

In the continuing litigation, the CFTC is seeking permanent injunctive relief, return of funds to defrauded participants, repayment of ill-gotten gains, civil penalties, and other equitable relief.

The following CFTC Division of Enforcement staff are responsible for this case: Jon J. Kramer, Diane M. Romaniuk, Michael Tallarico, Mary Beth Spear, Ava M. Gould, Scott R. Williamson, Rosemary Hollinger, and Richard B. Wagner.

CPOs and CTAs Now Submit Disclosure Documents Electronically

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NFAs Electronic Filing System Went Live Yesterday

The NFAs new electronic filing system for CPO and CTA disclosure documents went live yesterday.  All NFA members are required to use the electronic system for filing their disclosure documents.   While I have not yet used the new system, it is expected to be a big improvement over the previous system which relied on emails to an anonymous system.  The NFA says that this new system should help both the NFA and the Member Firm by speeding up and streamlining the disclosure document approval process.

I will provide an update on whether this system does in fact make the process more efficient.  Also, I will provide updates on how this system works with the new forex registration requirements.  It is expected that forex CPOs and forex CTAs will also use this same electronic submission process for their forex disclosure documents.

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Notice I-09-09

March 26, 2009

Using NFA’s Electronic Disclosure Document Filing System becomes mandatory for CPOs and CTAs
Effective April 6, 2009, CPOs and CTAs filing a disclosure document with NFA for review will be required to submit the filing through NFA’s Electronic Disclosure Document Filing System. NFA will not accept any disclosure document filings through any other mode (i.e., email, fax, or regular mail) after this date. CPOs and CTAs are encouraged to begin using the new system prior to the effective date to make the transition as smooth as possible.

This new system will benefit NFA’s CPO and CTA Members by creating a more efficient document review process. Electronic filing will allow NFA to identify issues sooner in the review process. Firms will also be able to track the status of their submissions online, in real-time, and will have instantaneous access to NFA’s comment and acceptance letters. Additionally, all correspondence, including filed disclosure documents and NFA’s comment or acceptance letters, will be archived in the system, creating an electronic file cabinet that will be easily accessible to CPOs and CTAs at any time.

To use the new electronic system, a security manager entering the system for the first time must designate himself as a disclosure document user in NFA’s Online Registration System (“ORS”). The security manager can also designate additional users to file disclosure documents through the system. Filers can access the system at https://www.nfa.futures.org/appentry/Redirect.aspx?app=DDOC. Once in the system, filers will be required to enter certain information specific to the filing and to upload the filing in either a PDF or Word format.

NFA also has prepared a web seminar to assist users with the new system. This online seminar is entitled “How to File CPO and CTA Disclosure Documents Electronically with NFA” and is available at: http://video.webcasts.com/events/pmny001/viewer/index.jsp?eventid=29268.
If you have any questions about the new filing system, please contact Susan Koprowski at [email protected] or (312) 781-1288 or Mary McHenry at [email protected] or (312) 781-1420.

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Other articles related to the CPO and CTA disclosure document filing process:

NFA Prohibits CPO Firm From Doing Business

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For Immediate Release

For more information contact:
Larry Dyekman (312) 781-1372, [email protected]
Karen Wuertz (312) 781-1335, [email protected]

NFA takes an emergency enforcement action against GlobeFX Club, Inc.

March 24, Chicago – National Futures Association (NFA) announced today that it has taken an emergency enforcement action against GlobeFX Club, Inc. (GlobeFX Club), a Commodity Pool Operator located in Homestead, Florida. Effective immediately, the Member Responsibility Action (MRA) is deemed necessary to protect pool participants, customers and other NFA Members because GlobeFX Club has provided contradictory information in regards to whether it is conducting business, has customer accounts and is operating a pool. NFA has been unable to determine the nature of GlobeFX Club’s business, the identities of its customers, the treatment of customer funds and the identity of two individuals who purportedly loaned money to the firm. The firm has also failed to produce books and records requested by NFA and answer questions concerning its operations.

The MRA suspends GlobeFX Club from NFA membership until further notice. GlobeFX Club is prohibited from soliciting or accepting any customer or pool participant funds or placing trades for any pool that its operates or customer accounts that it holds. Additionally, the MRA prohibits GlobeFX Club from disbursing or transferring any funds from any accounts without prior NFA approval.

The MRA will remain in effect until GlobeFX Club has demonstrated that it is in complete compliance with all NFA requirements. GlobeFX Club may request a prompt hearing before NFA’s Hearing Committee.

The complete text of the MRA can be found on NFA’s Website (www.nfa.futures.org).

NFA is the premier independent provider of innovative and efficient regulatory programs that safeguard the integrity of the futures markets.

Four CFTC Actions against CPOs and CTAs

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This past week and a half has proven to be a busy time for the CFTC’s enforcement divisions as a number of actions have been released to the public.  The four actions below showcase the unlawful and unsavory behavior of four groups.  Specifically, two of the actions below provide details of two more Ponzi schemes and the other two actions involve misrepresentations and lies.  As we’ve discussed before hedge fund investors have many tools to protect themselves from these sorts of actions.  Simple hedge fund due diligence will go a long way towards protecting an investment.

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Release: 5612-09
For Release: February 11, 2009

CFTC Orders Former Bank Trader and New York City Resident to Pay $360,000 Penalty in Connection with False Trading Reports Submitted to His Former Employer, Bank of America

Washington, DC — The U.S. Commodity Futures Trading Commission (CFTC) today settled charges against Michael Moster for submitting false reports to the Bank of America in Chicago, where he once worked as a trader, and ordered Moster to pay a $360,000 civil penalty.

The CFTC issued an order on February 11, 2009, which finds that, during a three-day period in January 2004, Moster, a former proprietary trader for the Bank of America, falsely reported to the bank that he purchased 4,000 Treasury futures contracts to conceal the risk associated with large unauthorized positions in Treasury bonds that he established over the same time period, by making it appear as if the long futures position hedged the Treasury bond risk. By the following week, the fictitious trades inflated the value of his trading book by over $12 million, the order finds. The sale of Moster’s unauthorized Treasury bond position resulted in a loss of approximately $12.2 million to the Bank of America.

Based upon the same conduct, Moster pled guilty on September 18, 2008, to a one-count violation of making false entry into the books and records of a bank in the Southern District of New York. Under the criminal sentencing guidelines, Moster will be required to make full restitution of the over $12 million loss he caused to the Bank of America. The CFTC’s order recognizes the restitution made in the context of the criminal case and provides that Moster must pay and satisfy any criminal restitution obligation before his payment of the CFTC civil monetary penalty.

The following CFTC Division of Enforcement staff members are responsible for this case: Ken Koh, Todd Kelly, Peter Haas, Paul Hayeck, and Joan Manley.

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Release: 5610-09
For Release: February 10, 2009

CFTC Seeks Freeze of Assets in Oklahoma Ponzi Scheme Involving Over $30 Million

Mark Trimble of Edmond, Oklahoma Posted Profits, While Losing Millions in Phidippides Capital Hedge Fund

Washington, DC – The Commodity Futures Trading Commission (CFTC) announced that today it filed an enforcement action against Mark S. Trimble, of Edmond, Oklahoma, and his company, Phidippides Capital Management LLC (PCM), with offices in Oklahoma City. Trimble, who controlled Phidippides, also managed a private hedge fund named Phidippides Capital LP, which the CFTC’s complaint alleges was a Ponzi scheme.

CFTC Seeks Court Order Freezing Defendants’ Assets

In conjunction with the filing of the complaint today in the U.S. District Court for the Western District of Oklahoma, the CFTC is seeking a statutory restraining order freezing defendants’ assets and preserving records. Trimble has consented to the entry of an asset freeze order.

The CFTC’s complaint alleges that, from at least 2005 to the present, Trimble and PCM operated a $34 million hedge fund with approximately 60 investors and traded partly in the name of Phidippides Capital, a Delaware company incorporated by Trimble. Since at least October 2007, Trimble and PCM allegedly issued false account statements, failed to disclose the fund’s actual multi-million trading losses, and operated the fund as a Ponzi scheme, paying participant redemptions based on the fund’s fabricated profitability. Additionally, defendants allegedly received over $1 million in management fees based on false reports of trading profits.

Trimble Used Email to Notify Investors that He Had Not Been “Honest” About the Fund’s Trading Results

According to the complaint, Trimble’s activities were exposed in late January 2009, after Trimble provided the Federal Bureau of Investigation a fictitious 2008 year-end trading account showing millions of dollars in trading profits that did not square with actual trading statements issued by Trimble’s brokerage firm that disclosed millions of dollars in trading losses. Trimble subsequently stated in an email sent to his brokerage firm, and addressed to “Family, Friends, and Clients,” that he had not been “honest” about the hedge fund’s trading results, explaining: “The reason our balances are off is because I could not look myself in the mirror and face all of you and notify you that in the last quarter of 2008 we lost all the profits for the year and then some.”

Stephen J. Obie, CFTC Acting Director of the Division of Enforcement commented: “Through the swift action of CFTC staff, millions of dollars have been frozen, which ultimately we will seek to return to the victims Trimble deceived by his scheme. The CFTC continues to zealously prosecute these lecherous schemes, so that as many assets can be preserved as possible as we fulfill our vital mission to protect customers from fraud and abuse.”

The CFTC’s complaint seeks civil monetary penalties, disgorgement of ill-gotten gains, restitution to defrauded customers, and injunctive relief, among other sanctions.

The CFTC appreciates the assistance of the Securities and Exchange Commission and the Financial Crimes Enforcement Network.

The following CFTC Division of Enforcement staff members are responsible for this case: Rosemary Hollinger, Scott Williamson, Richard Wagner, and Ken Hampton. CFTC Auditors Thomas J. Bloom, Shauna Wright-Regas, and Lauren Corn also are working on this matter.

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Release: 5609-09
For Release: February 6, 2009

CFTC Obtains Judgment Against Albert E. Parish and Parish Economics LLC for Operating a Commodity Pool Scam in CFTC Anti-Fraud Action

Parish Currently Serving a Sentence of More than 24 years in Federal Prison for Related Criminal Violations

Washington, DC — The U.S. Commodity Futures Trading Commission (CFTC) announced today that the Honorable David C. Norton of the U.S. District Court for the District of South Carolina entered an order settling charges alleging that Albert E. Parish and Parish Economics LLC, both of Charleston, South Carolina, lied to customers and misappropriated millions of dollars in customer funds (see CFTC Press Release 5320-07, April 19, 2007).

According to the order entered on February 2, 2009, between 1986 and March 2007, Parish and Parish Economics fraudulently solicited approximately $40 million in investments for their commodity futures pool. Parish and Parish Economics misrepresented to pool participants that funds would be invested in commodity futures when, in reality, Parish misappropriated the vast majority of funds for his personal use. Parish and Parish Economics also provided false futures account statements to pool participants and failed to provide required pool disclosure documents.

The order permanently bars Parish and Parish Economics from further violating certain provisions of the Commodity Exchange Act and the CFTC’s regulations and from engaging in any commodity-related activity. Parish is currently serving a sentence of more than 24 years in federal prison for related criminal violations. In lieu of an award of restitution and civil monetary penalties, the order recognizes that Parish will be subject to a criminal judgment restitution obligation in excess of $40 million.

The CFTC would like to thank James A. Rue of the Securities and Exchange Commission and John H. Douglas of the U.S. Attorney’s Office for the District of South Carolina for their assistance in this matter.

The following CFTC Division of Enforcement staff members are responsible for this case: Jo Mettenburg, Jeff Le Riche, Charles Marvine, Donald Nash, Rick Glaser, and Richard Wagner.

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Release: 5608-09
For Release: February 5, 2009

CFTC Charges Minnesota Resident Charles “Chuck” E. Hays and His Company, Crossfire Trading, LLC, with Running a $5.5 Million Ponzi Scheme

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) filed an enforcement action today against Charles “Chuck” E. Hays and Crossfire Trading, LLC (Crossfire), both of Rosemount, Minnesota, charging them with fraud and misappropriation in connection with a commodity pool Ponzi scheme.

In conjunction with the filing of the complaint today in the U.S. District Court for the District of Minnesota, the CFTC is seeking a statutory restraining order freezing defendants’ assets and preserving records.

The CFTC’s complaint alleges that, from January 2006 to the present, Hays and his company, Crossfire, a purported commodity pool, fraudulently solicited and accepted more than $5.5 million from at least three individuals and a charitable foundation for the purpose of trading stock index and crude oil futures.

Hays, according to the complaint, convinced at least one person to invest in Crossfire by representing verbally and in fabricated account statements — issued on Crossfire’s letterhead — that Crossfire earned consistent profits trading commodity futures with no losing months. However, as charged in the complaint, Crossfire has never had an active commodity futures trading account. Additionally, in an attempt to alleviate at least two investors’ suspicions as to what Hays was actually doing with their money, Hays provided an account statement for the Crossfire pool fabricated to appear as if it were issued by a legitimate brokerage company by using that brokerage’s letterhead. This false account statement indicated that Crossfire maintained a trading account at the brokerage with over $37 million. As alleged, that account is nonexistent.

Furthermore, the complaint charges Hays with misappropriating investor funds to purchase a $4 million yacht, and for other purposes.

“Hays ran his Ponzi scheme from his yacht, but was grounded when the tide turned as Federal authorities exposed this egregious fraud,” said CFTC Acting Director of Enforcement Stephen J. Obie.

The CFTC complaint seeks orders requiring the defendants to provide the CFTC with continuing access to books and records and to make an accounting with information necessary to determine the actual amounts of net contributions and profits or losses. The CFTC also requests that the court issue orders of preliminary and permanent injunction against the defendants, a return of alleged ill-gotten gains, repayments to defrauded investors, monetary penalties, and other relief.

The CFTC appreciates the assistance of the United States Attorney’s Office for the District of Minnesota, the Department of Justice, the United States Postal Inspection Service, and the Federal Bureau of Investigation in this action. Hays was arrested this morning by Federal authorities.

The following CFTC Division of Enforcement staff is responsible for this case: Susan Gradman, Neville Hedley, Judith McCorkle, Venice Bickham, Scott Williamson, Rosemary Hollinger, and Richard Wagner.