The CFTC filed a record number of enforcement actions in 2019 against market participants, the majority of which involved commodities fraud, market manipulation, and spoofing.  As a result of these actions, the CFTC reports that it obtained over $1.3 billion in monetary sanctions and disgorgement in 2019—a 39% increase over the prior fiscal year.  And at this year’s ABA Derivatives & Futures Law Committee Winter Meeting, regulators from the CFTC and ICE warned market participants to expect these enforcement trends in spoofing and market manipulation to continue into 2020.

CFTC Seeks Parallel Enforcement with Market Regulators, but Coordinated Resolutions Scarce

 The CFTC’s Chief Counsel of the Division of Enforcement, Gretchen Lowe, commented that protecting market integrity continues to be a top priority at the CFTC.  She noted that Enforcement is particularly focused on spoofing and market manipulation, as well as matters involving regulatory infractions, such as registrants’ reporting obligations, failure to supervise, business conduct standards, and adequacy of remediation efforts.

Lowe also signaled that Enforcement will continue to pursue “parallel cooperative enforcement efforts” with both domestic and foreign market regulators—including SROs and criminal enforcement authorities in the spoofing context.  ICE Futures U.S. Enforcement Counsel, Frances Mendieta reinforced that the lines of communication are “very open” between ICE and the CFTC, and that the regulators may share information with each other over the course of an investigation.

However, despite such extensive interplay between the regulators, coordinated or “global” resolutions appear to be the exception, rather than the rule.  Both Lowe and Mendieta suggested that the sequential nature of the regulators’ respective investigations can make it difficult to coordinate settlements.  Consequently, while regulators seem keen to build on each other’s investigations, the resolutions often occur months, or sometimes years apart, which can leave market participants in protracted cycle of enforcement involving the exact same conduct.
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The DOJ has raised the stakes in criminal spoofing enforcement, unveiling sweeping charges against three traders who allegedly conspired to manipulate the precious metals market.  While the DOJ’s involvement in spoofing enforcement—an area previously dominated by civil regulators and SROs—has become more commonplace, the DOJ is using a new tactic in this latest enforcement action.  In addition to the usual spoofing and other financial crime offenses, the indictment charges the traders with a racketeering conspiracy.  The DOJ’s reliance on RICO increases the possible penalties for spoofing, while also potentially making the government’s case simpler to prove.

A Potential New Era of Spoofing Enforcement

After obtaining mixed results in its previous spoofing trials, the DOJ appears to be retooling its approach.  Indeed, the indictment against these precious metals traders marks the first time the DOJ has alleged RICO violations against traders accused of spoofing electronic derivatives markets. Thus, while the alleged spoofing conduct may be familiar, the charges brought are significantly different and more serious than before.  And so are the potential penalties.  In addition to hefty incarceration sentences, RICO provides for the government to seek forfeiture of all proceeds derived from the racketeering activity.
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Following a week of trial proceedings in the case of defendant Jittesh Thakkar—a software programmer indicted in February 2018 on conspiracy and aiding and abetting charges related to a spoof trading scheme—the government’s case against Thakkar ended in a mistrial.  The jurors could not reach a unanimous verdict on the two aiding-and-abetting spoofing counts

On March 6, 2019, the Division of Enforcement of the U.S. Commodity Futures Trading Commission (“CFTC”) issued a new Enforcement Advisory on self-reporting violations of the Commodity Exchange Act (“CEA”) involving foreign corrupt practices.  Under the Advisory, the Division provided guidance that it might recommend no civil monetary penalties for certain non-registrants that voluntarily and timely self-report, fully cooperate, and appropriately remediate.  The Advisory’s release was accompanied by formal remarks from CFTC Enforcement Director James McDonald at the American Bar Association’s National Institute on White Collar Crime.

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Business Team Investment Entrepreneur Trading ConceptOn August 30, 2016, the U.S. Commodity Futures Trading Commission (CFTC) proposed amendments to the regulations governing its whistleblower bounty program.  A number of the changes are aimed at more closely aligning the CFTC’s whistleblower program and the parallel program administered by the U.S. Securities and Exchange Commission (SEC), causing speculation that the CFTC plans to up its enforcement game with respect to whistleblower actions.
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