August 15, 2019
Kraft and Mondelēz Global to Pay $16 Million in Wheat Manipulation Case
Penalty Valued at Three Times the Alleged Gain
Washington, DC — The U.S. Commodity Futures Trading Commission today announced that it obtained a $16 million penalty and injunction pursuant to a federal court’s entry of a consent order against defendants Kraft Foods Group, Inc. and Mondelēz Global LLC. The order, entered on August 14, 2019 by the Honorable Judge John Robert Blakey of the U.S. District Court for the Northern District of Illinois, resolves the CFTC’s complaint alleging, among other things, manipulation of the wheat market.
The $16 million penalty is approximately three times defendants’ alleged gain. The order also enjoins Kraft and Mondelēz from engaging in future violations of the manipulation, wash trade, and position limit provisions of the Commodity Exchange Act and CFTC regulations charged in the complaint.
“America is the breadbasket of the world; wheat markets are its heart. Market manipulation inflicts real pain on farmers by denying them the fair value of their hard work and crops,” said Chairman Heath P. Tarbert. “It also hurts American families by raising the costs of putting food on the table. Instances of market manipulation are precisely the kinds of cases the CFTC was founded to pursue.”
The CFTC complaint alleged that in response to high cash wheat prices in late summer 2011, Kraft and Mondelēz developed, approved, and executed a manipulative strategy to purchase and stand for delivery on more than 3,000 futures contracts (approximately $90 million) of Soft Red Winter (SRW) Wheat in the December 2011 expiration to send the market a false signal that the defendants had demand for — and would use — futures wheat to source the defendants’ wheat supply requirements in their Toledo mill. (Release No. 7150-15) The complaint alleged that, in fact, Kraft and Mondelēz had no intention of sourcing wheat from the futures market, and the $90 million of wheat futures at issue far exceeded their actual sourcing needs. As alleged, Kraft’s and Mondelēz’s true goal was to narrow the price spread between the December 2011 and deferred-month wheat futures contracts, thereby causing the market to sell cash wheat to Kraft and Mondelēz at lower prices, while earning Kraft and Mondelēz a profit on their speculative futures positions. The complaint further alleged that Kraft’s and Mondelēz’s actions caused an artificial price that ultimately earned them more than $5 million in profits.
Since fiscal year 2017, the Division of Enforcement’s prosecution of manipulation-related cases has increased by more than 40 percent relative to the total number of such cases brought during the preceding 6 fiscal years.
CFTC Division of Enforcement staff members primarily responsible for this case are Robert Howell, Joseph Patrick, Stephanie Reinhart, Neel Chopra, Susan Gradman, and Scott Williamson, as well as former staff members Michael Frisch, Jennifer Smiley, and Rosemary Hollinger. Division of Market Oversight staff members responsible for this case are David Amato, Gene Kunda, Christa Lachenmayr, and Jerry Lavin.
August 12, 2019
CFTC Charges International Enterprise with Operating a $103 Million Fraudulent Binary Options Trading Scheme
Washington, DC — The U.S. Commodity Futures Trading Commission today filed a civil enforcement action in the U.S. District Court for the Northern District of Illinois charging five entities and four individuals with fraud relating to a global retail binary options enterprise that targeted and victimized U.S. residents. As alleged in the complaint, the defendants executed their unlawful scheme through internet websites using fictitious trade names such as BigOption, BinaryBook, and BinaryOnline.
The following foreign entities and persons were sued in the CFTC complaint, which seeks to hold them liable for, and enjoin them from, fraud and other violations:
- Yukom Communications Ltd., incorporated in Israel
- Linkopia Mauritius Ltd., incorporated in Mauritius
- Wirestech Limited d/b/a BigOption, incorporated in the Republic of the Marshall Islands
- WSB Investments Ltd. d/b/a BinaryBook, incorporated in Anguilla, the United Kingdom, St. Vincent and the Grenadines, and Gibraltar
- Zolarex Ltd. d/b/a BinaryOnline, incorporated in the Republic of the Marshall Islands
- Yakov Cohen
- Yossi Herzog
- Lee Elbaz
- Shalom Peretz
“Our efforts to hold wrongdoers accountable do not stop at our shores,” said CFTC Director of Enforcement James McDonald. “Working with our partners here in the U.S. and internationally, this enforcement action represents the CFTC’s continued commitment to rooting out fraud from our markets in all forms, protecting U.S. customers, and holding participants at all levels accountable.”
The CFTC’s complaint charges that from March 2014 through the present, the defendants fraudulently solicited and accepted more than $103 million in connection with their binary options trading scheme. As alleged in the complaint, the defendants have solicited individuals located throughout the U.S. and elsewhere to trade binary options through internet trading websites. The complaint further charges that the defendants have falsely stated that the binary options offered by the five defendant entities are actual transactions subject to objective market conditions when, in fact, they are mere book entries whose outcomes can and have been manipulated to force customer losses. The complaint also alleges that the defendants falsely state that the interests of the defendant entities are aligned with the interests of customers, when in fact the entities are on the opposite side of each binary option trade and therefore profit from customer losses. The complaint further alleged that the defendants falsely represent that the binary options being offered are profitable, when in fact approximately 95 percent of their customers lose money.
The complaint also alleges that the defendants misrepresent the financial expertise, physical location, and identity of the individual “brokers” who solicit and sell binary options and that the brokers have routinely and consistently used high pressure sales techniques when soliciting customers to deposit funds with the foreign entities. The complaint quotes an email from Elbaz, one of the defendants, to certain brokers: “We are the money makers and no one can stop us! I want to hear the noise on the floor! This is not a cemetery here! It is a boiler room! . . . Either you sell the client or he sells you a reason he can’t deposit! . . . Don’t leave the money! Just Take It!”
The complaint further charges that the defendants have engaged in various activities to conceal the true nature of their binary options enterprise, including setting up various foreign nominee entities to enter into agreements and open off-shore bank accounts through which customer funds are transferred, concealed, and ultimately misappropriated. Additionally, the defendants have utilized various manipulative or deceptive devices, including so-called “bonuses” and “risk free” trades, and artificially manipulated the results of binary option trades to force customer losses and ultimately prevent customers from withdrawing funds. The complaint also charges the defendants with acting as futures commission merchants without registering as such, as required by CFTC regulations.
In its continuing litigation against the defendants, the CFTC seeks disgorgement of ill-gotten gains, civil monetary penalties, restitution for the benefit of customers, permanent registration and trading bans, and a permanent injunction from future violations of the Commodity Exchange Act.
Meanwhile, on August 7, 2019, Defendant Elbaz was convicted by a federal jury of wire fraud and conspiracy to commit wire fraud in violation of criminal statutes based upon substantially the same underlying facts as alleged in the CFTC Complaint. She is currently awaiting sentencing in the matter of United States v. Elbaz, Case No. 18-cr-00157 (D. Md.).
The CFTC cautions victims that restitution orders may not result in the recovery of money lost, because the wrongdoers may not have sufficient funds or assets. The CFTC will continue to fight vigorously for the protection of customers to ensure wrongdoers are held accountable.
The CFTC thanks the U.S. Securities and Exchange Commission for their assistance in this matter. The CFTC also thanks and acknowledges the assistance of the Australian Securities and Investments Commission, Financial Supervision Commission of Bulgaria, Central Bank of Hungary, and Israel Securities Authority.
CFTC Division of Enforcement staff members responsible for this case are Elizabeth N. Pendleton, Heather Dasso, Stacie Pan, Elizabeth Streit, and Scott Williamson.
August 9, 2019
Federal Court Orders Defendants to Pay More Than $2.7 Million in a Forex Fraud Scheme
Washington, DC — The U.S. Commodity Futures Trading Commission today announced that the U.S. District Court for the Northern District of Georgia entered a default judgment against defendants Kevin Andre Perry and Lucrative Pips Corporation of Atlanta, Georgia in an enforcement action in which the Commission alleged the defendants fraudulently solicited and misappropriated nearly $700,000 from more than 50 clients in a forex trading scheme.
The court’s order requires the defendants to pay $694,799 in restitution to defrauded clients and a civil monetary penalty of more than $2 million. Additionally, the defendants are now permanently enjoined from engaging in conduct that violates the Commodity Exchange Act (CEA), and are permanently banned from registering with the CFTC and trading in any CFTC-regulated markets.
The CFTC’s case was filed September 28, 2018. [See Press Release 7812-19] In its motion for default judgment, the CFTC presented evidence that Perry fraudulently and repeatedly told prospective pool participants that the initial funds they gave to the defendants were fully “guaranteed” against trading losses and that their accounts would grow in value approximately 200% to 350% in less than 60 days. When pool participants attempted to withdraw their funds at the end of their trading cycle, the defendants knowingly made false statements to explain why they could not return pool participants’ funds.
A related criminal case was filed against Perry in the U.S. District Court for the Northern District of Georgia on December 12, 2018. See Case No. 1:18-cr-00486-WMR-AJB-1, USA v. Perry. The criminal case, which includes one count of wire fraud, is pending before Judge William M. Ray, II.
The CFTC cautions victims that restitution orders may not result in the recovery of money lost, because wrongdoers may not have sufficient funds or assets. The CFTC will continue to fight vigorously for the protection of customers and to ensure the wrongdoers are held accountable.
The CFTC Division of Enforcement staff members responsible for this case are Jason Gizzarelli, Traci Rodriguez, Patricia Gomersall, and Paul Hayeck.
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CFTC’s Foreign Currency (Forex) Fraud Advisory
The CFTC has issued several customer protection Fraud Advisories that provide the warning signs of fraud. The Foreign Currency Trading (Forex) Fraud Advisorystates that the CFTC has witnessed a sharp rise in Forex trading scams in recent years and helps customers identify this potential fraud.
August 7, 2019
Chairman Tarbert Announces Additional Executive Leadership Appointments
Directors of Legislative and Intergovernmental Affairs and International Affairs to Join the Agency
Washington, DC — U.S. Commodity Futures Trading Commission Chairman Heath P. Tarbert today announced the following appointments to the CFTC’s executive leadership team:
- Summer K. Mersinger will serve as Director of the Office of Legislative and Intergovernmental Affairs
- Suyash G. Paliwal will serve as Director of the Office of International Affairs
Both Ms. Mersinger and Mr. Paliwal will join the CFTC in August.
“I am grateful that Summer and Suyash will be joining our team of A-players. My office has moved quickly to bring in the best and brightest, and Summer and Suyash are no exception,” said Chairman Tarbert. “The CFTC is tackling unfinished business and the unwritten future in earnest. I look forward to the contributions the Offices of Legislative and Intergovernmental Affairs and International Affairs will make as the Commission works to ensure our derivatives markets continue to be fair, innovative, and vibrant.”
Additional personnel appointments made by Chairman Tarbert can be found below.
- Chairman Tarbert Announces Key Office Appointments (Release No. 7977-19)
- Chairman Tarbert Announces CFTC Executive Leadership Appointments (Release No. 7978-19)
- Chairman Tarbert Announces Key Executive Leadership Appointment (Release No. 7987-19)
July 31, 2019
CFTC Charges Trader with Spoofing in Financial Futures Markets
Washington, DC — The U.S. Commodity Futures Trading Commission today issued an order filing and settling charges against Benjamin Cox, a trader and CFTC-registered floor broker based in Chicago, Illinois, for engaging in spoofing in the Chicago Mercantile Exchange (CME) E-mini S&P 500 and E-mini Nasdaq 100 futures markets.
James McDonald, CFTC’s Director of Enforcement, said, “As this case shows, the CFTC will vigorously pursue actions against individuals, as well as entities, who engage in the unlawful practice of spoofing. We will continue to work closely with our regulatory partners, as we did in this case, to protect the integrity of our markets.”
The CFTC order requires Cox to pay a $150,000 civil monetary penalty, suspends him from trading on or subject to the rules of any CFTC-designated exchange and all other CFTC registered entities and in all commodity interests for a period of three months, and orders him to cease and desist from violating the Commodity Exchange Act’s prohibition of spoofing and other disruptive practices.
The CFTC order finds that during the period from April 2014 through, at least, February 2018 (relevant period), Cox manually placed orders in the E-mini S&P 500 and E-mini Nasdaq 100 futures markets with the intent to cancel the orders before their execution. Typically, while Cox had one or more smaller bids or offers resting in a futures market (genuine orders), he placed relatively large bids or offers on the opposite side of the same market, which he intended to cancel before execution (spoof orders). Cox placed the spoof orders to induce other market participants to fill his genuine orders on the opposite side of the market. Typically, once the genuine orders were filled, Cox cancelled the spoof orders. Cox repeated this trading pattern multiple times during the relevant period, primarily in the E-mini S&P 500 market and occasionally in the E-mini Nasdaq 100 market.
The CFTC’s investigation was conducted in conjunction with a related inquiry by the CME Group, which today also announced a disciplinary action against Cox. The CFTC thanks CME Group for its assistance in this matter.
This case is brought in connection with the CFTC Division of Enforcement’s Spoofing Task Force, and the staff members responsible for this matter are Brandon Wozniak, Lara Turcik, K. Brent Tomer, Lenel Hickson, Jr., and Manal M. Sultan.