ASSISTANT AG BAER'S REMARKS ON FOREIGN EXCHANGE SPOT MARKET MANIPULATION BY BIG BANKS

FROM:  U.S. JUSTICE DEPARTMENT
ASSISTANT ATTORNEY GENERAL BILL BAER DELIVERS REMARKS AT A PRESS CONFERENCE ON FOREIGN EXCHANGE SPOT MARKET MANIPULATION

Remarks as prepared for delivery

WASHINGTON, D.C.

I want to thank the Attorney General – on behalf of the women and men of the Criminal and Antitrust Divisions and the FBI – for her leadership and support in prosecuting these cases.  And I applaud the great teamwork from the Bureau and the Criminal and Antitrust Divisions that led to the results we are announcing today, and the ongoing cooperation in financial services cases from our colleagues at the Commodities Futures Trading Commission.

Today’s guilty pleas to criminal charges represent major developments in our investigation into collusion affecting foreign exchange markets, particularly the spot market for trading U.S. dollars and euros.  The antitrust guilty pleas announced today involving four major international financial institutions – Citicorp, JPMorgan Chase, The Royal Bank of Scotland and Barclays – are without precedent.  In light of the seriousness of the crimes and the unjustified benefit to the bottom lines of these banks, we demanded parent-level guilty pleas, secured record fines of more than $2.5 billion and insisted upon three years of court-supervised probation.

The dollar–euro spot market is as big as it gets.  Every day about $500 billion worth of dollars and euros are traded in this market.  Trading on the dollar-euro spot market is five times larger than all U.S. stock exchanges combined.

Simply put, exchange rates are prices to buy and sell currency.  They should be set competitively the same way prices are set in any type of market.  Instead, the members of the aptly-named “Cartel” chatroom conspired to gain unlawful profit by manipulating these rates.  The banks pleading guilty today are not ordinary market participants.  They are “market makers,” representing 25 percent or more of dollar–euro exchange rate transactions each year.  As such, they were uniquely positioned to manipulate the market.

And that is what they did.  First, they agreed to rig the 1:15 p.m. and 4 p.m. “fixes.”  These fixes are designed to be snapshots of the euro–dollar exchange rates at a given point in time, reported by unbiased third parties.  The snapshot rates become the price paid for billions of dollars of currency bought or sold on any given day.  “The Cartel” conspirators used chat room communications in the minutes and seconds leading up to the snapshot moment to move the fix price in the direction that would be most profitable to them, thereby cheating customers who relied on those fixes to fairly reflect market prices.

Second, members of “The Cartel” also hatched plans in the chatroom to protect the conspiring banks at other times during the day by agreeing to hold off buying or selling dollars and euros.  By not trading at these times, or “standing down,” members of “The Cartel” minimized price movements and helped each other close out of their open positions profitably – at the expense of customers and counterparties who expected, and were entitled to receive, a competitive dollar–euro exchange rate.

It is imperative that these banks accept full responsibility for these bad acts and carry through on their commitments to change the culture that allowed this behavior to go on for years without detection.  That is why we have insisted on parent-level guilty pleas, record-level criminal penalties, ongoing cooperation with our investigations and a probation period of three years, during which time each bank’s efforts to implement effective compliance programs will be monitored.

Again, my thanks to the hard working team that produced the results we are announcing this morning.  Let me now introduce the head of the Criminal Division – Assistant Attorney General Leslie Caldwell.

CFTC CHARGES MAN AND HIS COMPANIES WITH COMMODITY GOLD AND OIL OPTIONS FRAUD

FROM:  CFTC
CFTC Charges Florida Resident Abraham Gutterman and His Companies, Alliance Capital Metals LLC and AR Goldman Wealth Management, LLC with Commodity Gold and Oil Options Fraud and Misappropriation

Defendants allegedly stole more than $480,000 from customers
Federal court enters emergency order freezing defendants’ assets and protecting books and records
Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced the filing of a federal court action against Abraham Gutterman, Alliance Capital Metals LLC (ACM), and AR Goldman Wealth Management, LLC (ARGWM) (doing business as U.S. Principal Financial Services), all of South Florida, charging them with commodity options fraud and misappropriation.

On March 15, 2012, the same day the complaint was filed, Judge Cecilia M. Altonaga of the U.S. District Court for the Southern District of Florida, entered an emergency order freezing the defendants’ assets. The order also prohibits the defendants from destroying or altering books and records. The judge set a hearing date for April 11, 2012.

The CFTC complaint alleges that from at least November 2009 to the present, the defendants fraudulently solicited and accepted at least $483,725 from at least 15 customers to trade gold and oil commodity options contracts. Defendants allegedly never disclosed to customers that their funds would be used for any purposes other than trading gold and oil options. Instead, the defendants misappropriated all of the customers’ funds, and spent the money on various personal expenses, including restaurants, gambling, entertainment, and retail purchases, according to the complaint.

The defendants allegedly lured customers using cold-calls, a website, and at least one face-to-face meeting in a bar in Hialeah, Fla. ACM and ARGWM allegedly used high pressure sales tactics, calling customers repeatedly and promising large profits to convince them to invest. Defendants did not provide customers with any documentation of their investments or account activity statements, and when one customer asked how his investment was doing, ACM and ARGWM advised him to watch the price of gold on business news television stations, according to the complaint.

Specifically, ACM and ARGWM, by and through their employees and agents, allegedly made the following misrepresentations and omissions of material fact to persuade customers to invest:
 customers would “make a killing” if they invested in commodity options through ACM and ARGWM;
 customers would make approximately $200,000 to $300,000 in less than three months with a $20,000 investment in gold options;

 the majority of ACM’s and ARGWM’s prior customers bought gold options in 20 contract lots and those customers’ investments had increased significantly;
 customers needed to “get in now” because the price of gold was about to rise from prices of approximately $1,700 to $1,800 per ounce to $2,500 per ounce;
 for every dollar the price per ounce of gold goes up, the customer’s options contracts would increase in value by $500 to $2,000; and
 gold options are a good investment for retirement savings and, after investing with ACM and ARGWM, the customer would have more than enough money to retire within just a few months.

Within a few months of investing, ACM and ARGWM allegedly advised customers that all their funds had been lost trading commodity options and the only way to recoup their investments was to invest additional funds. When customers requested that ACM and ARGWM sell their purported commodity options and return the balance of their funds, ACM and ARGWM allegedly refused and instead pressured customers not to sell their investments. No money was ever returned to the customers, according to the complaint.
In its continuing litigation, the CFTC seeks civil monetary penalties, restitution, rescission, disgorgement of ill-gotten gains, trading and registration bans, and preliminary and permanent injunctions against further violations of the federal commodities laws, as charged.

The CFTC appreciates the assistance of the Aventura, Florida, Police Department.
CFTC Division of Enforcement staff responsible for this case are Robert Howell, Joseph Patrick, Susan Gradman, Scott Williamson, Rosemary Hollinger, and Richard Wagner.