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.

COURT ORDERS MAN TO PAY $1.56 MILLION FOR ATTEMPTING TO MANIPULATE WHEAT FUTURES MARKET

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 

October 1, 2014

Federal Court Orders Eric Moncada to Pay $1.56 Million Penalty for Attempting to Manipulate the Wheat Futures Market

Order Finds that on Multiple Trading Days, Moncada Entered and Canceled Orders He Never Intended to Fill

Washington, DC — The U.S. Commodity Futures Trading Commission (CFTC) today announced that it obtained a federal court Consent Order against Defendant Eric Moncada, finding that Moncada attempted to manipulate the wheat futures markets on numerous occasions and imposing a $1.56 million civil monetary penalty and trading and registration restrictions. In July 2014, the court had issued an Order granting the CFTC summary judgment on charges that Moncada entered into fictitious sales and non-competitive transactions (see Order under Related Links).

The Court’s Orders arise out of the CFTC enforcement Complaint, filed on December 4, 2012 in the U.S. District Court for the Southern District of New York, charging Moncada and proprietary trading firms, BES Capital LLC (BES) and Serdika LLC (Serdika), with attempting to manipulate the price of the Chicago Board of Trade (CBOT) #2 Soft Red Winter Wheat Futures Contract on eight days in October 2009 and with entering into fictitious sales and non-competitive transactions on four days in October 2009 (see CFTC Press Release and Complaint 6441-12).

CFTC Director of Enforcement Aitan Goelman stated: “The Commission remains committed to protecting the integrity of the markets by prosecuting manipulative conduct of all forms, including the type of conduct engaged in by Moncada – the wholesale entering and cancelling of orders without the intent to actually fill the orders.”

According to the Consent Order, Moncada’s scheme was to electronically enter and immediately cancel numerous large-lot orders for CBOT wheat futures that he did not intend to fill. By such activity, Moncada intended to create a misleading impression of rising liquidity in the marketplace. The Order further finds that Moncada would then seek to take advantage of any price movements that may have resulted from this manipulative scheme by placing smaller orders, which he hoped to fill at prices beneficial to him, on the opposite side of market from his large-lot cancelled orders.

Specifically, in addition to the civil monetary penalty, the Order prohibits Moncada from trading any wheat futures products for a period of five years and prohibits Moncada from trading in any futures product or registering in any capacity with the CFTC for a period of one year.

On March 5, 2014, the court entered a default judgment Order against BES and Serdika, which included civil monetary penalties totaling $32.24 million and permanent trading and registration bans (see Order under Related Links).

The CFTC Division of Enforcement staff members responsible for this action are Andrew Ridenour, Jennifer Diamond, Jessica Harris, Erica Bodin, Elizabeth Davis, Rick Glaser, and Richard Wagner, as well as former Division of Enforcement staff Kenneth McCracken and Brian Walsh.

CFTC ANNOUNCES $13 MILLION FINE TO BE PAID IN CRUDE OIL FUTURES MARKET MANIPULATION CASE

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 

Federal Court Orders $13 Million Fine in CFTC Crude Oil Manipulation Action against Parnon Energy Inc., Arcadia Petroleum Ltd., and Arcadia Energy (Suisse) SA, and Crude Oil Traders James Dyer and Nicholas Wildgoose

Order Imposes Significant Physical Market Trading Limitations against Companies

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that it obtained a $13 million civil monetary penalty pursuant to a federal court consent Order against Defendants Parnon Energy Inc. (Parnon) of California, Arcadia Petroleum Ltd. (Arcadia Petroleum) of the United Kingdom, and Arcadia Energy (Suisse) SA (Arcadia Suisse) of Switzerland, and crude oil traders James T. Dyer of Australia and Nicholas J. Wildgoose of the United Kingdom.

The CFTC’s Complaint charged Defendants with manipulation and attempted manipulation of New York Mercantile Exchange (NYMEX) Light Sweet Crude Oil futures contract spreads from January 2008 to April 2008 (see CFTC Press Release and Complaint 6041-11, May 24, 2011).

The consent Order, entered on August 4, 2014, by Judge William H. Pauley III of the U.S. District Court for the Southern District of New York, requires the Defendants to pay a $13 million civil monetary penalty, provides limitations on Parnon’s physical market trading for three years, and requires the companies to maintain records and audio recordings for three years. The Order further requires the companies to engage an independent consultant to evaluate compliance, internal control and risk management policies, procedures, and practices, and to implement any resulting recommendations.

“Through resolution of this litigation, the CFTC is holding accountable market participants who sought to profit by undermining the integrity of the U.S. crude oil markets,” commented CFTC Director of Enforcement Aitan Goelman. “The CFTC will continue to work to ensure the integrity of the markets we are responsible for protecting from manipulation, whether direct or indirect.”

The CFTC’s Complaint alleged that the Defendants, taking advantage of a tight physical market, executed a manipulative trading strategy designed to affect NYMEX crude oil futures contract spreads by knowingly amassing a dominant and controlling position in physical WTI crude oil, which is the primary grade of oil deliverable at Cushing, Oklahoma under the NYMEX futures contract; holding the physical position until after futures expiry with the intent to affect NYMEX crude oil spreads; and selling-off the physical position in a concentrated fashion during a time period known as the “cash window” at a loss. The Complaint further alleged that the Defendants sought to generate profits through their manipulative conduct by buying WTI futures spreads prior to widening the spreads through their manipulation and selling WTI futures spreads prior to dumping their physical WTI crude oil position. The Complaint also charged the Defendants with attempted manipulation of the May/June 2008 spread in April 2008. Defendants Dyer and Wildgoose allegedly directed the manipulative trading.

CFTC Division of Enforcement staff members primarily responsible for this case are Christine Ryall, Elizabeth Davis, Jonathan Robell, John Einstman, Melanie Devoe, Amanda Harding, Sophia Siddiqui, Luke Marsh, Saadeh Al-Jurf, George Malas, Tashieka Taylor, Maura Stavrakis, Joan Manley, and Paul Hayeck.

U.S. JUDGEMENT ENFORCED BY CANADIAN COURT IN OTC MARKET MANIPULATION CASE

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Canadian Court Enforces U.S. Judgment Award in Market Manipulation Case Against William Todd Peever and Phillip James Curtis

The Securities and Exchange Commission today announced that on June 20, 2013, the Honorable Justice Peter J. Rogers of the Supreme Court of British Columbia, Canada granted summary judgment in favor of the Commission to recognize and enforce judgments previously entered in U.S. District Court for the Southern District of New York against William Todd Peever (“Peever”) and Phillip James Curtis (“Curtis”), both of whom are Canadian citizens residing in British Columbia. Those U.S. judgments held Peever and Curtis jointly and severally liable for $2,894,537.48 in disgorgement and $1,611,998.18 in prejudgment interest for their respective roles in a fraudulent scheme to manipulate the stock price of SHEP Technologies, Inc. (“SHEP”) f/k/a Inside Holdings Inc. (“IHI”), whose shares traded on the Over-the-Counter Bulletin Board.

The Commission’s complaint in SEC v. Brian N. Lines, et al., 1:07-CV-11387 (DLC) (S.D.N.Y. Dec. 19, 2007), filed in U.S. federal court, had alleged, in pertinent part, that during 2002 and 2003, defendants Peever and Curtis, together with certain co-defendants, engaged in a scheme to secretly obtain control of the publicly traded shell company IHI, through use of nominees. The scheme involved merging IHI with a private company to form SHEP, secretly paying touters to promote the IHI/SHEP stock, and then selling SHEP stock into the ensuing demand. During the first half of 2003, Peever, Curtis, and certain other defendants sold over 3 million SHEP shares into this artificially-stimulated demand, generating about $4.3 million in illegal proceeds. As part of the scheme, Peever and Curtis failed to file required reports with the Commission regarding their beneficial ownership of IHI and SHEP stock to conceal that they, among others, owned substantial positions in, and had been selling, SHEP stock.

Curtis and Peever challenged the Commission’s attempt to enforce the U.S. court judgments in Canada by contending: (1) the judgments had been procured by fraud; and (2) that the disgorgement award was penal in nature and, therefore, could not be recognized under Canadian law. The Canadian court rejected both of the Defendants’ arguments, and held that there was no basis to bar enforcement of the judgments against the Defendants in Canada.

MAN CHARGED BY CFTC WITH MANIPULATING FUTURES PRICES OF PALLADIUM AND PLATINUM

The following excerpt is from the U.S. Commodity Futures Trading Commission website:
CFTC Charges Joseph F. Welsh III, Former MF Global Broker, with Attempted Manipulation of Palladium and Platinum Futures Prices

Washington, DC - The U.S. Commodity Futures Trading Commission (CFTC) today announced that it filed a federal court action in the Southern District of New York chargingJoseph F. Welsh III, of Northport, N.Y., with attempted manipulation of the prices of palladium and platinum futures contracts, including the settlement prices, traded on the New York Mercantile Exchange (NYMEX).  The CFTC complaint alleges that Welsh engaged in this conduct from at least June 2006 through May 2008 and specifically on at least 12 separate occasions.

The complaint charges Welsh with directly attempting to manipulate the palladium and platinum futures prices and with aiding and abetting the attempted manipulations of Christopher L. Pia, a former portfolio manager of Moore Capital Management, LLC, a CFTC registrant.

According to the complaint, while working as a broker at MF Global Inc., Welsh employed a manipulative scheme commonly known as “banging the close.”

Welsh allegedly routinely received market-on-close orders to buy palladium and platinum futures contracts from Pia, either directly or through a clerk, and also allegedly understood that Pia wanted to buy at high prices.  To accomplish that, Welsh intentionally devised and implemented a trading strategy to attempt to maximize the price impact through trading during the two-minute closing periods of the palladium and platinum futures contracts markets (Closing Periods), the complaint charges.

The CFTC complaint also states that to push prices higher, Welsh routinely withheld entering the market-on-close buy orders until only a few seconds remained in the Closing Periods and thereby caused the orders to be executed within seconds of the close of trading.

The CFTC seeks civil monetary penalties, trading and registration bans and a permanent injunction against further violations of the federal commodities laws, as charged.

The CFTC settled related actions against Moore Capital Management LLC’s successor, Moore Capital Management, LP (Moore), and its affiliates and against Pia.  On April 29, 2010, the CFTC issued an order filing and settling charges of attempted manipulation and failure to supervise against Moore and its affiliates.  The CFTC’s order imposed a $25 million civil monetary penalty, restricted Moore’s market-on-close trading in the palladium and platinum futures and options markets for two years and restricted Moore’s registration for three years (see CFTC Press Release 5815-10).

On July 25, 2011, the CFTC issued an order filing and settling charges of attempted manipulation against Pia.  The CFTC order required Pia, among other things, to pay a $1 million civil monetary penalty and permanently bans him from trading during the closing periods for all CFTC-regulated products and permanently bans him from trading CFTC regulated products in palladium and platinum (see CFTC News Release 6079-11).

The CFTC thanks the CME Group, the parent company of the NYMEX, for its assistance.
CFTC Division of Enforcement staff responsible for this case are Melanie Bates, Kara Mucha, James A. Garcia, August A. Imholtz III, Kassra Goudarzi, Jeremy Cusimano, Janine Gargiulo, Stephen Obie, Michael Solinsky, Gretchen L. Lowe, and Vincent A. McGonagle.