Tagged: NFA 2013 COURT ACTIONS against brokers

June 07, 2013 NFA takes emergency enforcement action against New York firm SK Madison, Michael Seward who cannot account for at least $900,000 in SK Pool fund

copied from the nfa website

resource link  http://www.nfa.futures.org/NFA-regulation/regulationNewsRel.asp?ArticleID=4237

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For Immediate Release
June 07, 2013

NFA takes emergency enforcement action against New York firm SK Madison, LLC and its sole principal, Michael Seward

June 7, Chicago – National Futures Association (NFA) announced today that it has taken an emergency enforcement action against SK Madison, LLC (SK Madison), an NFA Member commodity trading advisor (CTA) located in New York, N.Y., and Michael James Seward, the sole principal and associated person (AP) of SK Madison.

NFA has taken the Member Responsibility Action (MRA) and Associate Responsibility Action (ARA) to protect customers of SK Madison since the firm and Seward cannot account for at least $900,000 in the SK Madison Commodities LLC Fund’s (SK Pool) participants’ funds. NFA also has reason to believe that the SK Pool participants are unaware of the true value of the SK Pool. Additionally, SK Madison and Seward have been unable to produce any accounting records to explain or justify the $900,000 it withdrew from the SK Pool’s bank account, leading NFA to conclude that Seward and other firm personnel have converted pool participant funds for their personal use. Finally, NFA believes that Seward deliberately misled NFA throughout the investigation regarding the amount contributed by participants to the SK Pool.

SK Madison and Seward, and any person acting on their behalf, are prohibited from soliciting or accepting any funds from customers or investors, soliciting investments for any managed accounts, pools or other investment vehicles. Additionally, SK Madison and Seward or anyone acting on their behalf, are prohibited from placing any trades except for liquidation or risk reducing trades. They also are prohibited from disbursing or transferring any funds of customers, investors, pools or pool participants without NFA’s prior approval.

The MRA/ARA will remain in effect until such time as SK Madison and Seward have demonstrated to the satisfaction of NFA that the firm is in complete compliance with all NFA Requirements.

SK Madison and Seward may request a hearing before NFA’s Hearing Committee.

The complete text of the MRA/ARA is available on NFA’s website (www.nfa.futures.org).

The following Compliance staff members are responsible for this case: Louis Berardocco (212-513-6030) and Joseph Bonnema (212-513-6031).

June 6, 2013 CFTC Charges “Prediction Market” Proprietor Banc de Binary with Violating the CFTC’s Off-Exchange Options Trading Ban and Operating as an Unregistered Futures Commission Merchant

copied from cftc website

http://www.cftc.gov/PressRoom/PressReleases/pr6602-13

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June 6, 2013

CFTC Charges “Prediction Market” Proprietor Banc de Binary with Violating the CFTC’s Off-Exchange Options Trading Ban and Operating as an Unregistered Futures Commission Merchant

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) filed on June 5, 2013 a civil complaint in federal district court in Nevada charging Banc de Binary, Ltd. (Banc de Binary), a foreign company that held itself out as being headquartered on Wall Street, with violating the CFTC’s ban on off-exchange options trading by offering commodity option contracts to U.S. customers for trading, as well as soliciting, accepting, and confirming the execution of orders from U.S. customers. The CFTC’s complaint also charges Banc de Binary with operating as an unregistered Futures Commission Merchant (FCM).

According to the CFTC’s complaint, Banc de Binary operates an online trading website through which customers can buy or sell binary (“call” or “put”) options, predicting whether the price of a certain commodity will increase or decrease in a given time period.

Specifically, from May 2011 through March 2013, Banc de Binary operated an online trading website which allowed U.S. customers to trade options products prohibited by the CFTC’s ban on off-exchange options trading. Through its website, Banc de Binary allegedly unlawfully solicited and permitted U.S. customers to buy and sell options betting on the prices of wheat, oil, platinum, sugar, coffee, corn, foreign currency pairs, and stock indices.

The CFTC’s complaint also charges Banc de Binary with operating as an unregistered FCM from July 2011 through March 2013. Finally, the complaint alleges the company did not limit its options offerings to eligible contract participants, allowing U.S. customers to trade without requiring any information about their trading history or net worth.

David Meister, the Director of the CFTC’s Division of Enforcement, stated: “If a company wants to offer U.S. persons the opportunity to buy and sell predictions on the direction of commodity prices, the company must play by the rules or suffer the consequences. The applicable rules are on the books for good reason – to protect market participants and promote market integrity – and we will serve the public by enforcing them.”

The CFTC seeks civil monetary penalties, an injunction preventing Banc de Binary from engaging in certain commodity options activity with U.S. customers, and other remedial ancillary relief, including restitution, disgorgement, and rescission.

The CFTC acknowledges the Securities and Exchange Commission, the United Kingdom Financial Conduct Authority, and the Cyprus Securities and Exchange Commission for their assistance in the investigation of Banc de Binary.

CFTC Division of Enforcement staff members responsible for this case are David S. Slovick, Margaret Aisenbrey, Jessica Harris, Mary Lutz, Kathleen Banar, Rick Glaser, and Richard Wagner.

June 5, 2013 Files Complaint against U.S. Bank, N.A. Alleging Unlawful Use of Peregrine Financial Group, Inc.’s Customer Segregated Funds

copied from cftc website

http://www.cftc.gov/PressRoom/PressReleases/pr6601-13

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June 5, 2013

CFTC Files Complaint against U.S. Bank, N.A. Alleging Unlawful Use of Peregrine Financial Group, Inc.’s Customer Segregated Funds and Violation of Customer Segregation Laws

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today filed a Complaint in the U.S. District Court for the Northern District of Iowa against U.S. Bank National Association (U.S. Bank) for unlawfully using and holding Peregrine Financial Group, Inc.’s (Peregrine) customer segregated funds.  U.S. Bank is the fifth largest bank in the country and maintains branch offices in Cedar Falls, Iowa, where Peregrine and its owner, Russell R. Wasendorf Sr. (Wasendorf), were located.

The Commodity Exchange Act (CEA) and CFTC regulations prohibit depository institutions, like U.S. Bank, from using or holding funds that belong to customers of a Futures Commission Merchant (FCM) as though they belong to anyone other than the customers, and also prohibit the extension of credit based on such funds to anyone other than the customers.

The Complaint alleges that U.S. Bank was a depository institution serving Peregrine, a registered FCM, and Wasendorf since 1992.  From approximately September 2008 to July 2012, U.S. Bank unlawfully accepted Peregrine’s customers’ funds as security on loans it made to Wasendorf, his wife, and his construction company, Wasendorf Construction, L.L.C., to build an office complex for Peregrine in Cedar Falls, Iowa.  The Complaint further alleges that from approximately June 2008 to July 2012, U.S. Bank improperly held Peregrine’s customers’ funds in an account U.S. Bank treated as Peregrine’s commercial checking account and knowingly facilitated Wasendorf’s transfers of millions of dollars of customers’ funds out of this account to pay for Wasendorf’s private jet, his restaurant, and his divorce settlement, among other things.  U.S. Bank knew that these transfers were not for the benefit of Peregrine’s customers, according to the Complaint.

David Meister, the CFTC’s Director of Enforcement, said: “The Commodity Exchange Act and Commission rules protecting customer funds impose obligations on banks that hold those funds.  As should be apparent from today’s action, we will seek to hold a bank to account if it falls short on complying with customer fund protection obligations.  Wasendorf stole vast sums of customer money, but his crimes do not excuse U.S. Bank from its own independent responsibilities.”

According to the Complaint, Wasendorf defrauded more than 24,000 Peregrine clients and misappropriated more than $215 million over two decades using a customer segregated account at U.S. Bank.  In connection with that fraud, Wasendorf misrepresented to the National Futures Association and to Peregrine’s auditor that Peregrine’s customer segregated account at U.S. Bank contained $200 million or more, when in fact the average balance since May 2005 was only $15.7 million.  On July 10, 2012, the CFTC instituted a civil action against Wasendorf and Peregrine, CFTC v. Peregrine Financial Group, Inc. and Russell Wasendorf Sr., 1:12-cv-05383 (N.D. IL July 10 2012) (see CFTC Press Release 6300-12, July 10, 2012).  Wasendorf was also criminally charged by the United States Attorney’s Office for the Northern District of Iowa, pled guilty, and on January 23, 2013 was sentenced to 50 years in prison and ordered to pay more than $215 million in restitution. United States v. Russell Wasendorf, Sr., 12-cr-2021-LRR.

In this litigation, the CFTC seeks an injunction against U.S. Bank for further violations of the CEA and CFTC Regulations, restitution, disgorgement, and civil monetary penalties, among other appropriate relief.

The following CFTC Division of Enforcement staff members are responsible for this case: Robert Howell, Joy McCormack, Susan Gradman, Scott Williamson, Rosemary Hollinger, and Richard Wagner.

Last Updated: June 5, 2013

5/15/2013 NFA court action against: STONEHENGE ASSET MANAGEMENT LLC, MICHAEL, STEVEN ALAN: 50k fine

This information was copied from the NFA website

Resource link: http://www.nfa.futures.org/basicnet/Case.aspx?entityid=0411098&case=12BCC00029&contrib=NFA

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Narrative for 0212526 – MICHAEL, STEVEN ALAN
**TO VIEW DOCUMENTS, GO TO CASE DOCUMENTS.**COMPLAINT:

On October 15, 2012, NFA issued a Complaint charging Stonehenge and Michael with submitting misleading information to NFA about the status of the SD3 pool; failing to observe high standards of commercial honor and just and equitable principles of trade; using inflated figures in its promotional material; aggregating the funds of SD1’s different investment classes together in the SDMaster trading accounts thereby making the equity of participants in investment classes with higher funding levels available to margin the positions of participants in investment classes with lower funding levels; misallocating pool funds to pay Stonehenge and Michael’s expenses; making untimely reimbursements and redemptions; using misleading offering memorandum for SD1; and failing to supervise the overall operations of the firm. The Complaint charged Stonehenge with failing to obtain acknowledgements confirming that investors met the definition of a QEP; failing to provide a disclosure document to individuals it solicited to invest in the SD3 pool; submitting inaccurate PQRs; failing to prepare SD1 account statements in accordance with U.S. Generally Accepted Accounting Principles; and allowing SD1 to make a loan to Stonehenge. Michael is charged with failing to abide by the terms of the settlement and Decision in a 2010 BCC case.

ANSWER:

On January 2, 2013, Stonehenge and Michael filed an Answer to the Complaint in which they denied the material allegations contained therein.

DECISION:

On May 15, 2013, pursuant to a settlement offer submitted by Stonehenge and Michael, Stonehenge was ordered to engage an independent third-party administrator to provide full administrative services to any pool operated by Stonehenge, including, but not limited to, effecting redemptions and ensuring that expenses paid by any such pools are properly authorized and disclosed to participants. Also, Stonehenge and Michael are jointly and severally liable for the payment of $50,000 to NFA.

Narrative for 0411098 – STONEHENGE ASSET MANAGEMENT LLC
**TO VIEW DOCUMENTS, GO TO CASE DOCUMENTS.**COMPLAINT:

On October 15, 2012, NFA issued a Complaint charging Stonehenge and Michael with submitting misleading information to NFA about the status of the SD3 pool; failing to observe high standards of commercial honor and just and equitable principles of trade; using inflated figures in its promotional material; aggregating the funds of SD1’s different investment classes together in the SDMaster trading accounts thereby making the equity of participants in investment classes with higher funding levels available to margin the positions of participants in investment classes with lower funding levels; misallocating pool funds to pay Stonehenge and Michael’s expenses; making untimely reimbursements and redemptions; using misleading offering memorandum for SD1; and failing to supervise the overall operations of the firm. The Complaint charged Stonehenge with failing to obtain acknowledgements confirming that investors met the definition of a QEP; failing to provide a disclosure document to individuals it solicited to invest in the SD3 pool; submitting inaccurate PQRs; failing to prepare SD1 account statements in accordance with U.S. Generally Accepted Accounting Principles; and allowing SD1 to make a loan to Stonehenge. Michael is charged with failing to abide by the terms of the settlement and Decision in a 2010 BCC case.

ANSWER:

On January 2, 2013, Stonehenge and Michael filed an Answer to the Complaint in which they denied the material allegations contained therein.

DECISION:

On May 15, 2013, pursuant to a settlement offer submitted by Stonehenge and Michael, Stonehenge was ordered to engage an independent third-party administrator to provide full administrative services to any pool operated by Stonehenge, including, but not limited to, effecting redemptions and ensuring that expenses paid by any such pools are properly authorized and disclosed to participants. Also, Stonehenge and Michael are jointly and severally liable for the payment of $50,000 to NFA.

05/15/2013