CFTC Logo, Dodd/Frank

CFTC Files $6 Million Enforcement Action Against Introducing Broker

The U.S. Commodity Futures Trading Commission (CFTC) is seeking nearly $6 million in penalty and restitution from Long Leaf Trading Group, Inc., a registered introducing broker, and its executives over a handful of violations and failures.

According to a proposed default judgment filed by the CFTC with the Illinois Northern District Court, the core allegations are centered around the broker’s options trading program, dubbed “Time Means Money,” which Long Leaf misrepresented its effectiveness just for raking in huge commissions form their customers.

While the company touted lucrative returns can be made from using trading signals generated by its program, all of Long Leaf’s customers lost money when they traded based on TMM’s recommendations. Long Leaf’s operatives continued with their claims though they were aware of their program’s catastrophic results from both customers’ account statements and complaints from losers.

“The LLT Defendants nonetheless knowingly or recklessly failed to disclose to, or deliberately withheld from, customers and prospective customers the material fact that substantially all customers lost money trading under the program,” the CFTC said.

Nearly all of the program’s participants lost money, but Long Leaf didn’t disclose this fact to current and potential users, according to the complaint that accuses the defendants of fraud, misappropriation, registration violations, and issuing false statements.

The CFTC complaint shows that the scheme had been going on since at least June 2015 through December 2019, and involved false assertions that ultimately caused 400 customers to lose $6.1 million. In turn, the bulk of the client’s losses went in fact to Long Leaf’s pockets as the firm made more than $4.4 million in commissions from its trade recommendations. This figure accounted for nearly 70 percent of customer losses.

The agency’s probe also identified similar patterns of unsuitable trading that caused hundreds of thousands of dollars in unjustified commissions paid by customers and diminished the overall return on their portfolios.

For instance, Long Leaf’s customers received one-size-fits-all recommendations regardless of their equity, risk tolerance, or investment objectives. The only difference was in the number of contracts recommended per each trade with customers holding more capital or seeking higher returns were advised to up their bets.

In connection with the promotion of TMM program, Long Leaf and its principals, Timothy M. Evans and James A. Donelson made a series of materially false claims through various means, including a website, social media, newsletters, and verbal communications.

The complaint described one of the firm’s promotional material that included a PowerPoint presentation showing an annual return of 12 percent on a $100,000 account. Long Leaf showed this presentation to prospective customers and told them it would be “easy” to achieve the same return with TMM.

In its litigation against Long Leaf, the CFTC is aiming for civil monetary penalties, restitution, and permanent bans on registration and trading against the defendants.