CFTC Orders Commodity Trading Firm and Principal to Pay a $315,000

industryspread

The Industry Spread is a news and information site built for the global trading industry. The site provides industry news focusing on technology, global regulation, company news and the latest people moves .

CFTC

CFTC Orders Commodity Trading Firm and Principal to Pay a $315,000 Civil Monetary Penalty for “Cherry-Picking” Scheme

December 25, 2018

 — The Commodity Futures Trading Commission (CFTC) today issued an Order filing and simultaneously settling charges against Jonathan Hansen (Hansen) of Dana Point, California, and his Newport Beach, California, based company, Newport Private Capital LLC, (NPC), for engaging in a fraudulent post-execution allocation scheme, sometimes referred to as  “cherry-picking”.  The Order also finds that NPC and Hansen failed to keep required records.  During the period of the fraudulent activity, NPC was registered as a Commodity Pool Operator and Commodity Trading Advisor, and Hansen was registered as an Associated Person and listed as Principal of NPC.

James McDonald, CFTC’s Director of the Division of Enforcement

“The scheme at issue here is called ‘cherry-picking’ because the wrongdoer cherry-picks winning trades for himself, while leaving losing trades for the customer,” said Enforcement Director James McDonald. “The Commission will continue to work vigorously to identify these types of unlawful schemes and to hold the wrongdoers accountable.”

The Order finds that in September 2013, the National Futures Association (NFA) issued an order prohibiting the defendants from soliciting funds or withdrawing money from managed accounts without NFA approval (NFA Order), and ultimately, banned them from trading for failure to comply with the NFA Order.  Immediately following the issuance of the NFA Order in September 2013, NPC and Hansen caused two new trading accounts to be opened in the name of Hansen’s spouse (Spouse Accounts).  The Order states that in order to circumvent the NFA Orders and create cash flow for Hansen, NPC and Hansen disproportionately allocated profitable futures and options trades to the Spouse Accounts at the expense of customer accounts managed by NPC.

Specifically, the Order finds that, between at least September 2013 and January 2014, NPC, through Hansen, entered bunched orders for commodity interests without providing the specific account numbers to which executed trades were to be allocated.  The Order further finds that for commodity interest transactions opened and closed within the same day, NPC and Hansen waited to determine whether the transactions were profitable before allocating the trades to the accounts they managed, allowing them to minimize or eliminate risk to the equity in the Spouse Accounts at the expense of NPC and Hansen’s customer accounts.  The Order finds that NPC and Hansen subsequently caused profits to be transferred out of the Spouse Accounts to bank accounts owned jointly by Hansen and his spouse, without the knowledge of the NFA.

The Order also finds that NPC and Hansen failed to retain records sufficient to demonstrate the nature of their allocation methodology, and that their allocation of commodity interest transactions was at all times fair and equitable, as required by CFTC regulations.

The CFTC Order requires NPC and Hansen to pay, jointly and severally, a civil monetary penalty of $315,000 and orders them to cease and desist from further violations of the Commodity Exchange Act and CFTC Regulations, as charged.  The Order also permanently bans NPC and Hansen from entering into any transactions involving commodity interests, among other things, and permanently bans them from registering with the CFTC.

The CFTC appreciates the assistance of the National Futures Association in this matter.

CFTC Division of Enforcement staff members responsible for this case are Lucy C. Hynes, George H. Malas, Patrick Marquardt, Christine M. Ryall and Paul G. Hayeck.

Login To MyTis Comment Or Register to MyTIS

Leave a Reply

avatar
  Subscribe  
Notify of

Newsletter

Register now to receive the latest news and information for global trading industry.

Latest Articles

swiss national bank logo

Introductory remarks by Fritz Zurbrügg – News Conference by Swiss National Bank

Remarks by Fritz Zurbrügg – Conference by Swiss National Bank on the significance of climate change for financial stability.