CFTC REPORTS OTC DERIVATIVES REGULATORS ISSUES REPORT TO G-20

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 

OTC Derivatives Regulators Issue Report to the G20

Washington, DC — The Over-the-Counter (OTC) Derivatives Regulators Group (ODRG), which is made up of authorities with responsibility for the regulation of OTC derivatives markets in Australia, Brazil, the European Union, Hong Kong, Japan, Ontario, Quebec, Singapore, Switzerland, and the United States, issued a report today that provides an update to the G20 on further progress in resolving OTC derivatives cross-border implementation issues and identifies a cross-border issue that may call for legislative change.

The ODRG provided an update regarding two areas in which it is working to develop approaches to address cross-border issues: (i) potential gaps and duplications in the treatment of branches and affiliates; and (ii) treatment of organized trading platforms and implementation of the G20 trading commitment.

The report also addressed four areas in which it was working to implement understandings reached previously: (i) equivalence and substituted compliance; (ii) clearing determinations; (iii) risk mitigation techniques for non-centrally cleared derivatives transactions (margin); and (iv) data in trade repositories and barriers to reporting to trade repositories.

The ODRG anticipates that it will submit its next report in preparation for the G20 Leaders Summit in November 2014.

CFTC CHARGES MAN AND BUSINESS WITH OPERATION OF ILLEGAL PRECIOUS METALS SCHEME

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 

CFTC Charges Florida-Based Southern Trust Metals, Inc. and Robert Escobio, and His BVI-Based Entity Loreley Overseas Corp., with Operating an Illegal Precious Metals Scheme, among other Violations

Defendants Solicited over $3.5 Million from Customers in the Precious Metals Scheme and in a Separate Unlawful Commodity Futures and Options Scheme

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) filed a civil enforcement Complaint in the U.S. District Court for the Southern District of Florida against Defendants Southern Trust Metals, Inc. (ST Metals) and Robert Escobio, both of Coral Gables, Florida, and Loreley Overseas Corp. (Loreley), a British Virgin Island entity that Escobio incorporated in 2004. The CFTC Complaint charges that, from at least July 16, 2011 to May 1, 2013, the Defendants operated a scheme that defrauded retail customers in connection with illegal, off-exchange, financed precious metals transactions. In operating the precious metals scheme, the Defendants received more than $2.6 million from at least 135 customers, who collectively lost $600,000 of the funds invested with ST Metals, according to the Complaint.

In a separate unlawful scheme, the Defendants, between February 2011 and May 2013, solicited and accepted more than $900,000 from customers for the purchase or sale of commodity futures and options, without registering with the CFTC as a Futures Commission Merchant, according to the Complaint.

ST Metals solicited retail customers to engage in off-exchange leveraged, margined, or financed precious metals transactions. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act), these transactions are illegal unless they result in actual delivery of metal within 28 days. The Complaint alleges that metals were never actually delivered in connection with these precious metals transactions. Instead, the Complaint alleges, ST Metals engaged in a series of transactions that ended with over-the-counter derivative trades in margin trading accounts in the name of Loreley with two U.K.-based trading firms. Additionally, according to the Complaint, ST Metals told customers that it was making loans to purchase precious metals in connection with these transactions, but in fact, no loans were made, no metals were purchased, and the transactions were illegal commodity transactions under the Dodd-Frank Act.

In its continuing litigation against ST Metals, Loreley, and Escobio, the CFTC seeks disgorgement of ill-gotten gains, restitution for the benefit of customers, civil monetary penalties, permanent registration and trading bans, and a permanent injunction from future violations of the Commodity Exchange Act, as charged.

The CFTC thanks the U.K. Financial Conduct Authority for its assistance in this matter.

CFTC Division of Enforcement staff members responsible for this action are Carlin Metzger, Heather Johnson, Joseph Konizeski, Scott Williamson, and Rosemary Hollinger.