COMMODITY POOL OPERATOR SETTLES CHARGES WITH CFTC

The following excerpt is from the CFTC website: Washington, DC — The U.S. Commodity Futures Trading Commission (CFTC) today issued an order filing and simultaneously settling charges against Dearborn Trading, Inc. (Dearborn), a commodity pool operator (CPO), and Joel Bronstein (Bronstein), Dearborn’s owner and principal, for failing to file a closing Annual Report (liquidation statement) for Dearborn Trading Fund, LLC, a commodity pool operated by Dearborn. The CFTC order requires Dearborn to pay a $180,000 civil monetary penalty and file the pool’s liquidation statement within 30 days of the entry of the order. The CFTC order finds that from about January 2009 until approximately June 2009, Dearborn was operating the pool when it ceased trading on or about June 30, 2009. Dearborn failed to file the pool’s closing Annual Report (liquidation statement) within 90 calendar days after the pool ceased trading, in violation of CFTC regulation 4.22(c), 17 C.F.R. § 4.22(c) (2009). The CFTC thanks the National Futures Association for its assistance."

CFTC CHAIRMAN GENSLER ADRESSES CONFERENCE ON COMMODITY MARKETS

The following is an excerpt from the Commodity Futures Trading Commission website: Opening Remarks, Conference on Commodity Markets Chairman Gary Gensler August 25, 2011 Good morning and welcome to the Commodity Futures Trading Commission (CFTC). It’s great to see economists from so many fine universities across the globe gathered here along with an impressive group of government experts. Thank you for graciously sharing your time to discuss the issues affecting commodity markets. Your insights should be helpful to our surveillance and enforcement efforts at this agency. I want to thank Andrei Kirilenko and the Office of the Chief Economist for putting this conference together and for their contributions to this agency. Before you get started, I’m going to give you an update about where we stand today with the CFTC’s response to the aftermath of the 2008 financial crisis. 2008 Crisis Three years ago, our country’s largest financial institutions were trading swaps in the shadows and this marketplace contributed to and helped accelerate the financial system’s downward spiral. Though the crisis had many causes, it is clear that the swaps market played a central role. Swaps added leverage to the financial system – more risk was backed by less capital. There was a belief that certain financial institutions were not only too big to fail but too interconnected to fail. But when AIG, Lehman and others collapsed, it was the taxpayers who had to pick up the bill to prevent the economy from diving further into a depression. And it wasn’t just the financial system that failed. The regulatory system that was put in place to protect the public failed too. The Dodd-Frank Act Congress and the President came together and responded to this crisis by passing a historic law, the Dodd-Frank Wall Street Reform and Consumer Protection Act. The law includes many important provisions, but two overarching goals of reform include: bringing transparency to the swaps market and lowering the risks of this market to the overall economy. Both of these reforms protect taxpayers from again bearing the brunt of a crisis and lower costs for businesses and their customers. Promoting Transparency The first overarching goal of reform will resonate well with the economists in this room. The law brings critical transparency to the derivatives marketplace. As you know, the more transparent a marketplace is, the more liquid it is, the more competitive it is and the lower the costs for hedgers, borrowers and their customers. In short, when markets are open and transparent, they are safer and sounder and, again, costs will be lower for companies and the people who buy their products. The Dodd-Frank Act promotes both pre-trade and post-trade transparency. It moves certain standardized swaps transactions to exchanges or swap-execution facilities. This will allow buyers and sellers to meet in an open marketplace where prices are publicly available. It also requires real-time reporting of the price and volume of transactions, which ensures that everyone has this information. By minimizing what economists call “information asymmetry,” we reduce the advantages that Wall Street has over Main Street. Lowering Risk The second overarching goal of reform is equally as important. The law lowers risk to the overall economy by directly regulating dealers for their swaps activities and moving standardized swaps into central clearing, which will reduce interconnectedness in the swaps markets. Clearinghouses, which guarantee the obligations of both parties, have lowered risk for the public in the futures markets since the late-19th Century, and it’s time that we modernize the swaps market and provide the same protections for taxpayers. Turning the Corner This summer, we turned an important corner at the CFTC. We have now completed 11 final Dodd-Frank rules, and we have a robust schedule this fall to consider more final rules. We substantially completed the proposal phase this past spring. Starting next month, we are likely to take up rules relating to position limits, clearinghouse core principles, business conduct and entity definitions, trading, data reporting and the end-user exemption. It is important to point out that each of our final rules includes a careful consideration of costs and benefits completed with the involvement of the CFTC’s Office of the Chief Economist. We’ve also reached out broadly on what we call “phasing of implementation,” which is the timeline that our rules will take effect for various market participants. This is critically important so that market participants can take the time now to plan for new oversight of this industry. Next month, it is my hope that we vote on two proposed rulemakings seeking additional public comment on the implementation phasing of swap transaction compliance that would affect the broad array of market participants. The proposed rulemakings would provide the public an opportunity to comment on compliance schedules applying to core areas of Dodd-Frank reform, including the swap clearing and trading mandates, and the internal business conduct documentation requirements and margin rules for uncleared swaps. These proposed rules are designed to smooth the transition from an unregulated market structure to a safer market structure. When all of our Dodd-Frank rules are completed, I believe that it is appropriate that the Commission take a step back at the appropriate time in the future and carefully evaluate the new regulatory landscape as a whole – and how it is actually working. This is another example of our efforts to thoughtfully implement the reforms in the Dodd-Frank Act. Conclusion A year after the Dodd-Frank Act became law, there are those who would like to roll back its provisions and even return to the environment that led to the 2008 crisis. But as you know, economists have agreed for decades that transparency actually reduces costs. This law and our corresponding rules are about transparency. In addition, until we complete our reforms, the public remains at risk. That’s why the CFTC is working so hard to think through the Dodd-Frank law’s swap-market reforms and implement them in a way that promotes more open and transparent markets, lowers costs for companies and their customers, and protects taxpayers."

THREE PLEAD GUILTY TO BID RIGGING MUNICIPAL TAX LIEN AUCTIONS

The following is from the Department of Justice website: Wednesday, August 24, 2011 Three New Jersey Investors Plead Guilty to Bid Rigging at Municipal Tax Lien Auctions WASHINGTON – Three financial investors who purchased municipal tax liens at auctions in New Jersey pleaded guilty today for their roles in a conspiracy to rig bids at tax liens auctions held by municipalities, the Department of Justice announced. Charges were filed today in U.S. District Court for the District of New Jersey in Newark, N.J., against Isadore H. May of Margate, N.J.; Richard J. Pisciotta Jr. of Long Beach Township, N.J.; and William A. Collins of Medford, N.J. According to the felony charges, from at least 2003 through approximately February 2009, the investors participated in a conspiracy to rig bids at auctions for the sale of municipal tax liens in New Jersey by agreeing to allocate among certain bidders which liens each would bid on. The investors proceeded to submit bids in accordance with their agreements and purchased tax liens at collusive and non-competitive interest rates. “The collusion taking place at these auctions is artificially raising the interest rates that financially distressed home and property owners must pay, and is lining the pockets of the colluding investors,” said Sharis A. Pozen, Acting Assistant Attorney General in charge of the Department of Justice’s Antitrust Division. “The Antitrust Division will vigorously pursue these kinds of collusive schemes that eliminate competition from the marketplace.” The department said that the primary purpose of the conspiracy was to suppress and restrain competition to obtain selected municipal tax liens offered at public auctions at non-competitive interest rates. When the owner of real property fails to pay taxes on that property, the municipality in which the property is located may attach a lien for the amount of the unpaid taxes. If the taxes remain unpaid after a waiting period, the lien may be sold at auction. State law requires that investors bid on the interest rate delinquent homeowners will pay upon redemption. By law, the bid opens at 18 percent interest and, through a competitive bidding process, can be driven down to zero percent. If a lien remains unpaid after a certain period of time, the investor who purchased the lien may begin foreclosure proceedings against the property to which the lien is attached. According to the court documents, May, Pisciotta and Collins conspired with others not to bid against one another at municipal tax lien auctions in New Jersey. Because the conspiracy permitted the conspirators to purchase tax liens with limited competition, each conspirator was able to obtain liens which earned a higher interest rate. Property owners were therefore made to pay higher interest on their tax debts than they would have paid had their liens been purchased in open and honest competition. Each violation of the Sherman Act carries a maximum penalty of 10 years in prison and a $1 million fine for individuals. The maximum fine for a Sherman Act violation may be increased to twice the gain derived from the crime or twice the loss suffered by the victim if either amount is greater than the $1 million statutory maximum.”

DEFENDANT AND MANAGED COMPANIES CHARGED IN COMMODITY FUTURES AND FOREX SCHEME

The following excerpt is from the CFTC website: “Washington, DC - The U.S. Commodity Futures Trading Commission (CFTC) today announced that on August 18, 2011 a federal court in California entered an order freezing the assets of defendants Douglas Elsworth Wilson of Poway, Calif., and three California companies that he controls and manages, Elsworth Berg Capital Management LLC (EBCM), Elsworth Berg Inc., and Elsworth Berg FX LLC (collectively, Elsworth Berg). The order also prohibits the destruction of their books and records. The order arises out of a CFTC civil complaint filed on July 27, 2011 in the U.S. District Court for the Southern District of California. The complaint alleges that the defendants solicited at least $4.4 million from over 60 customers to trade commodity futures contracts and foreign currency (forex). The defendants allegedly misappropriated customer funds, committed solicitation fraud, and issued false statements in the commodity futures and forex scheme. In connection with their fraud, defendants allegedly misrepresented to customers and prospective customers that regardless of Elsworth Berg’s commodity futures or forex trading results, the return of customers’ investment principal was guaranteed at the end of a five-year period through use of a purportedly innovative “Collateral Reserve” structure, which owned life insurance policies on third-parties. Wilson and EBCM also allegedly issued false statements to some customers that overstated the value of their investments. Wilson and EBCM misappropriated approximately $72,000 in customer funds and used the money for purposes other than trading, according to the complaint. In its continuing litigation against the defendants, the CFTC seeks restitution to defrauded customers, civil monetary penalties, permanent trading and registration bans, and permanent injunctions against further violations of federal commodities law."

CFTC: INDICATIONS OF FRAUD

The following excerpt is from the CFTC website. The article involves watching out for the signs of fraud: "Watch Out For These Warning Signs of Fraud Get-rich-quick schemes that sound too good to be true. There’s never a free lunch. Be very careful if you recently retired or came into money and you’re looking for a safe investment. You could be a very attractive target for a crook. Once your money is gone, it can be impossible to get it back. Predictions or guarantees of large profits. Always get as much information as you can about a firm or individual’s track record and verify that information—even if you know the people involved or they are recommended by friends or relatives. If you can’t get solid information about your investment and the company, don’t invest. Before you invest, always check it out with someone whose financial advice you can trust. Promises of little or no financial risk. Be suspicious if the firm or individual says there is little risk. Be suspicious if someone tells you that a written risk disclosure statement is only a routine formality. Written risk disclosure statements are important to read thoroughly and understand. Claims of trading in the “Interbank Market.” If a firm claims that they will trade foreign currency for you in the interbank market, or that you should trade in the interbank market, be cautious. The term “interbank market” refers to a loose network of currency transactions negotiated between financial institutions, usually banks and investment banks, and other large companies. Unsolicited telephone calls about investing. Be skeptical if someone you don’t know calls you about investment opportunities. Someone asking you to send cash immediately. Be very cautious if someone tries to convince you to send cash or transfer money to them immediately by overnight express, the Internet, mail, or any other method."

FDIC GOVERNORS SAY LARGE LOAN COMMITMENTS OWNED BY BANKS ARE IMPROVING

The following is an excerpt from an e-mail sent out by the FDIC: Joint Release Board of Governors of the Federal Reserve System Federal Deposit Insurance Corporation Office of the Comptroller of the Currency August 25, 2011 Credit Quality of Large Loan Commitments Improves for Second Consecutive Year The credit quality of large loan commitments owned by U.S. banking organizations, foreign banking organizations (FBOs), and nonbanks improved in 2011 for the second consecutive year, according to the Shared National Credits (SNC) Review for 2011. A loan commitment is the obligation of a lender to make loans or issue letters of credit pursuant to a formal loan agreement. Total criticized loans declined more than 28 percent to $321 billion in 2011, although the percentage of criticized assets remained high compared to pre-financial crisis levels. A criticized loan is rated special mention, substandard, doubtful, or loss. Loans rated as doubtful or loss—the two weakest categories—fell 50 percent to $24 billion in 2011. Reasons for improvement in credit quality included better operating performance among borrowers, debt restructurings, bankruptcy resolutions, and ongoing access to bond and equity markets. Industries that led the improvement in credit quality were real estate and construction, media and telecommunications, and finance and insurance. Despite this progress, poorly underwritten loans originated in 2006 and 2007 continued to adversely affect the SNC portfolio. Approximately 60 percent of criticized assets were originated in these years. Refinancing risk remained elevated as nearly $2 trillion, or 78 percent of the SNC portfolio, matures by the end of 2014. Of this maturing amount, $204 billion was criticized. Although nonbank entities, such as securitization pools, hedge funds, insurance companies, and pension funds, owned the smallest share of loan commitments, they owned the largest share (58 percent) of classified credits (rated substandard, doubtful, or loss). In other highlights of the review: Total SNC commitments increased less than 1 percent from the 2010 review. Total SNC loans outstanding fell $93 billion to $1.1 trillion, a decline of 8 percent. Criticized assets represented 13 percent of the SNC portfolio, compared with 18 percent in 2010. Classified assets declined 30 percent to $215 billion in 2011 and represented 9 percent of the portfolio, compared with 12 percent in 2010. Credits rated special mention, which exhibited potential weakness and could result in further deterioration if uncorrected, declined 25 percent to $106 billion in 2011 and represented 4 percent of the portfolio, compared with 6 percent in 2010. Nonaccruals declined to $101 billion from $151 billion. Adjusted for losses, nonaccrual loans declined to $92 billion from $137 billion, a 33 percent reduction. The distribution of credits across entities—U.S. banking organizations, FBOs, and nonbanks—remained relatively unchanged. U.S. banking organizations owned 42 percent of total SNC loan commitments, FBOs owned 38 percent, and nonbanks owned 20 percent. The share owned by nonbanks declined for the first time since 2001. Nonbanks continued to own a larger share of classified (58 percent) and nonaccrual (60 percent) assets compared with their total share of the SNC portfolio. Institutions insured by the Federal Deposit Insurance Corporation owned only 17 percent of classified assets and 15 percent of nonaccrual loans. The media and telecommunications industry group led other industry groups in criticized volume with $70 billion. Finance and insurance followed with $37 billion, then real estate and construction with $35 billion. Although these groups had the largest dollar volume of criticized loans, the three groups with the highest percentage of criticized loans were entertainment and recreation, media and telecommunications, and commercial services. The 2011 review indicated that the number of credits originated in 2010 rose dramatically compared to 2009 and 2008. Although the overall quality of underwriting in 2010 was significantly better than in 2007, some easing of standards was noted compared to the relatively tighter standards in 2009 and the latter half of 2008. Federal banking agencies expect banks and thrifts to underwrite syndicated loans using prudential underwriting standards, regardless of the intent to hold or sell the loans. Poorly underwritten syndicated loan transactions are subject to regulatory criticism. The SNC program was established in 1977 to provide an efficient and consistent review and analysis of SNCs. A SNC is any loan or formal loan commitment, and any asset such as real estate, stocks, notes, bonds, and debentures taken as debts previously contracted, extended to borrowers by a federally supervised institution, its subsidiaries, and affiliates that aggregates to $20 million or more and is shared by three or more unaffiliated supervised institutions. Many of these loan commitments are also shared with FBOs and nonbanks, including securitization pools, hedge funds, insurance companies, and pension funds. In conducting the 2011 SNC Review, agencies reviewed $910 billion of the $2.5 trillion credit commitments in the portfolio. The sample was weighted toward non-investment grade and criticized credits. The results of the review are based on analyses prepared in the second quarter of 2011 using credit-related data provided by federally supervised institutions as of December 31, 2010, and March 31, 2011." # # #