This is a photo of the National Register of Historic Places listing with reference number 7000063
Wednesday, May 21, 2014
CFTC ANNOUNCES FIRST WHISTLEBLOWER AWARD UNDER DODD-FRANK
FROM: COMMODITY FUTURES
CFTC Issues First Whistleblower Award
“I am pleased to announce this first award which illustrates that the CFTC’s Whistleblower Program is a valuable resource for the American public. Information received under the Whistleblower Program helps the agency better protect market participants and the public through successful enforcement actions,” said CFTC Acting Chairman Wetjen.
Acting Director of the CFTC’s Division of Enforcement Gretchen Lowe said, “Here, the whistleblower provided specific, timely and credible information that led to the Commission bringing important enforcement actions. The CFTC’s Whistleblower Program is attracting high-quality tips and cooperation we might not otherwise receive and is already having an impact on the Commission’s enforcement mission.”
Christopher Ehrman, the Director of the Whistleblower Office, said that the number of high quality tips, complaints and referrals received continues to increase. “Our Whistleblower Program is a necessary enforcement tool for the agency, and my hope is that this award will send the strong message that the CFTC will pay for information that helps us do our jobs.”
Under the Dodd-Frank Act, the CFTC’s Whistleblower Program provides monetary awards to persons who report violations of the Commodity Exchange Act if the information leads us to an action that results in more than $1 million in monetary sanctions. Whistleblowers are eligible for 10 to 30 percent of monies collected. The CFTC can also pay awards based on monetary sanctions collected by other authorities in actions that are related to a successful CFTC action, and are based on information provided by a CFTC whistleblower. The Dodd-Frank Act whistleblower provisions also prohibit retaliation by employers against employees who provide the CFTC with information about possible violations, or who assist us in any investigation or proceeding based on such information.
Tuesday, May 20, 2014
Monday, May 19, 2014
COMPANY AND SUBSIDIARY CHARGED BY SEC WITH ATTEMPTED MANIPULATION OF YEN LIBOR
FROM: COMMODITY FUTURES TRADING COMMISSION
CFTC Charges RP Martin Holdings Limited and Its Subsidiary, Martin Brokers (UK) Limited, with Manipulation and Attempted Manipulation of Yen Libor
RP Martin Accepted over $400,000 for Unlawful Manipulative Assistance to Traders
CFTC Orders RP Martin to Pay a $1.2 Million Civil Monetary Penalty
Washington, DC - The U.S. Commodity Futures Trading Commission (CFTC) issued an Order against RP Martin Holdings Limited, and its subsidiary, Martin Brokers (UK) Limited (collectively, RP Martin), an interdealer broker, filing and settling charges of manipulation, attempted manipulation, false reporting, and aiding and abetting derivatives traders’ acts of manipulation and attempted manipulation of the London Interbank Offered Rate (LIBOR) for Yen, a leading interest rate benchmark used to price trillions of dollars of transactions.
The CFTC Order finds that, from at least September 2008 through at least August 2009, RP Martin brokers on its Yen desk at times knowingly disseminated false and misleading information concerning Yen borrowing rates to market participants in attempts to manipulate, at times successfully, the official fixing of the daily Yen LIBOR. RP Martin brokers did so primarily to aid and abet a senior Yen derivatives trader (Senior Yen Trader) employed at UBS Securities Japan Co., Ltd. (UBS) and later at another bank, who was attempting to manipulate Yen LIBOR to benefit his derivatives trading positions tied to this benchmark. In exchange for their unlawful assistance, RP Martin brokers accepted payments totaling more than $400,000, through the form of wash trades that were designed solely to generate commissions for RP Martin, according to the Order. (Excerpts of broker communications follow this release.)
The CFTC Order requires RP Martin, among other things, to pay a $1.2 million civil monetary penalty. RP Martin also agrees to take specified steps to ensure the integrity and reliability of benchmark interest rate-related market information disseminated by RP Martin.
“Today’s action is part of our on-going efforts to ensure that the LIBOR rate is free of fraud and manipulation. Further, this action reflects the Commission’s unwavering commitment to hold those who seek to undermine the integrity of the U.S. financial markets responsible for their actions,” said Gretchen Lowe, Acting Director of the CFTC’s Division of Enforcement. “I thank the hardworking staff of the CFTC and our colleagues in the U.K. for their continued dedication and vigilance to protect market integrity.”
Yen LIBOR is fixed daily based on rates contributed by panel banks that are supposed to reflect each bank’s assessment of costs of borrowing unsecured funds in the London interbank market. RP Martin, as an interdealer broker, intermediates cash and LIBOR-based derivatives transactions between banks and other institutions. As a service to clients and to solicit and maintain business, RP Martin, like other interdealer brokers, also provides banks with market insight, including assessments of where LIBOR is likely to fix. In providing this market information, interdealer brokers are implicitly representing that such market information reflects their third-party unbiased assessment of borrowing costs and market pricing based on objective, observable data, some of which they uniquely possessed.
The CFTC Order finds that RP Martin used multiple means to assist the UBS Senior Yen Trader in his efforts to manipulate Yen LIBOR. First, RP Martin brokers provided misleading recommendations to Yen LIBOR submitters regarding where they should set certain Yen LIBOR tenors, rather than providing their unbiased evaluations of Yen borrowing costs. Second, RP Martin brokers contacted certain Yen LIBOR submitters and asked them directly to move their Yen LIBOR submissions in a manner that would benefit the Senior Yen Trader. Lastly, RP Martin brokers occasionally offered nonexistent cash bids, also known as “spoof” bids, to their clients, including Yen LIBOR submitters, in the hopes that such bids might influence Yen LIBOR submissions to the benefit of the Senior Yen Trader.
The Order further finds that this unlawful conduct occurred in part because RP Martin’s supervision, internal controls, policies and procedures were inadequate. For example, RP Martin never audited the Yen desk, and failed to question the wash trading activity, even after an RP Martin manager who monitored back-office brokerage activity raised the issue with RP Martin management.
RP Martin Must Strengthen Internal Controls to Ensure Integrity and Reliability of Benchmark Interest Rate-Related Market Information
The CFTC Order further requires RP Martin to implement and strengthen its internal controls, policies and procedures governing benchmark interest rate-related market information that RP Martin sends to market participants. Among other things, the Order requires RP Martin to:
• Base written benchmark interest rate-related predictions on certain factors;
• Document and retain basis for market publications;
• Require certain disclosures, including that certain market information reflects the opinions of the author, sources of information or data upon which opinion is based, and use of any models, correlated markets or related trading instruments;
• Review certain electronic and audio communications;
• Implement auditing, monitoring and training measures;
• Report to the CFTC on its compliance with the terms of the Order; and
• Continue to cooperate with the CFTC.
The CFTC Order also recognizes the cooperation of RP Martin in the final stages of the Division of Enforcement’s investigation and the resolution of this matter.
In a related action, the United Kingdom Financial Conduct Authority (FCA) issued a Final Notice regarding its enforcement action against Martin Brokers (UK) Limited and imposed a penalty of £630,000, the equivalent of approximately $1 million.
The CFTC acknowledges the valuable assistance of the FCA, the U.S. Department of Justice, and the Washington Field Office of the Federal Bureau of Investigation.
* * * * * * * * * * *
With this Order, the CFTC has now brought a total of 6 actions and imposed penalties of $1.766 billion on entities for manipulative conduct with respect to LIBOR submissions and other benchmark interest rates. In these actions, the CFTC also orders each institution to undertake specific steps to ensure the integrity and reliability of benchmark interest rate submissions. See In re Cooperatieve Centrale RaiffeisenBoerenleenbank B.A., Order Instituting Proceedings Pursuant To Sections 6(c) And 6(d) Of The Commodity Exchange Act, Making Findings And Imposing Remedial Sanctions (October 29, 2013) ($475 million penalty) (CFTC Press Release 6752-13), In re ICAP Europe Limited, CFTC Docket No. 13-38 (September 25, 2013) ($65 Million penalty) (CFTC Press Release 6708-13); In re The Royal Bank of Scotland plc and RBS Securities Japan Limited, CFTC Docket No. 13-14 (February 6, 2013) ($325 Million penalty) (CFTC Press Release 6510-13); In re UBS AG and UBS Securities Japan Co., Ltd., CFTC Docket No. 13-09 (December 19, 2012) ($700 Million penalty) (CFTC Press Release 6472-12); and In re Barclays PLC, Barclays Bank PLC, and Barclays Capital Inc., CFTC Docket No. 12-25 (June 27, 2012) ($200 million penalty) (CFTC Press Release 6289-12).
CFTC Division of Enforcement staff members responsible for this case are Aimée Latimer-Zayets, Anne M. Termine, Maura M. Viehmeyer, James A. Garcia, Boaz Green, Kassra Goudarzi, Rishi K. Gupta, Jonathan K. Huth, Timothy M. Kirby, Terry Mayo, Elizabeth Padgett, Philip P. Tumminio, and Jason T. Wright.
Examples of Misconduct From Written Communications
Examples of Skewed LIBOR Suggestions Made for UBS Senior Yen Trader:
July 18, 2008:
1st Telephone Call:
Senior Yen Trader: 1m mate *** whats it looking like need ity lower
Yen Broker 1: lower
Senior Yen Trader: rabo moved UP to 71 they are offered at 49!
Yen Broker 1: ill have a work with rabo agn then
Senior Yen Trader: please have a word that is wrong
***
Senior Yen Trader: [Yen Broker 1] have you spoken to rabo re his 1m fix its a joke i need your help on 1m icap are suggesting 63 today pls do the same
Yen Broker 1: ok mate il. do tyeh same i did iyt yesterday too
***
Senior Yen Trader: thx its killing me mate i am losing so much cash then i can't pay you
Yen Broker 1: thats is not gonna help anyone [Yen Broker 2] is trying to pull a favour with rabo now
Senior Yen Trader: ta
2nd Telephone Call:
Rabobank Submitter: I don't know what do you reckon?
Yen Broker 2: 65?
***
Yen Broker 2: 65 then. That's good. Well, got someone asking here.
Rabobank Submitter: Oh ok.
Yen Broker 2: If you can?
Rabobank Submitter: Do you want me to set 65?
Yen Broker 2: Yeah, or as low as possible basically.
Rabobank Submitter: Well, why didn't you say that then? *** Well, I'll set to 63 if you want.
Yen Broker 2: Yeah? Alright then. Cool.
***
Rabobank Submitter: Who’s that?
Yen Broker 2: It's a geezer at UBS, [Senior Yen Trader]
Rabobank Submitter: Alright well make sure he knows *** You know, scratch my back, yeah, and all.
February 25, 2009:
1st Telephone Call:
Yen Broker 1: anything cookjing i can try desperate for a decent trade gone pear shaped this month
Senior Yen Trader: we can switch 2yrs today i'll talk later in mean time low 1m and 3m we must keep 3m down and high 6m act 6m unchanged today try for low on all of em from tomorrrow need 6m high as a drug addict
Yen Broker 1: ok ill do my best for those tday hahahha like it ok
2nd Telephone Call:
Senior Yen Trader: I mean I'm just trying to think who you might be able to f*cking lean on a bit today.
Yen Broker 1: yes, go on give me some names.
Senior Yen Trader: it's really important to get the 3’s down for me.
Yen Broker 1: 3’s more than anything else.
Senior Yen Trader: Yes. Really, well, I mean today I need them all low but, I mean, 3's particularly. *** Right [Bank 5] put his at 64, mate. Can you get him down?
Yen Broker 1: 64 [Bank 5]. Okay, I'll have a word with him.
Senior Yen Trader: [inaudible] up to 65
Yen Broker 1: Who’s that? [Bank 2]?
Senior Yen Trader: Yes.
Yen Broker 1: Right, I’ll go and ask him for a – [Yen Broker 2] off today but I’ll go in and I’ll get a favor.
Senior Yen Trader: Yes, ask him if he can move it to 63 for the day or something. ***
***
Senior Yen Trader: RBS is 64 *** you don't talk to RBS, do you?
Yen Broker 1: No but the guy in the arbi does, I'll see if he can, sort of, see if he can have a word with him for us *** So [Bank 2], [Bank 5] and RBS, yes? See if I can get that down some, yes?
Senior Yen Trader: Yes, if you could mate. *** And you don't speak to [Bank 6], do you?
Yen Broker 1: He's on the arbi so I could have a word with the guy that speaks to him and see if he can have a word. See if he can drop his LIBOR a couple of pips today ...
Senior Yen Trader: He's at f*cking 68 dude *** if he went to 60 that would be f*cking massive.
Yen Broker 1: Okay, I'll have a word with that as well, mate, alright?
3rd Telephone Call:
Yen Broker 1: I need a favor.
Bank 1 Submitter: yes.
Yen Broker 1: *** basically I got stuffed in something earlier in an IRS and it would have cost me about 40,000 to get out of it, yes. Geezer [referring to the Senior Yen Trader] dug me out, as a favor back to him he's asked me, for one day today, he's got a couple of fixings coming. He wants to see if he can get LIBORs down a little bit. I’ve said I’ll try and do what I can. Is there any way you might be able to set them a little bit lower today just to return the favor? ***
Bank 1 Submitter: Yeah, well cash is a little bit easier, isn't it so I’ll
Yen Broker 1: Yes, if you could get them down a couple of ticks or something today that would be f*cking, like the 3’s *** I mean if you could do that for me mate that would be a personal favor to you.
Bank 1 Submitter: Yes, yes, but yes cash is easier so I'll fix a couple up.
4th Telephone Call:
Yen Broker 1: Can I ask you a small favor?
Bank 2 Submitter: Yeah.
Yen Broker 1: What are you going to set in your LIBOR 3’s today?
Bank 2 Submitter: Ah, same, 65.
Yen Broker 1: Is there any way you might be able to set them down a pip ‘cause I’m getting a big trade out of it?
Bank 2 Submitter: Sorry?
Yen Broker 1: I’m getting someone do me a big trade if they said if I help them sort of get LIBORs down a tick today.
Bank 2 Submitter: Yeah, okay. ***
Yen Broker 1: Ah, mate, I appreciate that.
5th Telephone Call:
Yen Broker 1: Can you do me a favor?
Arbitrage Desk Head: Only if you tick the arbi box on that deal.
Yen Broker 1: We've got a f*cking, yes, we've got a f*cking huge deal but on the back of it he's asked me to do him a favor and see if I can have a word with a couple of people, see if LIBOR, see if I could get it down a pip. Would you - Bank 6 is setting his at 68 at the moment, do you reckon he might, ask him if he might be able to set it at 67 just today for us?
***
Arbitrage Desk Head: 3’s LIBOR at 67?
Yen Broker 1: Yes, instead of 68. It would be a big favor. ***
Arbitrage Desk Head: All right, all right.
6th Telephone Call:
Arbitrage Desk Head: Did he ask for [Bank 6] in particular?
Yen Broker 1: He’s just given me some names whose LIBORs are quite high at the moment to see if I can get them down a bit. No, not him, not that one bank, just a group of banks.
Arbitrage Desk Head: He thinks that I'll be - he thinks that he's out of the equation anyway.
Yen Broker 1: Right, okay. Well it just makes a difference if everyone's putting theirs down a bit because I've got a couple of people to put them ... [Bank 2]’s putting his down a pip; [Bank 1]’s putting his down a couple of pips. I mean, if there's a few people putting them down it should set the average better.
Arbitrage Desk Head: He's- I've asked him and he's said we'll see.
Yen Broker 1: Alright, that's fine.
Arbitrage Desk Head: If I set out on a line then f*cking
Yen Broker 1: Don't push it, no don't ever push it.
Arbitrage Desk Head: Not that, it's the old auditors as well.
Yen Broker 1: Absolutely, no problem mate, no problem at all.
Examples of Discussions Related to Wash Trades:
September 18, 2008:
1st Telephone Call:
Senior Yen Trader: Mate, right, listen. I don’t care right just get me any f*cking trade which pays you basically today, mate. If if you keep 6’s unchanged today, yeah. *** I will f*cking do one humongous deal with you. All right? *** Like a 50,000 buck deal, whatever. *** I need you to keep it as low as possible. All right? If you do that, then I’ll cross the spread and I’ll pay you, you know, $50,000, $100,000 whatever it whatever you want. All right?
Yen Broker 1: All right.
2nd Telephone Call:
Senior Yen Trader: *** have you got any mates, mate, who’ll do you like a net trade and I could like, you know, basically give you like f*cking, I don't know, a trillion 3-month LIBOR/TIBOR and take back a trillion 3-month LIBOR/TIBOR and, obviously, you’re net it with the other guy.
Yen Broker 1: Right.
Senior Yen Trader: *** what I’m saying is, look, that if you've got a mate who will like do a flat switch basically. *** I’d go in and out with him, yeah? So I’ll pay them in two years or whatever and I’ll receive from them in two years. The coupon’s the same. *** I’ll get charged bro both sides obviously.
***
Yen Broker 1: all right. That’s excellent.
3rd Telephone Call:
Yen Broker 1: *** if you could get 6’s a little lower today, I’ve got, um, someone that’s going to do a huge trade with me today if the if the 6’s don't go up too much. So if you
Bank 3 Submitter: We're going for 1% fix I think today. I think these are all going to edge up just marginally so *** what I’ll do is I’ll go 103 for 6’s it’s not too high but it’s going to be higher anyway so I can’t go too far away from there.
October 31, 2008:
Senior Yen Trader: Listen what I need - this is what I need, I need 1’s to come off the most because if they are off 20 for 1’s which is what they [inaudible]
Yen Broker 1: Right, yes. That’s the one thats f*cking up at the moment as well, isn’t it, so you need definitely.
Senior Yen Trader: Yes and then say 3’s are - I don't need it to come off quite so much, like, I don’t know down 13 or something.
Yen Broker 1: Right.
Senior Yen Trader: And then 6’s go well, there’s still term and you can’t get hold of it so say, like, down 8 or something.
Yen Broker 1: Right, okay
***
Senior Yen Trader: Alright mate, if you could sort this out for me, if you can get 1’s down - if you could get like a staggered downward move like that then we’ll do a f*cking massive ticket next week.
Examples of RBS Involvement in Wash Trades:
September 19, 2008:
Yen Broker 3: Right, geez, can you do me a favor? You, um, what – you’re not going to get paid any bro for this and we’ll send you lunch around for the whole desk. Can you flat – can you switch, er, two years semi at 5 3/4, 100 yards, are you – between UBS. Just get – take it from UBS, give it back to UBS. He wants to pay some bro. We won’t bro you but he wants to put – he wants to give us some bro.
RBS Yen Trader: Yeah, Yeah.
Yen Broker 3: 100 yards, right?
RBS Yen Trader: Yeah. Yeah. UBS on UBS? Right.
Yen Broker 3: Yeah, Yeah. 100 yards – actually can you make it 150 and I’ll send lunch around for everybody?
RBS Yen Trader: Yeah.
March 26, 2009:
Yen Broker 3: All right listen. I need you, mate.
RBS Yen Trader: Yeah.
Yen Broker 3: I need your money. I – oh, you’ll be looked after in Vegas. I promise you. It’s only a month away. Is there any chance you’ll be able to wash this switch through today?
RBS Yen Trader: Yeah, but I can’t do that size. I have to [inaudible]
Yen Broker 3: Yeah that’s fine. Mate, listen. I’m – would be grateful mate. I’m – I’ll be grateful for anything, mate.
RBS Yen Trader: All right, I’ll do 80.
Yen Broker 3: Okay, mate, listen. That’s perfectly fine and er, I won’t – it’s not going to be f*cking every month occurrence. It’s – it’s just like it’s the end of our quarter now, so I won’t pester you with that every month, no way, I appreciate what you’re doing anyway, right? You’ll be looked after, mate. Don’t worry about that. All right. So, um, so do I just – we’ll do it today or tomorrow. I’ll do it – try and put it through today?
Yen Broker 3: Yeah, I’ll put [inaudible].
***
RBS Yen Trader: 80, yeah?
Yen Broker 3: Yeah, 80, yeah. Same rules as the last one, yeah?
RBS Yen Trader: Yeah.
Yen Broker 3: Oh, mate you’re a superstar. Cheers, dude, ta.
June 26, 2009:
RBS Yen Trader: Has [Senior Yen Trader] been asking you to put Libors up today?
Yen Broker 3: [speaking to someone else] What’s [Senior Yen Trader] want on Libors today? Is he fixing anything about Libors? What does he want? What way does he want it? [inaudible]
***
Yen Broker 3: He wants ones, ones and threes a little bit lower and sixes probably about the same where they are now. He wants them to stay the same.
RBS Yen Trader: I want them lower.
Yen Broker 3: You want them lower? What the sixes?
RBS Yen Trader: Yeah.
Yen Broker 3: Alright, well, alright, alright, we’ll work on it.
June 26, 2009:
Yen Broker 3: Hello mate, [RBS Yen Trader]? You all set?
RBS Yen Trader: Yeah.
Yen Broker 3: Right listen, we’ve had a couple words with them. You want them lower right?
RBS Yen Trader: Yeah.
Yen Broker 3: Alright okay, alright, no we’ve okay just confirming it. We've, so far we've spoke to [Bank 3]. We've spoke to a couple of people so we'll see where they come in alright. We've spoke, basically *** we spoke to [Bank 3], [Bank 8], [Bank 1], who else did I speak to? [Bank 9]. There's a couple of other people that the boys have a spoke to but as a team we've basically said we want a bit lower so we'll see where they come in alright?
RBS Yen Trader: Cheers.
Yen Broker 3: Cheers no worries mate.
---------------------------
Footnote from page 7 of the CFTC Order: The communications quoted in this Order are from telephone calls, emails, instant messages, and the like. Some contain shorthand trader language and typographical errors. The shorthand and errors are explained in brackets within the quotations only when necessary to understand the discussion.
Media Contacts
Dennis Holden
202-418-5088
Sunday, May 18, 2014
SEC ALERTS INVESTORS TO RISKS INVOLVING MARIJUANA-RELATED COMPANIES
FROM: SECURITIES AND EXCHANGE COMMISSION
The SEC’s Office of Investor Education and Advocacy is issuing this Investor Alert to warn investors about potential risks involving investments in marijuana-related companies.
The SEC has seen an increase in the number of investor complaints regarding marijuana-related investments. The SEC recently issued temporary trading suspensions for the common stock of five different companies that claim their operations relate to the marijuana industry:
- FusionPharm, Inc.
- Cannabusiness Group, Inc.
- GrowLife, Inc.
- Advanced Cannabis Solutions, Inc.
- Petrotech Oil and Gas, Inc.
The SEC suspended trading in these companies because of questions regarding the accuracy of publicly-available information about these companies’ operations. For two of the companies, the trading suspensions were also based on potential illegal activity (unlawful sales of securities and marketmanipulation).
Fraudsters often exploit the latest innovation, technology, product, or growth industry – in this case, marijuana – to lure investors with the promise of high returns. Also, for marijuana-related companies that are not required to report with the SEC, investors may have limited information about the company’s management, products, services, and finances. When publicly-available information is scarce, fraudsters can more easily spread false information about a company, making profits for themselves while creating losses for unsuspecting investors.
| Risk of Prosecution for Marijuana-Related Companies. If you are considering investing in a company that is connected to the marijuana industry, be aware that marijuana-related companies may be at risk of federal, and perhaps state, criminal prosecution. The Department of Treasury recently issued guidance noting: “[T]he Controlled Substances Act (“CSA”) makes it illegal under federal law to manufacture, distribute, or dispense marijuana. Many states impose and enforce similar prohibitions. Notwithstanding the federal ban, as of the date of this guidance, 20 states and the District of Columbia have legalized certain marijuana-related activity.” |
Marijuana-related investments may be sold in unregistered offerings and may take many forms, including microcap stocks (low-priced stocks issued by the smallest of companies) such as penny stocks (the very lowest priced stocks).
Microcap Stocks
When you buy low-priced shares of a small company (e.g., you buy a stock that trades in the “over-the-counter” (also called OTC) market), you likely are investing in penny stocks or microcap stocks. Microcap stocks are particularly vulnerable to fraudulent investment schemes because there is often limited publicly-available information about microcap companies. Be cautious if you see red flags of potential microcap fraud such as:
- SEC trading suspensions (the SEC has suspended public trading of the security)
- E-mail and fax spam recommending a stock
- Insiders own large amounts of stock
- False or exaggerated press releases
Even in the absence of fraud, microcap stocks are among the most risky:
- Information about microcap companies can be extremely difficult to find, making it less likely that quoted prices in the market reflect full and complete information about the company.
- Many microcap companies are new and have no proven track record. Some microcap companies have no assets, operations, or revenues. Others have products and services that are still in development or have yet to be tested in the market.
- The stock prices of microcap companies historically have been more volatile than the stock prices of larger companies. Since low-priced stocks trade in low volumes, any size trade can have a large percentage impact.
- The stock of microcap companies are often quoted on the OTC Bulletin Board (also called OTCBB) or OTC Link LLC (also called OTC Link). OTCBB and OTC Link do not require companies to apply for listing or to meet any minimum financial standards. Most of these companies do not meet the minimum listing requirements for trading on a national securities exchange, such as the New York Stock Exchange or the Nasdaq Stock Market.
Unregistered Offerings
Check the SEC’s EDGAR database and contact your state securities regulator to find out whether the marijuana-related company has registered its securities offering with the SEC or a state securities regulator. If the offering is not registered, exercise extreme caution if you spot any of these red flags of potential investment fraud:
- “Guaranteed” high investment returns. If someone promises you a high rate of return on your investment, it likely is a fraudulent investment scheme.
- Unsolicited offers, including through social media. A new post on your wall, a tweet mentioning you, a direct message, an e-mail, a text, a phone call, or any other unsolicited – meaning you didn’t ask for it and don’t know the sender – communication regarding an investment “opportunity” may be part of a scam.
- Pressure to buy RIGHT NOW. Fraudsters may try to create a false sense of urgency or pitch the investment as a “limited time only” opportunity.
- No net worth or income requirements. To comply with federal securities laws, many unregistered offerings are limited to accredited investors and the seller should ask you about your net worth or income.
When investing in unregistered offerings, also consider these risks:
- You may lose your entire investment.
- You may not be able to sell the stock easily, and you may have to hold your investment indefinitely.
- The company may not make information about its business or financial condition publicly available.
Research the Company
As with any investment, make sure you understand the marijuana-related company’s business and its products or services. Carefully review all materials you are given and verify the truth of every statement you are told about the investment.
Pay attention to the company’s financial statements, particularly if they are not audited by a certified public accountant (also called a CPA).
If the company files reports with the SEC, review the most recent reports.
If the marijuana-related company is a microcap company that does not file reports with the SEC, ask your broker for the “Rule 15c2-11” file (the federal securities laws may require your broker to have certain information about the company).
If the marijuana-related company is offering securities in an unregistered offering, read the offering memorandum or private placement memorandum (also called PPM), and pay particular attention to any risk factors noted. Review the terms of any subscription agreement or other agreements for the investment.
Search SEC.gov to see whether the SEC has taken any action against the company or anyone associated with the company.
For more information about how to research an investment, read our publication Ask Questions.
Research your Broker or Investment Adviser
Research the background of the individuals and firms offering and selling you these investments, including their registration/license status and disciplinary history:
- Search the SEC’s Investment Adviser Public Disclosure (IAPD) database.
- Search the Financial Industry Regulatory Authority (FINRA)’s BrokerCheck database.
- Contact your state securities regulator.
Friday, May 16, 2014
CFTC ACTING CHAIRMAN'S TESTIMONY BEFORE SENATE SUBCOMMITTEE
FROM: COMMODITY FUTURES TRADING COMMISSION
Testimony of Mark P. Wetjen Acting Chairman, Commodity Futures Trading Commission Before the U.S. Senate Appropriations Subcommittee on Financial Services And General Government
May 14, 2014
Good morning, Chairman Udall, Ranking Member Johanns and members of the Subcommittee. Thank you for inviting me to today’s hearing on the President's Fiscal Year 2015 funding request and budget justification for the Commodity Futures Trading Commission (Commission or CFTC).
During the last two years, despite significant budgetary constraints, the CFTC has made important progress in fulfilling its mission. As you know, under the Commodity Exchange Act, the Commission has oversight responsibilities for the derivatives markets, which include futures, options, cash, and swaps. Each of these markets is significant. Collectively, they have taken on particular importance to the U.S. economy in recent decades and, as a consequence, have grown substantially in size, measuring hundreds of trillions of dollars in notional value. Their operation and integrity are critical to the effective functioning of the U.S. and global economies.
At their core, the derivatives markets exist to help farmers, producers, small businesses, manufacturers and lenders focus on what they do best: providing goods and services and allocating capital to reduce risk and meet Main Street demand. Well-regulated derivatives markets facilitate job creation and the growth of the economy by providing a means for managing and assuming prices risks and broadly disseminating, and discovering, pricing information.
Stated more simply, through the derivatives marketplace, a farmer can lock in a price for his crop; a small business can lock in an interest rate that would otherwise fluctuate, perhaps raising its costs; a global manufacturer can lock in a currency value, allowing it to better plan and grow its global business; and a lender can manage its assets and balance sheet to ensure it can continue lending, fueling the economy in the process.
Essentially, these complex markets facilitate the assumption and distribution of risk throughout the financial system. Well-working derivatives markets are key to supporting a strong, growing economy by enabling the efficient transfer of risk, and therefore the efficient production of goods and services. Accordingly, it is critical that these markets are subject to appropriate governmental oversight.
Mr. Chairman, Ranking Member, and Committee members, I do not intend the testimony that follows to sound alarmist, or to overstate the case for additional resources, but I do want to be sure that Congress, and this committee in particular, have a clear picture of the potential risks posed by the continued state of funding for the agency. When not overseen properly, the derivatives markets may experience irregularities or failures of firms intermediating in them – events that can severely and negatively impact the economy as a whole and cause dramatic losses for individual participants. The stakes, therefore, are high.
The CFT C’s Responsibilities Have Grown Substantially in Recent Years
The unfortunate reality is that, at current funding levels, the Commission is unable to adequately fulfill the mission given to it by Congress: to prevent disruptions to market integrity, protect customer assets, monitor and reduce the build-up of systemic risk, and ensure to the greatest extent possible that the derivatives markets are free of fraud and manipulation.
Recent increases in the agency’s funding have been essential and appreciated. They have not, however, kept pace with the growth of the Commission’s responsibilities, including those given to it under Dodd-Frank.
Various statistics have been used to measure this increase in responsibilities. One often-cited measure is the increase in the gross notional size of the marketplace now under the Commission’s oversight. Other measures, though, are equally and perhaps more illustrative.
Trading Volume Has Increased
For instance, the trading volume of CFTC-regulated futures and options contracts was 3,060 million contracts in 2010 and rose to 3,477 million in 2013. Similarly, the volume of interest rate swap trading activity by the 15 largest dealers averaged 249,564 swap events each in 2010, and by 2012, averaged 332,484 each (according to the International Swaps and Derivatives Association (“ISDA”) data). Those transactions, moreover, can be executed in significantly more trading venues, and types of trading venues, both here and abroad. In addition, the complexity of the markets – its products and sophistication of the market tools, such as automated-trading techniques – has increased greatly over the years.
Clearing Houses Manage More Risk
The notional value of derivatives centrally cleared by clearing houses was $124 trillion in 2010 (according to ISDA data), and is now approximately $223 trillion (according to CFTC data from swap data repositories (“SDRs”)). That is nearly a 100 percent increase. The expanded use of clearinghouses is significant in this context because, among other things, it means that the Commission must ensure through appropriate oversight that these entities continue to properly manage the various types of risks that are incident to a market structure dependent on central clearing. A clearinghouse’s failure to adhere to rigorous risk management practices established by the Commission’s regulations, now more than ever, could have significant economic consequences. The Commission directly oversees fifteen registered clearinghouses and two of them, Chicago Mercantile Exchange, Inc., and ICE Clear Credit LLC, have been designated as systemically important by the Financial Stability Oversight Council.
Clearing Houses and Intermediaries Manage More Customer Funds
The amount of customer funds held by clearinghouses and futures commission merchants (FCMs) was $177 billion in 2010 and is now over $218 billion, another substantial increase. These are customer funds in the form of cash and securities deposited at firms to be used for margin payments made by the end-users of the markets, like farmers, to support their trading activities. Again, Commission rules are designed to ensure customer funds are safely kept by these market intermediaries, and a failure to provide the proper level of oversight increases the risk of certain practices by firms, including operational risks or fraud. In fact, recent events in the FCM community led to the temporary or permanent loss of more than a billion dollars of customer funds.
Substantially Larger Number of Firms Now Registered with the CFTC
The total number of registrants and registered entities overseen directly or indirectly by the Commission, depending on the measure, has increased by at least 40 percent in the last four years. This includes 102 swap dealers and two major swap participants (MSPs).
In addition, the CFTC oversees more than 4,000 advisers and operators of managed funds, some of which have significant outward exposures in and across multiple markets. It is conceivable that the failure of some of these funds could have spill-over effects on the financial system. In all cases, investors in these funds are entitled to know their money is being appropriately held and invested.
Additionally, the Commission directly or indirectly supervises another approximately 64,000 registrants, mostly associated persons that solicit or accept customer orders or participate in certain managed funds, or that invest customer funds through discretionary accounts. Although it leverages the resources of the self-regulatory organizations (“SROs”), the Commission itself must oversee these registrants in certain areas and provide guidance and interpretations to the SROs. The Commission does so with a total staff of only 648 employees currently onboard – about 1 percent of the number of registrants under its purview. Separately, the Commission must oversee more than three dozen registered entities, including clearinghouses and trading venues, each of which is subject to a complex set of regulatory requirements newly established or modified by the Dodd-Frank Act and designed to mitigate systemic risk.
By almost any measure, in fact, the portfolio of entities that the Commission is charged with overseeing has expanded dramatically in size and risk over the last half decade. The intermediaries in the derivatives markets are by and large well-run firms that perform important services in the markets and for their customers. Nevertheless, collectively, these firms can potentially pose risks – in some cases significant risks – to the financial system and the broader economy. Accordingly, those relying upon these firms and the public deserve assurance that such firms are supervised by an agency capable of meaningful oversight.
The CFTC Has Made Important Progress But Has Been Significantly Constrained
For much of FY 2013, the CFTC operated under continuing resolutions, which extended the FY 2012 appropriation of $205 million. These appropriations, however, were subject to sequestration. Effectively, our operating budget for FY 2013 was $195 million. Thus, the FY 2014 appropriation of $215 million was a modest budgetary increase for the Commission, lifting the agency’s appropriations above the sequestration level of $195 million that has posed significant challenges for the agency’s orderly operation. As directed by Congress, the agency has submitted a FY 2014 Spend Plan outlining its allocation of current resources, which reflects an increased emphasis on examinations and technology-related staff.
Even with these significant budget constraints, the dedicated staff of the Commission were able to complete the majority of new rulemakings required by the Dodd-Frank Act – about 50 rulemakings in all. This was in addition to the Commission’s ongoing work overseeing the futures exchange and options markets. These regulatory efforts resulted in greater transparency, which is critical to reducing systemic risk and lowering costs to end-users, while improving efficiency and supporting competition.
With regard to technology, we made progress in a variety of areas. We improved the quality of data reported to swap data repositories and have laid groundwork to receive, analyze and promulgate new datasets from SROs related to new authorities. We upgraded data analytics platforms to keep up with market growth. Financial risk surveillance tools were enhanced to support monitoring and stress testing related to new authorities. The Commission has prototyped a high-performance computing platform that dramatically reduces data analytics computation times and an on-line portal for regulatory business transactions to improve staff and industry productivity. The Commission has implemented enhanced position limit monitoring and is ready to implement pre-trade and heightened account ownership and control surveillance. Finally, the Commission has ensured that foundational server, storage, networking, and workstation technology are refreshed on a cost-effective cycle and that technology investments have cybersecurity and business continuity built-in.
In its role as a law enforcement agency, the Commission’s enforcement arm protects market participants and other members of the public from fraud, manipulation and other abusive practices in the futures, options, cash, and swaps markets, and prosecutes those who engage in such conduct. As of May 1, 2014, the Commission filed 31 enforcement actions in FY 2014 and also obtained orders imposing more than $2.2 billion in sanctions. By way of comparison, in FY 2013, the Commission filed 82 enforcement actions, and obtained orders imposing more than $1.7 billion in sanctions.
With the bulk of rulemaking behind us, the necessary focus must be examinations, market supervision and enforcement. Simply stated, this requires appropriate staffing and technological resources sufficiently robust to oversee what are highly advanced, complex global markets, and be able to take effective and timely enforcement action.
The FY 2015 Request Prioritizes Examinations, Technology, Market Integrity, and Enforcement
The President’s FY 2015 budget request reflects these priorities and highlights both the importance of the Commission’s mission and the potential effects of continuing to operate under difficult budgetary constraints.
The request is a significant step towards the longer-term funding level that is necessary to fully and responsibly fulfill the agency’s core mission: protecting the safety and integrity of the derivatives markets. It recognizes the immediate need for an appropriation of $280 million and approximately 920 staff years (FTEs) for the agency, an increase of $65 million and 253 FTEs over the FY 2014 levels, heavily weighted towards examinations, surveillance, and technology functions.
In this regard, the request balances the need for more technological tools to monitor the markets, detect fraud and manipulation, and identify risk and compliance issues, with the need for staff with the requisite expertise to analyze the data collected through technology and determine how to use the results of that analysis to fulfill the Commission’s mission as the regulator of the derivatives markets. Both are essential to carrying out the agency’s mandate. Technology, after all, is an important means for the agency to effectively carry out critical oversight work; it is not an end in itself.
In light of technological developments in the markets today, the agency has committed to an increased focus on technology. The FY 2015 budget request includes a $15 million increase in technology funding above the FY 2014 appropriation, or about a 42 percent increase, solely for IT investments.
In my remaining testimony, I will review three of the primary mission priorities for FY 2015.
Examinations
The President’s request would provide $38 million and 158 FTEs for examinations, which also covers the compliance activities of the Commission. As compared to FY 2014, this request is an increase of $15 million and 63 FTEs.
I noted earlier that the Commission has seen substantial growth in, among other things, trading volumes, customer funds held by intermediaries in the derivatives markets, and margin and risk held by clearinghouses. Examinations and regulatory compliance oversight are perhaps the best deterrents to fraud and improper or insufficient risk management and, as such, remain essential to compliance with the Commission’s customer protection and risk management rules.
The Commission has a direct examinations program for clearinghouses and designated contract markets, and it will soon directly examine swap execution facilities and SDRs. However, the agency does not at this time have the resources to place full-time staff on site at these registered entities, even systemically-important clearing organizations, unlike a number of other financial regulators that have on-the-ground staff at the significant firms they oversee. The Divisions of Market Oversight and Clearing and Risk collectively have a total of 47 examinations positions in FY 2014 to monitor, review, and report on some of the most complex financial market operations in the world.
The Commission today performs only high-level, limited-scope reviews of the nearly 100 FCMs holding over $218 billion in customer funds and 102 swap dealers. In fact, the Commission currently has a staff of only 38 to examine these firms, and to review and analyze, among other things, over 1,200 financial filings and over 2,400 regulatory notices each year. This staff level is less than the number the Commission had in 2010, yet the number of firms requiring its attention has almost doubled, and there has been a noted increase in the complexity and risk profile of the firms. Additionally, although it has begun legal compliance oversight of swap dealers and MSPs, the Commission has been able to allocate only 13 FTEs for this purpose. This number is insufficient to perform the necessary level of oversight of the newly registered swap dealer entities.
In FY 2014, the Commission overall will have a mere 95 staff positions dedicated to examinations of the thousands of different registrants that should be subject to thorough oversight and examinations. The reality is that the agency has fallen far short of performance goals for its examinations activities, and it will continue to do so in the absence of additional funding from Congress. For example, as detailed in the Annual Performance Review for FY 2013, the Commission failed to meet performance targets for system safeguard examinations and for conducting direct examinations of FCM and non-FCM intermediaries. The President’s budget request appropriately calls on Congress to bolster the examinations function at the agency, and it would protect the public, and money deposited by customers, by enhancing the examinations program staff by more than 66 percent in FY 2015.
Moreover, if Congress fully funds the President’s request, the Commission can move toward annual reviews of all significant clearinghouses and trading platforms and perform more effective monitoring of market participants and intermediaries. Partially funding the request will mean accepting potentially avoidable risk in the derivatives markets as the Commission is forced to forego more in-depth financial, operational and risk reviews of the firms within its jurisdiction. Thus, the Commission would be reactive, rather than proactive in regard to firm or industry risk issues.
Technology and Market Integrity
The FY 2015 request also supports a substantial increase in technology investments relative to FY 2014, roughly a 42 percent increase. The $50 million investment in technology will provide millions of dollars for new and sophisticated analytical systems that will, in part, assist the Commission in its efforts to ensure market integrity. As global markets have moved almost entirely to electronic systems, the Commission must invest in technology required to collect and analyze market data, and to handle the unprecedented volumes of transaction-level data provided by financial markets.
The President’s FY 2015 budget request supports, in addition, 103 data-analytics and surveillance-related positions in the Division of Market Oversight alone, an increase of more than 98 percent over the FY 2014 staffing levels. Market surveillance is a core Commission mission, and it is an area that depends heavily on technology. As trading across the world has moved almost entirely to electronic systems, the Commission must make the technology investments required to collect and make sense of market data and handle the unprecedented volumes of transaction-level data provided by financial markets.
Effective market surveillance, though, equally depends on the Commission’s ability to hire and retain experienced market professionals who can analyze extremely complex and voluminous data from multiple trading markets and develop sophisticated analytics and models to respond to and identify trading activity that warrants investigation. The FY 2015 investment in high-performance hardware and software therefore must be paired with investments in personnel that can employ technology investments effectively.
Accordingly, to make use of existing and new IT investments, the FY 2015 request would provide funding for 193 FTEs, an increase of 74 FTEs over FY 2014. These new staff positions are necessary for the Commission to receive, analyze, and effectively surveil the markets it oversees. These new positions, together with the technology investments included in the FY 2015 request, will enable the Commission to make market surveillance a core component of our mission.
The CFTC has invested appropriated funds in FY 2013 and FY 2014 in technology to make important progress. We have the groundwork in place to receive and effectively analyze swaps transaction data submitted to repositories and SROs related to new authorities. The FY 2015 request would provide funding to continue and increase the pace of progress in the areas noted above and also support the additional examination, enforcement, and economic and legal staff. Effective use of technology is essential to our mission to ensure market integrity, promote transparency, and effectively surveil market participants.
Enforcement
The President’s FY 2015 request would provide $62 million and 200 FTEs for enforcement, an increase of $16 million and 51 FTEs over FY 2014. The simple fact is that, without a robust, effective enforcement program, the Commission cannot fulfill its mandate to ensure a fair playing field. From FY 2011 to date, the Commission has filed 314 enforcement actions and also obtained orders imposing more than $5.4 billion in sanctions.
The cases the agency pursues range from sophisticated manipulative and disruptive trading schemes in markets the Commission regulates, including financial instruments, oil, gas, precious metals and agricultural products, to quick strike actions against Ponzi schemes that victimize investors. The agency also is engaged in complex litigations related to issues of financial market integrity and customer protection. By way of example, in FY 2013, the CFTC filed and settled charges against three financial institutions for engaging in manipulation, attempted manipulation and false reporting of LIBOR and other benchmark interest rates.
Such investigations continue to be a significant and important part of the Division of Enforcement’s docket. Preventing manipulation is critical to the Commission’s mission to help protect taxpayers and the markets, but manipulation investigations, in particular, strain resources and time. And once a case is filed, the priority must shift to the litigation. In addition to requiring significant time and resources at the Commission, litigation requires additional resources, such as the retention of costly expert witnesses.
In 2002, when the Commission was responsible for the futures and options markets alone, the Division of Enforcement had approximately 154 people. Today, the agency’s responsibilities have substantially increased. The CFTC now also has anti-fraud and anti-manipulation authority over the vast swaps market and the host of new market participants the agency now oversees. In addition, the agency is now responsible for pursuing cases under our enhanced Dodd-Frank authority that prohibits the reckless use of manipulative or deceptive schemes. Notwithstanding these additional responsibilities, however, total enforcement staff has shrunk – there are currently only 147 members of the enforcement staff. The President’s budget request would bring this number to 200. More cops on the beat means the public is better assured that the rules of the road are being followed.
In addition to the need for additional enforcement staff and resources, the CFTC also believes technology investments will make our enforcement staff more efficient. For instance, the FY 2015 request would support developing and enhancing forensic analysis and case management capabilities to assist in the development of analytical evidence for enforcement cases. In FY 2013 and FY 2014, appropriated funds invested in information technology have enabled the Commission to continue enhancing enforcement and litigation automation services, including a major upgrade to the document and digital evidence review platform that will enable staff to keep pace with the exploding volume of data required to successfully conduct enforcement actions.
A full increase for enforcement means that the agency can pursue more investigations and better protect the public and the markets. A less than full increase means that the CFTC will continue to face difficult choices about how to use its limited enforcement resources. At this point, it is not clear that the agency could maintain the current volume and types of cases, as well as ensure timely responses to market events.
Other FY 2015 Priorities: International Policy Coordination & Economic and Legal Analysis
The global nature of the derivatives markets makes it imperative that the United States consult and coordinate with international authorities. For example, the Commission recently announced significant progress towards harmonizing a regulatory framework for CFTC-regulated SEFs and EU-regulated multilateral trading facilities (MTFs). The Commission is working internationally to promote robust and consistent standards, to avoid or minimize potentially conflicting or duplicative requirements, and to engage in cooperative supervision, wherever possible.
Over the past two years, the CFTC, SEC, European Commission, European Securities and Markets Authority, and other market regulators from around the globe have been meeting regularly to discuss and resolve issues with the goal of harmonizing financial reform. The Commission also participates in numerous international working groups regarding derivatives. The Commission’s international efforts directly support global consistency in the oversight of the derivatives markets. In addition, the Commission anticipates a significant need for ongoing international policy coordination related to both market participants and infrastructure in the swaps markets. The Commission also anticipates a need for ongoing international work and coordination in the development of data and reporting standards under Dodd-Frank rules. Dodd- Frank further provided a framework for foreign trading platforms to seek registration as foreign boards of trade, and 24 applications have been submitted so far.
Full funding for international policy means the Commission will be able to maintain our coordination efforts with financial regulators and market participants from around the globe. If available funding is decreased, we will be less able to engage in cooperative work with our international counterparts, respond to requests, and provide staffing for various standard-setting projects. The President’s FY 2015 request would enable the Commission to sustain its efforts, providing $4.2 million and 15 FTEs that would be dedicated to international policy.
In addition, for FY 2015, the President’s budget would support $24 million and 92 FTEs to invest in robust economic analysis teams and Commission-wide legal analysis. Compared to the FY 2014 Spending Plan, this request is an increase of $4 million and 18 FTEs. Both of these teams support all of the Commission’s divisions.
The CFTC’s economists analyze innovations in trading technology, developments in trading instruments and market structure, and interactions among various market participants in the futures and swaps markets. Economics staff with particular expertise and experience provides leverage to dedicated staff in other divisions to anticipate and address significant regulatory, surveillance, clearing, and enforcement challenges. Economic analysis plays an integral role in the development, implementation, and review of financial regulations to ensure that the regulations are economically sound and subjected to a careful consideration of potential costs and benefits. Economic analysis also is critical to the public transparency initiatives of the Commission, such as the Weekly Swaps Report. Moving into FY 2015, the CFTC’s economists will be working to integrate large quantities of swaps market data with data from designated contract markets and swap execution facilities, and large swaps and futures position data to provide a more comprehensive view of the derivatives markets.
The legal analysis team provides interpretations of Commission statutory and regulatory authority and, where appropriate, provides exemptive, interpretive, and no-action letters to CFTC registrants and market participants. In FY 2013, the Commission experienced a significant increase in the number and complexity of requests from market participants for written interpretations and no-action letters, and this trend is expected to increase into FY 2015.
A full increase for the economics and legal analysis mission means the Commission will be able to support each of the CFTC’s divisions with economic and legal analysis. Funding short of this full increase or flat funding means an increasingly strained ability to integrate and analyze vast amounts of data the Commission is receiving on the derivatives markets, thus impacting our ability to study and detect problems that could be detrimental to the economy. Flat funding also means the Commission’s legal analysis team will continue to be constrained in supporting front- line examinations, adding to the delays in responding to market participants and processing applications, and hampering the team’s ability to support enforcement efforts.
Conclusion
Effective oversight of the futures and swaps markets requires additional resources for the Commission. This means investing in both personnel and information technology. We need staff to analyze the vast amounts of data we are receiving on the swaps and futures markets. We need staff to regularly examine firms, clearinghouses, trade repositories, and trading platforms. We need staff to bring enforcement actions against perpetrators of fraud and manipulation. The agency’s ability to appropriately oversee the marketplace hinges on securing additional resources.
Thank you again for inviting me today, and I look forward to your questions.
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