CFTC DMO RULE ENFORCEMENT REVIEWS ISSUED FOR CBOT, COMEX, CME, NYME

FROM:  U.S.COMMODITY FUTURES TRADING COMMISSION 
November 24, 2014

CFTC DMO Issues Rule Enforcement Reviews of the Chicago Board of Trade, Chicago Mercantile Exchange, Commodity Exchange, Inc. and New York Mercantile Exchange, Inc.

Washington, DC — The U.S. Commodity Futures Trading Commission’s Division of Market Oversight (Division) today issued three separate rule enforcement reviews of certain Designated Contract Markets (DCMs).

The Division’s reviews assessed compliance with Commodity Exchange Act Core Principles for DCMs and related regulations with respect to: (1) the Chicago Board of Trade (CBOT) and Chicago Mercantile Exchange (CME) audit trail program; (2) the New York Mercantile Exchange (NYMEX) and Commodity Exchange (COMEX) trade practice surveillance program; and (3) the CBOT, CME, COMEX, and NYMEX (collectively, the Exchanges) disciplinary program.

Overall, the Division found the Exchanges’ respective programs to be generally in compliance with the assessed DCM core principles and Commission regulations. However, the Division’s reviews identified certain deficiencies – areas where an exchange is not in compliance with a Commission regulation and must take corrective action, and recommendations – areas where an exchange should improve its compliance program. The deficiencies and recommendations identified in the reviews are summarized below.

CBOT and CME Audit Trail Program

Deficiencies:

• As required by Commission regulation § 38.553(a)(1), CBOT and CME must ensure that their program for reviewing front-end audit trail data is effective and the reviews are conducted in a timely manner.

• As required by Commission regulation § 38.553(a)(1), CBOT and CME must develop a program to at least annually review and enforce the assignment process of user IDs to automated trading models, algorithms, programs, and system in order to enforce the CBOT and CME’s user ID (Tag 50) policy.

• As required by Commission regulation § 38.553(b), CBOT and CME must ensure that the minimum summary fine amount for electronic trading audit trail deficiencies on each exchange is “meaningful” and “sufficient to deter recidivist behavior.” This minimum summary fine amount should be published in the Exchanges’ rules.

NYMEX and COMEX Trade Practice Surveillance Program

Deficiency:

• As required by Commission regulation § 38.158(b), NYMEX and COMEX must complete investigations in one year or less, absent mitigating circumstances.

Recommendations:

• NYMEX and COMEX should implement a system which would enable Market Regulation staff to efficiently track connections between related trade practice matters (complaints, research files, and cases) and thereby identify the source of time delays.

• NYMEX and COMEX should continue to develop strategies to detect spoofing.

• NYMEX and COMEX should reduce the time they take to complete pre-investigative trade practice matters (research files and complaints).

CBOT, CME, COMEX, and NYMEX Disciplinary Program

Deficiency:

• As required by Commission regulation § 38.701, the Exchanges must maintain sufficient enforcement staff to promptly prosecute possible rule violations.

Recommendation:

• The Exchanges should take appropriate measures to ensure that internal deliberations do not interfere with the prompt resolution of disciplinary matters.

Copies of the reports are available from the Commission’s Office of Public Affairs, Three Lafayette Centre, 1155 21st Street N.W., Washington, DC 20581, 202-418-5080, or by accessing the Commission’s website at www.cftc.gov.

Last Updated: November 24, 2014

SEC CHARGED PENNY STOCK CO. CEO IN ALLEGED PUMP-AND-DUMP SCHEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
Litigation Release No. 23134 / November 17, 2014
Securities and Exchange Commission v. Joseph A. Noel, Civil Action No. 3:14-CV-5054
SEC Charges San Francisco-Based Penny Stock Company CEO for Defrauding Investors in Pump-And-Dump Scheme

The Securities and Exchange Commission today charged a San Francisco-based penny stock company CEO with defrauding investors by issuing false and misleading press releases portraying his purported marketing and infomercial company as a successful venture in order to drive the stock price up while he covertly sold millions of shares into the public market for more than $300,000 in illicit profits.

According to the SEC's complaint filed against Joseph A. Noel in federal district court in San Francisco, the deceptive press releases about his company YesDTC Holdings touted exclusive distribution rights, licensing agreements, and certain products purportedly certified by the government. Noel's promotional campaigns based on such false information caused a spike in YesDTC's thinly-traded stock and enabled him to dump millions of his own shares for a profit. To conceal his sales, Noel sold the shares through a company he created in his teenage daughter's name without disclosing as required that he was actually selling the shares.

The SEC also suspended trading in YesDTC stock today, and instituted an administrative proceeding to revoke its registration.

The SEC's complaint charges Noel with violating antifraud and registration provisions of the federal securities laws. The SEC seeks disgorgement of ill-gotten gains plus prejudgment interest and a financial penalty as well as a permanent injunction. The SEC also is seeking an officer-and-director bar and a penny stock bar against Noel.

The SEC's investigation was conducted by Heather E. Marlow and David Berman of the San Francisco Regional Office, and the case is supervised by Tracy Davis. The SEC's litigation will be led by Aaron Arnzen and Ms. Marlow. The SEC appreciates the assistance of the U.S. Attorney's Office for the Northern District of California and the Federal Bureau of Investigation.

Statement at Open Meeting on Regulation Systems Compliance and Integrity

Statement at Open Meeting on Regulation Systems Compliance and Integrity

Statement at Open Meeting Regarding Regulation SCI

Statement at Open Meeting Regarding Regulation SCI

SEC CHARGES REAL ESTATE COMPANY OWNER WITH "OFFERING FRAUD" AND MISUSE OF INVESTOR FUNDS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission charged the owner of a Maryland-based real estate company with conducting an offering fraud and spending investor money on such personal expenses as his mortgage, country club dues, and season tickets to the Baltimore Ravens.  The agency also charged a former stockbroker for participating in the scheme.

The SEC alleges that Wilfred T. Azar III sold investors purported bonds in his company Empire Corporation, which he touted as a successful and profitable business with the resources to pay promised annual returns of 10 percent.  Along with Joseph A. Giordano, Azar and his company raised more than $7 million by making these and other false and misleading statements exaggerating the safety and low risk of the bonds.  However, Empire Corporation was functionally insolvent in reality, and despite saying investor funds would be used for various corporate purposes, Azar used the money to pay personal expenses as well as thousands of dollars in compensation to Giordano for participating in the fraud.  Giordano also steered a mutual fund that he managed into purchasing the bonds despite knowing the company was nearly broke.  The scheme collapsed when they were unable to recruit new investors to fund Empire Corporation’s operations and repay existing investors, who did not receive their promised returns and lost substantially all of their investments.

In a parallel case, the U.S. Attorney’s Office for the District of Maryland today announced criminal charges against Azar.

“As alleged in our complaint, investors in Empire Corporation were fraudulently sold worthless bonds after Azar and Giordano misled them entirely about the profitability of the company,” said Sharon B. Binger, Director of the SEC’s Philadelphia Regional Office.  “Giordano also violated the trust of his customers by entangling them in what he knew was a bad investment.”

The SEC’s complaint filed in federal court in Baltimore charges Empire Corporation, Azar, and Giordano with violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 as well as Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  The complaint also charges Giordano with violations of Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 as well as Section 34(b) of the Investment Company Act of 1940.  The SEC seeks disgorgement plus prejudgment interest and penalties as well as permanent injunctions.  The agency is seeking an officer-and-director bar against Azar.

The SEC’s investigation, which is continuing, has been conducted by Michael F. McGraw and Dustin Ruta and supervised by Brendan P. McGlynn in the Philadelphia Regional Office.  The SEC’s litigation will be led by Nuriye C. Uygur.  The investigation followed an examination conducted by Andrea Dittert, Peter J. DiMartino, Kevin P. Logue, and Hope A. Santo of the Philadelphia office under the supervision of Frank A. Thomas.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the District of Maryland.

Protecting the Technological Infrastructure of Our Capital Markets

Protecting the Technological Infrastructure of Our Capital Markets