CFTC CHAIRMAN GENSLER MAKES REMARKS ON " A TRANSFORMED MARKETPLACE"

FROM: COMMODITY FUTURES TRADING COMMISSION 
Remarks of Chairman Gary Gensler at a D.C. Bar Event - "A Transformed Marketplace"

December 11, 2013

Thank you, Alice and Peter, for your kind introductions. I also want to thank the DC Bar for inviting me here to speak today.

Five years ago, when President-elect Obama asked me to serve, the U.S. economy was in a free fall.

Five years ago, the financial system and the financial regulatory system failed the American public.

Five years ago, the unregulated swaps market was at the center of the crisis.

Five years ago, when Tim Geithner, Mary Schapiro and I sat down in the presidential transition offices with yellow pads to contemplate our upcoming confirmation hearings, we knew that modernizing the financial system wouldn’t be easy. We knew that ever since our founding, democracy is noisy and messy.

We knew, though, that we had to come together to bring common-sense rules of the road to the markets.

With 94 percent of private sector jobs outside of finance, President Obama was looking for solutions to ensure finance better serves the rest of the economy.

I was honored to be asked to join the Commodity Futures Trading Commission (CFTC), our nation’s futures market regulator.

The reforms of the 1930s had tasked the CFTC to swim in a very important lane – derivatives. The futures market has allowed farmers, ranchers and producers to lock in the price of a commodity since the 1860s. The derivatives lane, though, got a lot deeper a century later with the emergency of the vast swaps market. Both futures and swaps are essential to our economy and the way that businesses and investors manage risk.

The President placed great confidence in the CFTC when he asked the agency to help bring much-needed transparency and oversight to the dark, closed swaps market.

This confidence in the CFTC was well placed. As we’ve seen time and again in our nation’s history, when faced with real challenges, we Americans from different walks of life and perspectives find a way to come together to solve them.

The talented CFTC staff and my fellow Commissioners – Mike Dunn, Jill Sommers, Bart Chilton, Scott O’Malia and Mark Wetjen – really have delivered for the American public.

The CFTC has finalized 68 rules, orders and guidances. We have completed nearly all of the agency’s rulemakings, and the initial major compliance dates are behind us.

These reforms took into account nearly 60,000 public comments and input from more than 2,200 meetings and 21 public roundtables.

During this process, the Commission largely found consensus. In fact, two-thirds of our final actions have been unanimous, and nearly 85 percent have been bipartisan. Even when we disagreed, I believe that we did so agreeably.

Now, bright lights of transparency are shining on the $380 trillion swaps market.

Now, a majority of the swaps market is being centrally cleared – lowering risk and bringing access to anyone wishing to compete.

Now, 91 swap dealers have registered and – for the first time – are being overseen for their swaps activity.

Five years after the financial crisis, the swaps marketplace truly has been transformed.

Transparency

Foremost, the swaps marketplace has been transformed with transparency.

First, the public can see the price and volume of each swap transaction as it occurs.

This information is available, free of charge, to everyone in the public. The data is listed in real time – like a modern-day tickertape – on the websites of the three swap data repositories (SDRs).

Second, building on the CFTC’s long tradition of promoting transparency, we recently began publishing a Weekly Swaps Report to provide the public with a detailed view of the swaps marketplace.

Third, regulators also have gained transparency into the details on each of the 1.8 million transactions and positions in the SDRs.

Fourth, starting this fall, the public – for the first time –is benefitting from new transparency, impartial access and competition on regulated swap trading platforms.

We now have 19 temporarily registered swap execution facilities where more than a quarter of a trillion dollars in swaps trading is occurring on average per day.

This pre-trade transparency lowers costs for investors, businesses and consumers, as it shifts information from dealers to the broader public.

Fifth, I anticipate that by mid-February, the congressionally mandated trade execution requirement will become effective for a significant portion of the interest rate and credit index swap markets.

Clearing

The swaps market also has been transformed with mandated central clearing for financial entities as well as dealers.

Central clearing lowers risk and fosters competition by allowing customers ready access to the market.

Clearinghouses have operated successfully at the center of the futures market for over 100 years – through two world wars, the Great Depression and the 2008 crisis.

Reforms have taken us from only 21 percent of the interest rate swaps market being cleared five years ago to more than 70 percent of the market this fall. More than 60 percent of new credit index swaps are being cleared.

Further, we no longer have the significant time delays that were once associated with swaps clearing.

Five years ago, swaps clearing happened either at the end of the day or even just once a week. This left a significant period of bilateral credit risk in the market, undermining a key benefit of central clearing.

Now reforms require pre-trade credit checks and straight-through processing for swaps trades intended for clearing.

With 99 percent of swaps clearing occurring within 10 seconds, market participants no longer have to worry about credit risk when entering into swap trades intended to be cleared.

Swap Dealers

The market also has been transformed for swap dealers.

Five years ago, swap dealers had no specific requirements with regard to their swap dealing activity. AIG’s downfall was a clear example of what happens with no registration or licensing requirement for such dealers.

Today, all of the world’s largest financial institutions in the global swaps market are coming under reforms.

These reforms include new business conduct standards for risk management, documentation of swap transactions, confirmations, sales practices, recordkeeping and reporting.

With the approval of the Volcker Rule yesterday, swap dealers associated with banking entities will have to comply with new risk-reducing requirements prohibiting proprietary trading.

Further, the transformed marketplace covers the far-flung operations of U.S. enterprises, including their offshore branches and guaranteed affiliates.

The President and Congress were clear in financial reform that we had to learn the lessons of the 2008 financial crisis.

AIG nearly brought down the U.S. economy through its guaranteed affiliate operating under a French bank license in London.

Lehman Brothers had 3,300 legal entities when it failed. Its main overseas affiliate was guaranteed here in the United States, and it had 130,000 outstanding swap transactions.

The lessons of modern finance are clear. If reform does not cover the far flung operations of U.S. enterprises, trades inevitably would just be booked in offshore branches or affiliates. If reform does not cover these far-flung operations, rather than reforming the financial system, we simply would be providing a significant loophole.

Benchmark Interest Rates

Five years ago, as the public now knows, multiple banks were pervasively rigging the world’s most important benchmark interest rates.

The public trust has been violated through bad actors readily manipulating these benchmark interest rates.

I wish I could say that this won’t happen again, but I can’t.

As LIBOR and Euribor are not anchored in observable transactions, they are more akin to fiction than fact.

That’s the fundamental challenge that the CFTC and law enforcement agencies around the globe have so dramatically revealed.

We’ve made progress addressing governance and conflicts of interest regarding such benchmarks. But this alone will not resolve the fundamental vulnerability of these benchmarks – the lack of transactions in the interbank market underlying them.

That is why the work of the Financial Stability Board to find replacements for LIBOR and to recommend a means to transition to such alternatives is so critical. The CFTC looks forward to continuing work with the international community on these much-needed reforms.

Customer Protection

Market events in the last five years highlighted the need to further ensure for the protection of customer funds. Segregation and the protection of customer funds is the core foundation of the futures and swaps markets.

The CFTC went through a two-year process with market participants – and six sets of finalized rules – to comprehensively reform the customer protection regime for futures and swaps.

Resources

One of the most remarkable things about the CFTC is that today, it’s only five percent larger than it was 20 years ago.

Since then, though, this small, effective agency has taken on the job of overseeing the $380 trillion swaps market, which is a dozen times the size of the futures market we have historically overseen. Further, the futures market itself has grown fivefold since the 1990s.

Due to the budget challenges in Washington, not only has the CFTC been shrinking, but we had to notify employees of administrative furloughs.

Though the agency has yet to secure necessary funding from Congress, I continue to have faith that one day the CFTC will be funded at levels aligned with its vastly expanded mission.

The Journey Ahead

Though the CFTC has completed nearly all the rules of the road for the swaps market, reform is an ongoing journey.

Just as our nation has come together on financial reform these last five years, our regulations will continuously need to evolve. We always need to be open to changes in the markets and how best to promote transparency, competition and protect the public.

The journey is not over in transitioning to a replacement for LIBOR or in adequately funding the CFTC.

Further, as Tim, Mary and I understood five years ago, democracy – and reform – can be noisy and messy.

As market participants look to maximize their revenues and customer support, they, at times, may look to arbitrage our rules versus other rules around the globe.

I think that we’re in very firm setting on clearing, data reporting, real-time reporting, and business conduct reforms -- all of which have been implemented. There are bound to be further challenges, however, from the financial community with regard to the appropriate level of pre-trade transparency on trading platforms, as well as the scope of the cross-border application of reform.

Conclusion

I’d like to close by saying I couldn’t be more proud of the dedicated group of public servants at the CFTC. I am honored to have served along with them during such a remarkable time in the history of the agency.

Our nation benefits from free market capitalism, but it’s critical that we have common-sense rules of road to ensure that finance best serves the public at large.

On a personal note, as this is my last public speech as Chairman of the CFTC, I want to thank both Stephanie Allen and her predecessor Scott Schneider, the speechwriters whose cleverness and agility with words, not to mention the willingness to work with me, has allowed me these last five years to bring transparency to what we’re doing at the CFTC.

I also want to extend my appreciation to all the members of the media who have reported on us and followed us during this remarkable journey these last five years. As always, I’ll do one more press avail after taking questions from the audience.

Thank you.

TWO DEFENDANTS SETTLE CHARGES WITH FTC REGARDING MORTGAGE AND RELIEF SERVICES SCHEMES

FROM:  FEDERAL TRADE COMMISSION 
Defendants in Two Financial Services Schemes Banned from Providing Mortgage and Debt Relief Services
December 12, 2013

The defendants in two separate alleged scams have settled charges with the Federal Trade Commission and will be banned from providing mortgage- and debt-relief services.  The cases are part of the FTC’s continuing crackdown on scams targeting consumers in financial distress, including debt relief and credit repair scams, and mortgage relief scams.

American Mortgage Consulting Group; Home Guardian Management Solutions:

Last year, as part of the federal Distressed Homeowner Initiative, the FTC charged Mark Nagy Atalla and his companies, American Mortgage Consulting Group and Home Guardian Management Solutions, with offering false promises of mortgage-rate reductions to consumers trying to hold onto their homes.  Under the settlement with the FTC, the defendants will surrender their assets and be banned from providing mortgage relief or debt relief services to consumers.

According to the FTC’s complaint, Atalla and his companies violated the FTC Act and the Mortgage Assistance Relief Services Rule (known as the MARS Rule or Regulation O) when they promised to substantially lower consumers’ monthly mortgage payments in exchange for an up-front fee ranging from $1,495 to $4,495.  The FTC’s complaint alleged that in addition to misrepresenting the likelihood that consumers would obtain a mortgage modification, the defendants falsely represented that consumers who did not receive a modification would receive full refunds, falsely represented that they were affiliated with the U.S. government, and falsely claimed to provide legal representation to consumers.  Also, in violation of the MARS Rule, the defendants allegedly told consumers to stop communicating with their lenders, and failed to make Rule-mandated disclosures intended to ensure that consumers understand transactions with mortgage-assistance relief service providers and their rights under the Rule.  A federal judge granted the FTC’s request for a temporary restraining order and preliminary injunction, froze the defendants’ assets, and appointed a receiver to take over the companies.      

Under the terms of the agreed-upon settlement, in addition to being banned from participating in the debt relief and mortgage relief industries, the defendants are prohibited from misrepresenting the features of any product or service, and making claims without competent and reliable evidence.

Also under the settlement, Atalla faces a $514,910 judgment, which will be suspended when he turns over various items of personal property and proceeds from the sale of other assets.

Southeast Trust, LLC:
The defendants in this case – Southeast Trust, LLC (formerly known as The Debt School, LLC, also doing business as Financial Freedom Credit Counseling) and the company’s principal, Paul A. Wexler – allegedly violated both the FTC Act and the agency’s Telemarketing Sales Rule by charging cash-strapped consumers hundreds of dollars based on misrepresentations that they could obtain credit card interest rates as low as zero percent.  The operation also routinely called consumers on the Do Not Call Registry, according to the FTC.

Under the agreed-upon settlement, the defendants are banned from providing debt- and mortgage-relief services and from making robocalls and prohibited from calling consumers on the Do Not Call list.

The complaint alleged that the defendants claimed to be a non-profit group that targeted consumers with robocalls, and with ads on websites such as southeasttrust.com and   thedebtschool.com.  The defendants promised a single monthly payment, an interest rate ranging from zero percent to six percent, and that consumers would be debt free in three to five years.

The defendants are prohibited from collecting money from consumers who used their services, making unauthorized withdrawals from consumers’ bank accounts, misrepresenting the features and characteristics of financial or other types of products and services, and making unsupported claims about products and services.  They also are required to keep any consumer information they have confidential, and destroy it promptly.

The order imposes a $2.7 million judgment against Wexler, which is suspended due to his inability to pay.  If it is determined that the financial information the defendants gave the FTC was untruthful, the full amount of the judgment will become due.

For more information about how to handle robocalls and debt relief offers, see Robocalls and Settling Your Credit Card Debts. For more information about avoiding mortgage and foreclosure rescue scams see Homes and Mortgages. The Commission vote approving both proposed consent decrees was 4-0.  The FTC filed the proposed consent decree for the American Mortgage Consulting Group and Home Guardian Management Solutions case in the U.S. District Court for the Central District of California Southern Division, and the court signed and entered it on September 23, 2013.  The FTC filed the proposed consent decree for the Southeast Trust, LLC case in the U.S. District Court for the Southern District of Florida, and the court signed and entered it on September 23, 2013.

NOTE:  Consent decrees have the force of law when approved and signed by the District Court judge.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them.  To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357).  The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 2,000 civil and criminal law enforcement agencies in the U.S. and abroad.  The FTC’s website provides free information on a variety of consumer topics.  Like the FTC on Facebook, follow us on Twitter, and subscribe to press releases for the latest FTC news and resources.

SEC CHARGES MERRILL LYNCH IN CASE INVOLVING CDO BOOKS AND RECORDS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission today charged Merrill Lynch with making faulty disclosures about collateral selection for two collateralized debt obligations (CDO) that it structured and marketed to investors, and maintaining inaccurate books and records for a third CDO.

Merrill Lynch agreed to pay $131.8 million to settle the SEC’s charges.

The SEC’s order instituting settled administrative proceedings finds that Merrill Lynch failed to inform investors that hedge fund firm Magnetar Capital LLC had a third-party role and exercised significant influence over the selection of collateral for the CDOs entitled Octans I CDO Ltd. and Norma CDO I Ltd.  Magnetar bought the equity in the CDOs and its interests were not necessarily aligned with those of other investors because it hedged its equity positions by shorting against the CDOs.

“Merrill Lynch marketed complex CDO investments using misleading materials that portrayed an independent process for collateral selection that was in the best interests of long-term debt investors,” said George S. Canellos, co-director of the SEC’s Division of Enforcement.  “Investors did not have the benefit of knowing that a prominent hedge fund firm with its own interests was heavily involved behind the scenes in selecting the underlying portfolios.”

According to the SEC’s order, Merrill Lynch engaged in the misconduct in 2006 and 2007, when its CDO group was a leading arranger of structured product CDOs.  After four Merrill Lynch representatives met with a Magnetar representative in May 2006, an internal email explained the arrangement as “we pick mutually agreeable [collateral] managers to work with, Magnetar plays a significant role in the structure and composition of the portfolio ... and in return [Magnetar] retain[s] the equity class and we distribute the debt.”  The email noted they agreed in principle to do a series of deals with largely synthetic collateral and a short list of collateral managers.  The equity piece of a CDO transaction is typically the hardest to sell and the greatest impediment to closing a CDO.  Magnetar’s willingness to buy the equity in a series of CDOs therefore gave the firm substantial leverage to influence portfolio composition.

According to the SEC’s order, Magnetar had a contractual right to object to the inclusion of collateral in the Octans I CDO selected by the supposedly independent collateral manager Harding Advisory LLC during the warehouse phase that precedes the closing of a CDO.  Merrill Lynch, Harding, and Magnetar had finalized a tri-party warehouse agreement that was sent to outside counsel, yet the disclosure that Merrill Lynch provided to investors incorrectly stated that the warehouse agreement was only between Merrill Lynch and Harding.  The SEC has charged Harding and its owner with fraud for accommodating trades requested by Magnetar despite its interests not necessarily aligning with the debt investors.

The SEC’s order finds that one-third of the assets for the portfolio underlying the Norma CDO were acquired during the warehouse phase by Magnetar rather than by the designated collateral manager NIR Capital Management LLC.  NIR initially was unaware of Magnetar’s purchases, but eventually accepted them and allowed Magnetar to exercise approval rights over certain other assets for the Norma CDO.  The disclosure that Merrill Lynch provided to investors incorrectly stated that the collateral would consist of a portfolio selected by NIR.  Merrill Lynch also failed to disclose in marketing materials that the CDO gave Magnetar a $35.5 million discount on its equity investment and separately made a $4.5 million payment to the firm that was referred to as a “sourcing fee.”  The SEC also today announced charges against two managing partners of NIR.

According to the SEC’s order, Merrill Lynch violated books-and-records requirements in another CDO called Auriga CDO Ltd., which was managed by one of its affiliates.  As it did in the Octans I and Norma CDO deals, Merrill Lynch agreed to pay Magnetar interest or returns accumulated on the warehoused assets of the Auriga CDO, a type of payment known as “carry.”  To benefit itself, however, Merrill Lynch improperly avoided recording many of the warehoused trades at the time they occurred, and delayed recording those trades.  Therefore, Merrill Lynch’s obligation to pay carry was delayed until after the pricing of the Auriga CDO when it became reasonably clear that the trades would be included in the portfolio.

“Keeping adequate books and records is not an elective requirement of the federal securities laws, and broker-dealers who fail to properly record transactions will be held accountable for their violations,” said Andrew M. Calamari, director of the SEC’s New York Regional Office.

Merrill Lynch consented to the entry of the order finding that it willfully violated Sections 17(a)(2) and (3) of the Securities Act of 1933 and Section 17(a)(1) of the Securities Exchange Act of 1934 and Rule 17a-3(a)(2).  The firm agreed to pay disgorgement of $56,286,000, prejudgment interest of $19,228,027, and a penalty of $56,286,000.  Without admitting or denying the SEC’s findings, Merrill Lynch agreed to a censure and is required to cease and desist from future violations of these sections of the Securities Act and Securities Exchange Act.

The SEC’s investigation was conducted by staff in the New York Regional Office and the Complex Financial Instruments Unit, including Steven Rawlings, Gerald Gross, Tony Frouge, Elisabeth Goot, Brenda Chang, John Murray, Sharon Bryant, Kapil Agrawal, Douglas Smith, Howard Fischer, Daniel Walfish, and Joshua Pater.  Several examiners in the New York office assisted, including Edward Moy, Luis Casais, Thomas Shupe, William Delmage, George DeAngelis, Syed Husain, and James Sawicki.

CFTC COMMISSIONER WETJEN'S STATEMENT ON THE VOLCKER RULE

FROM:  COMMODITY FUTURES TRADING COMMISSION 
Statement of Commissioner Mark Wetjen on the Volcker Rule

December 10, 2013

Thank you Chairman Gensler, and my thanks to the professional staff for the hard work they put into the rulemaking before us today.

The Volcker Rule, like many of the commission’s rules, is focused on the policy objective of compelling banks to limit or better manage risk in a way that lowers the odds of a taxpayer-financed bailout, or, short of that, a failure of one of those firms. Dodd-Frank tasked the prudential and market regulators with implementing that objective, and I believe the release before us today will do so appropriately.

Congress also sensibly required that the prudential regulators adopt a joint Volcker rule, and that the market regulators coordinate with the prudential regulators in their rulemaking efforts. One of the true hallmarks of today’s rule is that the market regulators involved went beyond the congressional requirement to simply coordinate. In fact, the rule before us today reflects the same substantive text as that adopted by the other agencies, and contains no substantive differences in the preamble language.

Building a consensus among five different government agencies is no easy task, and the level of coordination on a complicated rulemaking such as this is remarkable. Commission staff and the staffs of the Federal Reserve, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation and the Securities Exchange Commission deserve special recognition for this feat alone.

I also believe Secretary Lew, Under Secretary Miller and other officials at the Treasury department deserve enormous credit for their role in helping coordinate the rulemaking effort. And finally, the heads of the involved agencies, including Chairman Gensler, deserve credit as well for their work in bringing today’s releases over the finish line.

The Volcker Rule is one of the last remaining CFTC rulemakings required by Dodd-Frank. Beyond this effort, almost all of the commission’s Dodd-Frank rules have been, or are in the process of being, implemented.

For this we can thank Chairman Gensler’s leadership. Today there is transparency in the swaps market where virtually none existed before. Swap dealers and major swap participants are registered. Swaps are promptly reported to swap data repositories. Most liquid swaps are now cleared. And soon many will be traded on a regulated platform for the first time. For his efforts on the Volcker Rule and the rest of his work in leading the CFTC to implement Title VII of Dodd-Frank, Chairman Gensler has done a tremendous service to the American public and the markets this agency regulates.

CFTC CHILTON'S STATEMENT ON VOTE FOR FINAL VOLKER RULE

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 
"High Roller's Room"

Statement of Commissioner Bart Chilton

December 10, 2013

I’m pleased to be voting on a final Volcker Rule. Frankly, two-and-a-half weeks ago, I had grave doubts about getting this done in a meaningful fashion. It had become weaker than the original proposal. But, thankfully, and I thank the Chairman for his tireless efforts, we have a rigorous and robust rule before us.

If you’ve ever been to a casino, many of them have a high roller’s room. There’s usually a sign about a $1000 minimum bet. Many have ornate gaming tables and heavy draperies. If you walk around, you can catch a glimpse inside. But other than betting a lot of money, I’m not sure what goes on in there. And, that’s fine...some high rollers lose and some win.

But, what if what the high rollers did in that room impacted all of us? What if it impacted consumers, our economy and our country? What if what the high rollers did in that room cost us $417 billion dollars (in a big bank bailout) because the games they were playing were tanking the economy?

That’s why we need a strong Volcker Rule. We should never again be put in a circumstance where too big to fail high rollers play games of chance with our nation. This rule takes a heavy velvet rope with brass ends across the doorway and closes the high roller's room. (Maybe they'll put in more Blazing 7s or Wheel of Fortunes.)

The dilemma in drafting the final rule has been that there are certain permitted forms of trading that have been difficult to define. Fortunately, the language has been solidified tightly to avoid loopholes.

First, the key parts of the law, and what I have focused on for a very long time, are the words surrounding hedging. Proprietary hedging is allowed under the law, but speculative trading--risky gambles for the house--are exactly what Volcker sought to end. This rule does that by requiring hedges be designed to mitigate and reduce actual risk, and not just by an accidental or collateral effect of the trade. We also have better correlation language in the rule, correlation that shows that the hedging “activity demonstrably reduces or otherwise significantly mitigates the specific, identifiable risk(s) being hedged.” This is key--the risk has to be specific and identifiable. You can’t just say, “Ah, oh, that? Hmm, it was a hedge.” Nope, we aren't going to let ya play that game. The position needs to be correlated with the risk.

Furthermore, there is now an ongoing requirement to recalibrate the position, the hedge, in order to ensure that the position remains a hedge and does not become speculative. When people say this version of the Volcker Rule will stop circumstances like the London Whale, this ongoing recalibration provision is exactly what will help avoid similar debacles.

Second, the same goes for market making. Yes, market making is allowed, but only for the benefit of the banks’ customers – for their customers and not in order to collect market maker fees provided by the exchange or for any speculative reason. The market making is only permitted when a bank is hedging a legitimate business risk for a customer. Full stop.

Third, on portfolio hedging: One of the changes that has been made is that we have defined what a portfolio is NOT – it can’t be some amorphous set of excuses for doing a trade. You can’t call deuces and one-eyed jacks wild after the hand has been dealt. You can’t do an after-the-fact extract of a set of trades as a rationale for a hedge.

Fourth, I’ve spoken many times about perverse bonus structures that reward the macho macho men traders. The idea, and it is contained in actual rule text language, is that big bonuses and rewards in banking should not be tied to flyer bets. Our first proposal was fairly poorly drafted on this. It didn’t differentiate between prohibited proprietary trading and permitted proprietary trading very well. My view of the language that compensation should be “designed” not to reward or incentivize prohibited trading is that this is a sufficiently narrow test. One of the ways we will determine if something is designed in this way is how, in fact, traders are paid. So we will look after-the-fact at the payouts.

Finally, the Volcker Rule won’t be implemented until July of 2015. That’s ages in these morphing markets where new games seem to be played all the time. I guarantee there will be efforts to find loopholes, figure out ways around what has been written. That’s the way of the world. So, my final thought is that this rule must not be static. Regulators need to continue to monitor what is taking place. We need our regulatory eyes in the sky, but also to look around the corner for what’s coming next, and be nimble and quick, to ensure that what we do today holds up and that the high roller's room isn’t re-opened.

While this may be the end of part of the rulemaking process, it is, and must be, the beginning of a process, that continues.

Thank you.

AUSTRALIAN DEFENDANTS ORDERED TO PAY $192 MILLION RESTITUTION RELATED TO FOREX FRAUD SCHEME

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 
December 9, 2013
Federal Court in Austin, Texas Orders Australian Defendants to Pay over $192 Million in Restitution and Fines for Forex Fraud

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) obtained a federal court default judgment Order awarding restitution for defrauded customers and civil monetary penalties of more than $192 million against Defendants Senen Pousa and Investment Intelligence Corporation (IIC) (d/b/a ProphetMax Managed FX) in connection with an off-exchange foreign currency (forex) fraud scheme in which Pousa and IIC defrauded over 960 clients in the United States and abroad of over $32 million.

Judge Lee Yeakel of the U.S. District Court for Western District of Texas entered the final default judgment and permanent injunction Order on November 27, 2013, requiring Pousa and IIC to pay restitution, plus prejudgment interest, totaling $33,299,821 to defrauded customers and Pousa and IIC each to pay a $79.5 million civil monetary penalty. The Order also imposes permanent trading and registration bans against Pousa and prohibits him from further violating the Commodity Exchange Act (CEA) and a CFTC regulation, as charged. The Order stems from a CFTC Complaint filed on September 18, 2012, that charged Pousa and IIC with fraud, misappropriation, and other CEA violations (see CFTC Press Release 6353-12).

The Order finds that, from at least January 1, 2012, IIC, through Pousa and its other agents, utilized “wealth creation” webcasts, webinars, podcasts, emails, and other online seminars via the Internet to directly and indirectly fraudulently solicit actual and prospective clients worldwide to open forex trading accounts at IIC. The Order further enters findings of fact and conclusions of law finding Pousa and IIC liable as to all violations, as alleged in the CFTC complaint.

The CFTC’s litigation in this action continues against Defendants Michael Dillard, Joel Friant, and Elevation Group, Inc.

The CFTC appreciates the assistance of the Australian Securities & Investments Commission, U.K. Financial Conduct Authority, Hungarian Financial Supervisory Authority, Netherlands Authority for the Financial Markets, Financial Markets Authority of New Zealand, and the New Zealand Serious Fraud Office.

Further, the CFTC appreciates the assistance of the U.S. Securities and Exchange Commission, which filed a companion case, and the U.S. Department of Justice.

CFTC Division of Enforcement staff members responsible for this matter are Kyong Koh, Michael Amakor, JonMarc Buffa, Mary Lutz, Timothy J. Mulreany, and Paul Hayeck.