CUBE RegNews:
7^th July

BoE publishes Enforcement Decision Making Committee report  

The Bank of England’s Enforcement Decision Making Committee (EDMC) has published its annual report for the period March 2022 to February 2023. 

The report’s contents include: 

• Overview 
• Membership 
• Cases 
• Upper Tribunal Proceedings 
• General Matters 
• Review of the enforcement settlement process 
• Looking forward – the next 12 months 

CFTC files fraud charges for FOREX fraud           

The Commodity Futures Trading Commission (CFTC) has taken legal action against Dwight A Foster and his firm, KEL Enterprises, Inc. (KEL). The CFTC has filed a civil enforcement action  accusing Foster and KEL of fraud, registration violations, and books and records violations. The alleged fraudulent scheme involved soliciting and accepting approximately $13.2 million from US customers. 

According to the complaint, Foster and KEL solicited members of the public to participate in a commodity pool for trading commodity interests, including leveraged foreign currency (forex) pairs and forex futures contracts. Instead of trading with the participants’ funds as promised, Foster and KEL allegedly misappropriated all of the funds by depositing them into KEL’s corporate bank accounts. The funds were used to cover Foster’s personal expenses, including a car loan, insurance, credit cards, and daily living costs. Moreover, later investors’ funds were used to pay earlier investors in a Ponzi-like scheme. 

The CFTC also alleges that throughout the relevant period, KEL acted as a commodity pool operator (CPO) without being registered with the CFTC, while Foster acted as an associated person of a CPO without the required registration. Additionally, KEL failed to make necessary disclosures and maintain proper books and records as mandated for a CPO. 

CFTC settles charges against perpetrators of bitcoin fraud           

The Commodity Futures Trading Commission (CFTC) has acted against two individuals, Randy Craig Levine and Philip Reichenthal for orchestrating a fraudulent scheme involving bitcoin. In a simultaneous filing and settlement, the CFTC charged Levine and Reichenthal with deceptive practices, accusing them of knowingly providing false information to investors, leading to a loss of more than $5 million. 

According to the CFTC’s orders, Levine and Reichenthal convinced investors to send funds to Reichenthal, promising to purchase bitcoin from Levine. However, after receiving the investors’ money, the pair failed to deliver the promised bitcoin and neglected to return the funds to the rightful owners. 

The CFTC has imposed a range of penalties, including full restitution for the victims of the fraud and permanent trading and registration bans against Levine and Reichenthal. This action demonstrates the CFTC’s commitment to combatting fraud in the digital assets sector, as stated by Director of Enforcement Ian McGinley and subsequently by Commissioner Kristin N Johnson. 

The CFTC found that Reichenthal, utilising his status as a licensed attorney, posed as an escrow agent for the transactions, assuring investors that he would hold their funds in trust accounts until they received the purchased bitcoin from Levine. However, the CFTC determined that these assurances were false. Reichenthal subsequently transferred the funds to accounts controlled by Levine, and no bitcoin was ever delivered to the investors. Furthermore, the perpetrators failed to return the investors’ funds as promised. 

In a related criminal case, the US District Court for the Southern District of New York accepted guilty pleas from Reichenthal on February 11, 2022, and Levine on November 9, 2022. The court subsequently sentenced Levine to 70 months in prison and Reichenthal to time served, along with forfeiture equal to the amount of restitution outlined in the CFTC’s orders. 

The CFTC’s actions against Levine and Reichenthal demonstrate the agency’s ongoing efforts to maintain the integrity of the market and ensure wrongdoers are brought to justice. 

Separately, the CFTC has also charged Jon Barry Thompson of perpetrating a bitcoin fraud scheme whereby he induced two customers to send roughly $7 million to fund the purchase of bitcoin after making false representations that he or the company had the bitcoin in hand and the customers’ money would be safeguarded.  After receiving the customers’ money, the complaint alleges, Thompson sent virtually all of the money to third parties without first receiving any bitcoin in return. 

$11m fines for fake trading scheme           

The Securities and Exchange Commission (SEC) has obtained final judgments against Empires Consulting Corp (EmpiresX) and its founders, Emerson Sousa Pires and Flavio Mendes Goncalves, for their involvement in a fraudulent trading scheme.  

EmpiresX marketed investments promising daily profits through a trading bot or manual trading. However, the SEC’s complaint revealed that the bot was fake, manual trading led to losses, and investors’ funds were misappropriated for personal expenses. Pires and Goncalves  face criminal charges as well. The judgments permanently enjoin them from violating securities laws, prohibit them from soliciting new investors or accepting funds, and impose financial penalties and disgorgement of $32.2 million inclusive of civil penalties of $6 million and $5 million respectively. They are also barred from acting as officers or directors of public companies.