Tag Archives: Commodity Contracts Brokering/Dealing

Business

Wall Street to Pay $1.8 Billion in Fines Over Traders’ Use of Banned Messaging Apps

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WASHINGTON—Eleven of the world’s largest banks and brokerages will collectively pay $1.8 billion in fines to resolve regulatory investigations over their employees’ use of messaging applications that broke record-keeping rules, regulators said Tuesday.

The fines, which many of the banks had already disclosed to shareholders, underscore the market regulators’ stern approach to civil enforcement. Fines of $200 million, which many of the banks will pay under the agreements, have typically been seen only in fraud cases or investigations that alleged harm to investors.

But the SEC, in particular, has during the Biden administration pushed for fines that are higher than precedents, saying it wants to levy fines that punish wrongdoing and effectively deter future potential harm. The SEC’s focus on record-keeping is likely to be extended next to money managers, who also have a duty to maintain written communications related to investment advice.

Last month, the SEC alleged that hedge-fund manager Deccan Value Investors LP and its chief investment officer failed to maintain messages sent over

Apple

iMessage and WhatsApp. In some cases, the chief investment officer directed an officer of the company to delete their text messages, the SEC said. The claims were included in a broader enforcement action, which Deccan settled without admitting or denying wrongdoing.

The Wall Street Journal reported last month that the settlements announced Tuesday were likely to top $1 billion and would be announced before the end of September.

Eight of the largest entities, including Goldman Sachs and Morgan Stanley, agreed to pay $125 million to the SEC and at least $75 million to the CFTC. Jefferies will pay a total of $80 million to the two market regulators, and

Nomura

NMR -1.20%

agreed to pay $100 million. Cantor agreed to pay $16 million.

The SEC said it found “pervasive off-channel communications.” In some cases, supervisors at the banks were aware of and even encouraged employees to use unauthorized messaging apps instead of communicating over company email or other approved platforms.

“Today’s actions—both in terms of the firms involved and the size of the penalties ordered—underscore the importance of recordkeeping requirements: they’re sacrosanct. If there are allegations of wrongdoing or misconduct, we must be able to examine a firm’s books and records to determine what happened,” said SEC Enforcement Director

Gurbir Grewal.

Bank of America, which faced the highest fine from the CFTC, had a “widespread and long-standing use of unapproved methods to engage in business-related communications,” according to the CFTC’s settlement order. One trader wrote in a 2020 message to a colleague: “We use WhatsApp all the time, but we delete convos regularly,” according to the CFTC.

One head of a trading desk at Bank of America told subordinates to delete messages from their personal devices and to communicate through the encrypted messaging app Signal, the CFTC said. The head of that trading desk resigned this year, although the bank was aware of his conduct in 2021, the CFTC said.

At Nomura, one trader deleted messages on his personal device in 2019 after being told the CFTC wanted them for an investigation, the agency said. The trader made false statements to the CFTC about his compliance with the records request, the regulator said.

Broker-dealers have to follow strict record-keeping rules intended to ensure regulators can access documents for oversight purposes. The firms settling with the SEC and CFTC admitted their employees’ conduct violated those regulations.

JPMorgan Chase

& Co.’s brokerage arm was the first to settle with the two market regulators over its failure to maintain required electronic records. JPMorgan paid $200 million last year and admitted some employees used WhatsApp and other messaging tools to do business, which also broke the bank’s own policies.

Regulators discovered that some JPMorgan communications, which should have been turned over for separate enforcement investigations, weren’t collected because they were sent on employees’ personal devices or apps that the bank didn’t supervise.

Write to Dave Michaels at dave.michaels@wsj.com

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Business

SEC’s Gensler Signals Support for Commodities Regulator Having Bitcoin Oversight

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WASHINGTON—Securities and Exchange Commission Chairman

Gary Gensler

signaled that he would support Congress handing more authority to the SEC’s sister markets regulator to oversee certain cryptocurrencies such as bitcoin.

Mr. Gensler, speaking at an industry conference, said Thursday he looked forward to working with Congress to give the Commodity Futures Trading Commission added power, to the extent the agency needs greater authority to oversee and regulate “nonsecurity tokens…and the related intermediaries.”

The remarks come amid an intensifying battle among federal agencies and congressional committees that oversee them over who will regulate crypto.

Cryptocurrencies remain largely unregulated by the federal government, leaving investors without protections from fraud and market manipulation that come with many other types of investments. The competition for jurisdiction heated up in recent months as a meltdown in crypto markets underscored the need for guardrails in the eyes of many policy makers.

The competition also reflects the industry’s ramped-up lobbying presence in Washington and its push to reach more mainstream investors through Super Bowl ads and other high-profile marketing initiatives.

Mr. Gensler, who headed the CFTC from 2009 to 2014, qualified his remarks by saying he welcomed working with lawmakers as long as it doesn’t take away power from the SEC.

“Let’s ensure that we don’t inadvertently undermine securities laws,” he said. “We’ve got a $100 trillion capital market. Crypto is less than $1 trillion worldwide. But we don’t want that to somehow undermine what we do elsewhere.”

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Leaders of the Senate Agriculture Committee, which oversees the CFTC, are pitching legislation that would assign oversight of the two largest cryptocurrencies—bitcoin and ether—to that agency. At present, the CFTC generally has the power to regulate derivatives—such as futures and swaps—as opposed to cash or spot markets where the underlying assets are bought and sold for immediate delivery.

The SEC has declined for years to assert jurisdiction over bitcoin and ether, which proponents say are more “decentralized” than other cryptocurrencies. Mr. Gensler noted Thursday that bitcoin is often likened to a digital form of gold, and that it doesn’t bear all of the characteristics of a security.

The bill from the leaders of the agriculture panel is one of several that lawmakers have offered to more tightly oversee cryptocurrencies. In his remarks, Mr. Gensler didn’t express support for any particular bill.

CFTC Chairman

Rostin Behnam

has asked Congress to pass a law that would allow the CFTC to regulate cash markets for certain types of cryptocurrencies and provide it with funding to conduct additional oversight.

After objecting for years to meaningful federal oversight, cryptocurrency lobbyists have recently shifted their focus to convincing lawmakers and regulators that the CFTC should have primary jurisdiction over their industry. They say the SEC’s rules for traditional securities like stocks and bonds don’t fit because cryptocurrencies aren’t organized as traditional corporations with stockholders.

Jake Chervinsky, head of policy at the Blockchain Association, a crypto lobbying group, said in a statement that “decades of legal precedent shows that most digital assets” are commodities.” He said lawmakers should address the issue.

“This is a matter for Congress rather than regulators, and we’re glad to see consensus in Congress that the CFTC, not the SEC, should regulate spot markets,” he said.

While Mr. Gensler’s comments suggest that his agency shouldn’t oversee bitcoin, he said the majority of crypto tokens are securities that fall under his agency’s jurisdiction and should comply with investor-protection laws. Mr. Gensler also said it is possible some crypto intermediaries would need to be dually registered with both his agency and the CFTC, similar to the way some brokers and mutual-fund firms are overseen by both agencies.

Mr. Gensler has also repeatedly demanded that cryptocurrency-trading platforms such as Coinbase Global Inc. register with the agency as securities exchanges akin to the New York Stock Exchange or Nasdaq. In May, the SEC nearly doubled the staff of an enforcement unit focused on cryptocurrencies.

WSJ’s Dion Rabouin explains why many investors are still betting on crypto, even with the very real threat of losing all their money. Illustration: Rami Abukalam

—Paul Kiernan contributed to this article.

Write to Andrew Ackerman at andrew.ackerman@wsj.com

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Business

Deutsche Bank Whistleblower Gets $200 Million Bounty for Tip on Libor Misconduct

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A whistleblower whose information helped U.S. and U.K. regulators investigate manipulation of global interest-rate benchmarks by

Deutsche Bank AG

was awarded nearly $200 million for assisting the probe, according to people familiar with the matter.

The payout is the largest ever by the Commodity Futures Trading Commission, which along with the Justice Department and U.K. Financial Conduct Authority settled enforcement actions against Deutsche Bank in 2015.

The CFTC’s announcement didn’t name the bank or the case, but the reward is related to the bank’s manipulation of the London interbank offered rate and similar widely used benchmarks, the people said.

The whistleblower’s application for an award was initially denied by the CFTC, but the U.S. derivatives regulator ultimately decided that the individual’s information was helpful after the whistleblower submitted a request for reconsideration.

“We’re very happy that the CFTC was able to reverse an earlier decision and turn around their thinking,”

David Kovel,

a managing partner at law firm Kirby McInerney LLP who represents the whistleblower. “It says a lot about the people there that they don’t feel forced to stick with the wrong decision given the amount that’s at stake.”

The Wall Street Journal previously reported that the former executive had provided information that helped CFTC and Justice Department investigations that led to roughly $2.5 billion in settlements with Deutsche Bank in 2015, including $800 million with the CFTC. They alleged that the bank manipulated Libor, a benchmark interest rate used to set short-term loans for global banks which traders and other bank employees could manipulate because it was based on oral submissions and not on actual transactions.

“The kind of information he provided was of the sort that was very hard to get if you don’t know where to look in a big financial organization,” Mr. Kovel said.

Rigging Libor was profitable for banks and other market participants because billions of dollars worth of derivatives known as swaps were priced off movements in the benchmark.

A spokesman for Deutsche Bank declined to comment.

The prospect of such a large payout pushed the CFTC whistleblower program into turmoil this year, as agency leaders contended there was no mechanism to pay the former bank executive and other applicants and keep funding the program. The agency averted a crisis after President Biden signed a bill in July to fund the program.

The CFTC investigation had already started by the time the whistleblower approached a separate agency, officials wrote in an order making the award. But the information proved valuable in interviews that authorities conducted as they expanded their probe, according to the order.

Dawn Stump,

a Republican commissioner on the CFTC, said in a statement that she disagreed with basing the award partly on a fine levied by a foreign regulator. Like the CFTC’s announcement, Ms. Stump didn’t name the bank or the underlying case in her statement.

Ms. Stump wrote that the CFTC has never before given an award to a tipster based on an overseas regulator’s enforcement action.

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“I believe we need to take an especially close look at cases where a whistleblower asks the commission to tap its limited Customer Protection Fund for an award relating to an action by a foreign futures authority to address harm outside the United States,” Ms. Stump wrote.

Thursday’s award is the largest issued to a single person since the 2010 Dodd-Frank financial overhaul law created the programs to help avoid another massive fraud like Bernie Madoff’s Ponzi scheme.

The Securities and Exchange Commission last year issued its biggest whistleblower payment ever of about $114 million to a tipster.

“It’s showing that the CFTC program, like the SEC program, over the past 10 years, has really reached its maturity,” said

Mary Inman,

an attorney representing whistleblowers at law firm Constantine Cannon LLP.

Corrections & Amplifications
The Securities and Exchange Commission last year issued its biggest whistleblower payment ever of about $114 million to a tipster. An earlier version of this article incorrectly said the payment was to two tipsters. (Corrected on Oct. 21)

Write to Mengqi Sun at mengqi.sun@wsj.com and Dave Michaels at dave.michaels@wsj.com

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