CFTC and TFS-ICAP reach agreement in principle to resolve fraud case
The United States Commodity Futures Trading Commission (CFTC) may soon close its action against interdealer broker TFS-ICAP, as the parties appear to have reached an agreement to resolve the matter. This becomes clear from a Letter filed by the CFTC with the New York Southern District Court on October 23, 2020.
The Letter, seen by FX News Group, states that the Division of Enforcement of the CFTC and all defendants have reached an agreement in principle to resolve the case. More specifically, the Division and the Defendants have agreed on the language of a proposed consent order.
Because the Division does not have independent settlement authority, the Proposed Order must be submitted to the Commission for its approval. If the Commission approves the Proposed Order, the parties will then submit it to the Court for its approval.
If the parties are not in a position to submit a Commission-approved Proposed Order to the Court by December 3, 2020, the parties will promptly notify the Court of the status of the matter and proceed as the Court deems appropriate.
Let’s recall that, in September 2018, the CFTC charged TFS-ICAP LLC and TFS-ICAP Ltd. (TFS-ICAP) with fraud and supervision failures. The regulator alleged that, from approximately 2008 through 2015, brokers at TFS-ICAP offices in the United States and the United Kingdom routinely attempted to deceive — and deceived — their clients by engaging in the practices of communicating to them fake bids and offers and fake trades in the FX options market.
In addition, the Complaint charged the Chief Executive Officer, Ian Dibb, and the Head of Emerging Markets broking, Jeremy Woolfenden, with supervisory failures due to their alleged knowledge and/or encouragement of the fraudulent practices.
The Complaint alleged that the practices, known as “flying prices” and “printing trades”, were a core part of TFS-ICAP’s broking business. It alleged that brokers flew prices and printed trades to clients over the phone, in instant message chats, and on TFS-ICAP’s proprietary electronic trading platform, Volbroker. According to the Complaint, the purpose of “flying” fake bids and offers and “printing” fictitious trades was to give clients the impression that there was more liquidity on TFS-ICAP’s platform than there actually was and to induce traders to transact at times and at prices that they would not otherwise have transacted.
The Complaint alleged that when a client attempted to trade with a fake bid or offer and the TFS-ICAP broker could not find a real counterparty to step into the trade, the broker would lie — making up an excuse as to why the bid or offer was not available.
The Complaint alleges that senior managers at TFS-ICAP either encouraged flying and printing or knowingly allowed the practices to continue. According to the Complaint, Woolfenden explicitly encouraged brokers under his supervision to fly prices and print trades. The Complaint further alleged that Dibb had actual knowledge and/or reason to know of the pervasive, fraudulent practices, but failed to take appropriate steps to discourage or prevent the practices.