CFTC charges SwapStar Capital with fraud
The United States Commodity Futures Trading Commission (CFTC) has brought fraud charges against Swapnil Rege and his company SwapStar Capital LLC. The regulator filed a lawsuit against the defendants on October 26, 2021 at the New Jersey District Court.
The complaint, seen by FX News Group, alleges that from at least September 2019 to the present, Swapnil Rege, both individually and through his company SwapStar Capital LLC, solicited and received funds from at least 25 individuals based on promises to pay fixed rates of return on unsecured loans or for the stated purpose of making investments in securities.
The defendants executed written “Investment Advisory Agreements” or “Private Loan Agreements” with many of the Account Holders, which typically provided that Defendants were fiduciaries for the Account Holder, that Defendants would pay a fixed rate of interest during an agreed-upon period in exchange for the loan or investment, and that Defendants were authorized to make investments on behalf of the Account Holders. Defendants then used a portion of the solicited funds to actively trade commodity futures and commodity options through accounts Defendants owned or that were nominally owned by Defendant Rege’s spouse and/or his father, but were controlled by Defendant Rege.
Defendants also took a portion of the funds and misappropriated them, using those funds for personal expenses and to repay other Account Holders to whom they owed money.
Finally, Defendants failed to fully disclose to the Account Holders that Defendant Rege was barred from executing any commodity futures or commodity options trades for a period of three years, pursuant to a July 18, 2019 Commission order that was entered in settlement of fraud charges.
According to the CFTC, the defendants have engaged in, are engaging in and, unless restrained and enjoined will continue to engage in, acts and practices which constitute violations of the 2019 Order.
In 2019, the Commission filed an administrative action against Defendant Rege for violating Section 6(c)(1) of the Commodity Exchange Act (“Act”), 7 U.S.C. § 9(1) (2012), and Regulation 180.1(a)(1)–(3) (2018), 17 C.F.R. § 180.1(a)(1)–(3) (2018), of the Commission Regulations (“Regulations”) promulgated thereunder. The Commission found that Defendant Rege engaged in a fraudulent scheme to mismark the valuations for certain interest rate swaps on the books of his employer, a commodity pool operator (CPO) located in Connecticut.
Rege mismarked the valuations in an attempt to artificially inflate the profits of the CPO, in order to meet performance metrics that would qualify him for an (artificially inflated) performance bonus. As a result of the mismarking scheme, he caused the CPO to overstate its reported performance to pool participants, which in turn resulted in overstated management fees. The valuations could not be and were not realized by the CPO. Further, Rege engaged in numerous steps to conceal his misconduct.
Rege agreed to settle the matter simultaneously with the Commission’s filing and consented to the entry of the 2019 Order. As part of the settlement, Defendant Rege was ordered to cease and desist from further violations of and to pay a civil monetary penalty in the amount of $100,000. Defendant Rege also agreed to pay disgorgement of $600,000 plus pre-judgment interest in the amount of $49,170.84, representing the gains received in connection with his violations.
In addition, Rege was prohibited from, directly or indirectly, engaging in trading on or subject to the rules of any registered entity for a period of at least three years after the date of entry of the 2019 Order; and until after payment and satisfaction in full of the disgorgement and civil monetary penalty amounts and any applicable interest, and all registered entities were to refuse him trading privileges during that period.
Finally, Defendant Rege agreed to cooperate fully and expeditiously with the Commission, including the Commission’s Division of Enforcement, in any current or future Commission investigation or action relating to the subject matter of the 2019 Order.
In disregard of the 2019 Order, in or about September 2019, the defendants solicited funds from Account Holders for the represented purpose of investing in securities on their behalf. In soliciting the Account Holders, Defendants made material misrepresentations and omissions, including: (1) Account Holder funds would be used for investment purposes; (2) Account Holder funds would be invested in securities; (3) Account Holders would receive a fixed monthly, quarterly, or annual return, in some cases as high as 40% to 60%; and (4) Account Holders could redeem their funds immediately or on short notice.
In making these representations, Defendants failed to disclose that they were soliciting funds, at least in part, to trade commodity futures and commodity options. Defendant Rege also failed to disclose that he was barred from trading any commodity futures or commodity options as a result of the 2019 Order.
In addition, during the Relevant Period, Defendants misappropriated Account Holders’ funds for their personal benefit, including to pay for personal expenses and to make payments to other investors and lenders in a manner akin to a Ponzi scheme. Defendants used Account Holders’ funds in this manner without disclosure to, or authorization from, Account Holders.
The CFTC notes that the defendants have not returned all funds to Account Holders.
The Commission brings this action to enjoin the defendants’ unlawful acts and practices and to compel compliance with the Act and Order. In addition, the CFTC seeks civil monetary penalties and remedial ancillary relief, including but not limited to, trading and registration bans, restitution, disgorgement, and such other relief as the Court may deem necessary or appropriate.