October 3, 2019

Interdealer Brokers Settle CFTC and NYAG Charges for Fraudulent FX Options

Two interdealer brokers ("IDBs") settled separate New York Attorney General ("NYAG") and CFTC charges for fraudulent practices involving foreign exchange currency options.

According to NYAG Orders (see here and here) and the CFTC Orders (see here and here), the IDBs made false statements to clients that (i) certain bids and offers could be executed and (ii) certain trades had taken place. NYAG and the CFTC stated that by doing this, the IDBs created the impression of greater liquidity than there actually was. The IDBs, according to the NYAG, also printed fake trades that were intended to induce traders to enter into genuine "follow-on" trades at a level that the IDBs had falsely reported.

To settle NYAG charges, the IDBs each agreed to (i) pay separate penalties of $5 million and $7.5 million, (ii) implement policies and procedures to prevent similar violations and provide training to employees and (iii) hire an independent monitor to report their findings to the NYAG over the course of a year.

To settle the CFTC charges, the IDBs each agreed to (i) cease and desist from further violating CFTC regulations, (ii) pay separate penalties of $10 million and $15 million, with credit applied for penalties paid to NYAG, and (iii) comply with the conditions and undertakings outlined in their respective Orders.

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