CPO to Pay Over $5.65 Million to Settle CFTC's Disclosure Misconduct Charges

The CFTC settled charges against an asset management firm and a registered CPO that made alleged material misstatements in disclosure documents, as well as in annual and quarterly reports, about the operation of a multi-advisor commodity pool.

Specifically, the CFTC order alleged that the CPO:

• falsely disclosed to the multi-advisor commodity pool that it charged management fees based on the net asset value ("NAV") when the fees actually were based on the value of the notional assets that the CPO was managing in each series, which the CFTC asserted amounted to $5.4 million more than what should have been charged based on the NAV;

• falsely disclosed its methodology of valuing certain options as "corroborated by weekly counterparty settlement values" even though it received information that its valuation of certain options was materially higher than the counterparty's indicative settlement valuations;

• failed to disclose as a material subsequent event a series' early termination of an option at a valuation that was materially different than the value that had been recorded for that option; and

• falsely asserted that an option was transferred between two series in accordance with the multi-advisor commodity pool's valuation policies.

The CPO agreed to pay a $250,000 civil monetary penalty and a disgorgement of $5,404,004.

Because the CPO also was registered as an investment adviser with the SEC, and the offering of units for each series of the multi-advisor commodity pool was registered under the Securities Act, the SEC settled charges for related conduct on January 19, 2016.