Securities News: Deutsche Bank Fined $157M For Violating Volcker Rule, CFTC Charges Couple With Hedge Fund Fraud, & SEC Accuses Oil and Gas Promoter of Inflating AUM

Federal Reserve Imposes First Fine to a Bank Over A Volcker Rule Violation
For violating the Volcker Rule’s ban on making risky market bets, Deutsche Bank (DB) must pay a $157M fine for not making sure its traders didn’t make such bets and for allowing its currency desks to engage in online chats with competitors, during which time they allegedly disclosed positions. It was just last year that the German lender admitted that it did not have sufficient systems in place to keep track of activities that could violate the ban.

Under the Volcker Rule, banks that have federal insured deposits are not allowed to bet their own funds. They also are supposed to makes sure that when their traders help clients sell and buy securities, they aren’t engaging in bet making.

For the system lapses, the Federal Reserve fined Deutsche Bank $19.7M. The remaining $136.9M fine is for the chats and because the bank purportedly did not detect when currency traders were revealing positions or trying to coordinate strategies with competitors.

According to Bloomberg, a source disclosed that New York’s Department of Financial Services also has been probing currency chat rooms and is getting ready to impose its own sanctions on Deutsche Bank.

CFTC Files Commodity Futures Fraud Against Purported Hedge Fund
The Commodity Futures Trading Commission is charging Robert Leland Johnson IV and Marisa Elena Johnson and their Capital Equity FX LLC, of which they are principals and agents, with commodity futures fraud while running a purported hedge fund. Other charges against them include commodity pool fraud, leveraged retail foreign fraud, not registering with the CFTC, and taking part in activities from which a commodity pool operator is barred.

The couple is accused of fraudulently soliciting more than $1.7M from the public for a pooled fund. The Johnsons purportedly purposely made omissions and material misrepresentations about their strategies, trading abilities, and profits in order to bring in investors. They also are accused of generating made up performance statements and misleading account documents that overstated account balances, hid loses, and didn’t accurately reflect trading profits.

The Johnsons allegedly misappropriated all of the participants’ money for their own personal use while diverting some of the funds to earlier customers in Ponzi-like fashion. Now, the CFTC wants restitution, disgorgement, penalties, and certain bans.

NY-Based Investment Adviser Accused of Inflating Assets To Get Investor Money
The SEC has filed charges against Hyaline Capital Management LLC and one of its founders. According to the regulator, the NY-based investment advisor, which is an oil and gas promoter, and Justin D. Meadlin gave clients and investors false information so that they would invest. This false information included the inflation of the firm’s assets under management (AUM). Meadline said that Hyaline Capital Management oversaw $17- $25M, when, during the time at issue, from 9/12 through 4/13, the firm’s AUM was no greater than $5.5M.

Meadline also spoke bout a “quantitative” trading strategy and a Hyaline Capital Quantitative Fund (HCQF) that had up to $25M in assets, as well as historic performance returns that were supposedly because of a proprietary algorithm. The fund was a fake and there was no proprietary algorithm. Stated returns were exaggerated and based almost solely on paper trades that lacked real capital.

Now, the SEC wants injunctive relief, penalties, and disgorgement.

Our broker fraud lawyers and investment fraud attorneys work with investors throughout the US. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

Deutsche Bank becomes first bank busted for breaking Volcker rule, Pensions & Investments, April 21, 2017

Volcker Rule

The CFTC Complaint in the Leland Case/Capital Equity Case (PDF)