On January 2, 2014, the US Commodity Futures Trading Commission (CFTC) ordered a Russian foreign national to pay a $250,000 civil penalty for making false and misleading statements to CFTC staff in an interview during an enforcement investigation. The CFTC issued the penalty pursuant to new authority under the Dodd-Frank Act, which amended the Commodity Exchange Act to make it unlawful for "any person to make any false or misleading statement of material fact to the Commission." Before Dodd-Frank, the CFTC had to rely on the Department of Justice to prosecute false statements made during investigations under general criminal statutes.
According to the CFTC's Order, the president of a Russian bank and co-owner of an investment fund in Cyprus knowingly made false and misleading statements regarding certain call options executed between the bank and the fund. CFTC staff interviewed the bank president in an investigation into whether the bank and the fund had engaged in non-competitive and pre-arranged trades. The Order quotes the bank president as saying in an interview with the CFTC's staff: "The two entities pursue different strategies. Pure coincidence that the trades crossed . . . Very isolated when viewed in the context of all of the trades that [the] bank has placed in markets over the years." The Order finds, however, that the bank and the fund, at the bank president's direction, traded with each other more than 182 times and repeatedly modified their orders so that they would match. On this basis, the Order concludes the bank president knew that his characterization of the trades was false.
The Order's factual conclusion that the interviewee knowingly made false and misleading statements to CFTC staff during the interview is hardly remarkable. But consider the context in which the false and misleading statements were found to have been made: in a presumably unsworn, untranscribed interview. As previously discussed here, the CFTC recently penalized an individual for making false and misleading statements to CFTC staff in sworn testimony during an enforcement investigation, In re Butterfield (CFTC Docket No. 13-33), and it has at least two pending actions alleging similar violations. If Butterfield showed the CFTC's willingness to exercise its new false statements authority, the Order shows the CFTC's willingness to exercise such authority outside the context of formal testimony.
Whether the Order is a blip or a trend for holding an interviewee accountable for unsworn statements to CFTC staff remains to be seen. Regardless, the Order – particularly the magnitude of the penalty – sends a strong signal that the CFTC expects candor in all communications during investigations and breathes life into the old adage, "There's no such thing as off the record."
Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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