A federal judge in the District Court of New Jersey recently dismissed a case brought by the Commodity Futures Trading Commission (“CFTC”) against Traders Global Group Inc., also known as My Forex Funds, a New Jersey corporation, Traders Global Group Inc., a Canadian business organization, and Traders Global Group CEO Murtuza Kazmi (collectively, the “Defendants”). The case was dismissed with prejudice, and the Court awarded attorneys’ fees and costs associated with bringing the Motion for Sanctions based upon a recommendation by a Court-appointed Special Master. According to the Special Master, the sanction was warranted after he found that the CFTC made “false representations” to the Court and acted “willfully and in bad faith on several occasions” by failing to fully correct the prior incorrect statements. The Special Master also found that these actions were taken by the CFTC in order to gain a “tactical advantage” in the case, and that the conduct “appear[ed] likely to repeat itself” if no sanction was imposed.
On August 28, 2023, the CFTC filed a complaint against Kazmi and the Traders Global entities accusing them of engaging in a “large-scale fraud scheme involving leveraged, margined, or financed retail foreign exchange . . . and retail commodity transactions in violation of the Commodity Exchange Act.” The CFTC also filed an ex parte Motion for Statutory Restraining Order and Preliminary Injunction Pursuant to 7 U.S.C. § 13a-1 (the “SRO/PI Motion”). As explained in the Report and Recommendation of the Special Master (the “Report”), in support of the SRO/PI Motion, the CFTC filed a Declaration by an investigator that alleged that CAD $31.5 million was transferred to an “unidentified Kazmi account,” when, in fact, the identified transfers were payments to Canadian tax authorities. On August 29, 2023, the Court entered the requested statutory restraining order, which placed the Defendant companies into receivership.
However, according to the Report, on June 16, 2023, a CFTC attorney had received an email that placed him “on notice of at least the possibility that these [transfers] were tax payments.” Moreover, the Report stated that this CFTC attorney and the CFTC investigator received an email on August 17, 2023, that placed them “on notice that the payments were for corporate taxes due.” Nevertheless, the declaration stating that the CAD $31.5 million transfers were to a Kazmi account was filed on August 28, 2023.
Then, according to the Report, on September 19, 2023, the Defendants filed an Emergency Motion to Modify the Ex Parte Statutory Restraining Order. In its opposition brief, the CFTC again cited to the CAD $31.5 million in transfers as being to an account in Defendant Kazmi’s name. The Report found that the CFTC had therefore “relied on what [it] already knew by then was an erroneous statement.” Defendants pointed out the error in their Reply in Support of the Motion to Modify. As stated in the Report, the CFTC investigator reviewed the Reply, and then asked the CFTC attorney if he needed to take some action to correct the prior declaration. According to the Report, the attorney determined no further action was necessary.
The Report also faulted the attorney and investigator for not fully and accurately disclosing when they knew the transfers were not tax payments. For instance, the Report noted that the investigator testified at a hearing that he had not learned the payments were tax payments until after the filing of the Reply, which the Report said was “false.” The Report also criticized CFTC management, which had considered disclosing the August 17, 2023 email in a letter to the Court, but instead determined it should be disclosed in a brief. The CFTC disclosed the email in a footnote in a December 1, 2023 brief, and attached the email as an exhibit to the brief.
Reviewing this course of conduct, the Special Master found that “the CFTC in fact acted willfully and in bad faith on several occasions” and, therefore, recommended sanctions under Rule 11 of the Federal Rules of Civil Procedure and the Court’s inherent authority. The Report stated that the “CFTC had ample time and resources to acquire all the necessary facts in order to present a comprehensive, accurate, and ultimately truthful set of facts to the Court, but failed to do so.” The Report went on to say that “[a]t multiple points in time, the CFTC also had the opportunity correct [sic] the false statements and impressions that had been made, yet it chose to go a different route in violation of its duty of candor to the Court.”
In response to the Court’s decision, Caroline Pham, the Acting Chairman of the CFTC, said that the CFTC “must now accept accountability so that appropriate corrective action can finally be taken to address the conduct issues, and the CFTC can put this behind us and move forward to restore the agency’s credibility and reputation.” Pham further stated that the Court’s decision exposed a problematic culture at the CFTC that has existed “for far too long.” A CFTC press release also discussed a number of remediation and reform measures it said have been taken, including delivering ethics training and the launch of a Basic Trial Advocacy Skills training series.
Report and Recommendation of Special Master | Order | CFTC Press Release