Receiving a subpoena from the U.S. Commodity Futures Trading Commission often causes panic by the recipient given the civil and criminal penalties associated with Commodities Exchange Act violations. The recipient may have no advance notice of the subpoena and may be unaware if they are a target of the CFTC’s investigation or merely an individual or company that possesses records of interest to the government. This blog post outlines appropriate steps to take upon receipt of a CFTC subpoena.

CFTC’s Information Gathering Process

The Staff of the CFTC is empowered to initiate investigations of persons and companies suspected of having violated the Commodity Exchange Act. The Staff generally receives documents from voluntary productions and use of compulsory process (meaning, the issuance of subpoenas). Any request for a voluntary interview or the voluntary production of documents requires serious consideration and consultation with counsel. The Staff’s reach can extend internationally. The CFTC has Memoranda of Understandings with various foreign authorities, which enables the CFTC’s staff to obtain documents without resort to use of subpoena power.

Action Steps Upon Receipt of a Subpoena

1. Preserve all records and gather responsive documentation
2. Alter all need-to-know employees (in-house counsel and certain officers) and issue a litigation hold
3. Confer with experienced counsel
4. Assess any potential liability under the applicable statutes and regulations
5. Counsel should obtain the Formal Order of Investigation
6. Counsel should consider conferring with the Staff of the CFTC in an effort to limit the scope of the subpoena where appropriate
7. Assess with counsel whether an internal investigation is appropriate
8. Review collected documents for responsiveness, privilege and confidentiality
9. Assess with counsel whether any targeted employee should have independent counsel
10. Determine any objections to the scope or burden of the subpoena and whether to resist the subpoena (by motion to quash) or comply
11. If the subpoena recipient is a public company, determine whether public disclosure is necessary

Given the number of necessary action steps, individuals and entities without in-house counsel are often disadvantaged by going it alone. Herskovits PLLC has a nationwide practice representing individuals and entities which are subject to CFTC investigations. Feel free to call us at 212-897-5410 with any questions concerning a CFTC subpoena or request for information.

Joseph Kim, a young Chicago trader just pleaded guilty to stealing $3 million worth of cryptocurrency from the firm that employed him and investors. The case, which involves charges of wire fraud, is the first criminal prosecution for cryptocurrency related violations in the city.

The 23-year-old trader who appeared before Judge Andrea Wood, could potentially be sent to prison for as long as 20 years. He will be sentenced in October, and he may also be ordered to pay back over a million dollars in restitution.

According to the prosecutors´ allegations, the defendant took $3 million from his firm and over half a million from investors. His goal was to make up for losses he incurred due to disadvantageous trades made on his personal account. While he attempted to return some of the Litecoin and Bitcoin he stole from his firm, Consolidated Trading, he still owed over $1.1 million when the misconduct came to light.

A spokesperson for the defendant referred to his behavior as a series of “poor decisions” and said he would “work tirelessly to repay those whose money was lost.”

Cryptocurrency has certain characteristics that make it especially vulnerable to theft. In fact, Kim apparently only began stealing from his firm after he was assigned to cryptocurrency trading, in 2017, roughly a year after he joined Consolidated.

As per firm rules, Kim should have stopped trading cryptocurrency through his personal accounts immediately after he was reassigned to the company´s crypto team, but an FBI investigation revealed he did not comply.

On several occasions, he transferred significant amounts of both Litecoin and Bitcoin to his own cryptocurrency wallet. When he was confronted about it by both colleagues and supervisors, Kim said he was making the illegal transfers for security reasons. But according to the FBI, on many occasions, he failed to give the cryptocurrency back.

After the owners of Consolidated found out about the missing funds, Kim told them in an email that it had not been his intention to steal from them, and that he had been “until the end… perversely trying to fix” what he had done. “I can’t believe I did not stop myself when I had the money to give back, and I will live with that for the rest of my life,” he added.

He was, of course, fired, and decided to go out on his own. Then, he convinced a handful of investors to give him over half a million dollars, which he lost after engaging in high-risk trades.

Kim may be the first individual to be prosecuted for stealing virtual currency in Chicago, but he will certainly not be the last. In the current scenario of increasingly stringent regulations, the cryptocurrency space is bound to see increasing scrutiny into trades, which may lead to more criminal prosecutions of this kind.

HerskovitsPLLC securities lawyers defend advisors and broker-dealers in regulatory and civil actions related to cryptocurrency, securities industry employment, and other matters. Call Us at 212.897.5410 or Connect Online

A few days before issuing the recent advisory for the cryptocurrency market, the Commodity Futures Trading Commission told the judge in the case against My Big Coin Pay Inc. that cryptocurrencies are commodities, and are therefore within CFTC jurisdiction.

The federal judge in Massachusetts is hearing the case against My Big Coin Pay Inc., a cryptocurrency company that allegedly defrauded dozens of investors out of at least $6 million.

Unsealed earlier this year, a CFTC lawsuit against the issuer of the virtual currency known as My Big Coin Pay first shed light on the company´s questionable practices.

The defendants argued that cryptocurrencies should not be open to CFTC scrutiny because they are not commodities. The CFTC counter-argued that, “Moving defendants’ interpretation would lead to absurd results,” and that the statute, “cannot be read to allow a defendant who is in the virtual currency business to lie, cheat and steal when it comes to virtual currencies similar to bitcoin, which do not underlie futures contracts, but not when it comes to a virtual currency underlying a futures contract, like bitcoin.”

According to the allegations in the case the Nevada-based company, its founder and one of its salesmen conspired to defraud about 28 investors out of six million dollars between 2014 and 2017.

The two defendants allegedly used proceeds from the scheme to fund a lavish lifestyle, including high-end shopping escapades to Las Vegas, and to pay personal debts.

Based on advertisements for My Big Coin, Investors were led to believe that the virtual currency was backed by gold and as widely accepted as major credit cards. Both statements have been found to be false.

While the company´s founder asked the judge to declare the suit meritless, the CFTC reaffirmed its argument that cryptocurrencies are commodities and are thus under its jurisdiction, because a commodity needs not be “tangible” to be regulated as such.

The CFTC specifically argued that virtual currencies such as My Big Coin fall into a category contemplated in the Commodity Futures Trading Commission Act of 1974, namely, “all other goods and articles.”

While the first attempt by the CFTC to hold a company accountable for cryptocurrency fraud failed last year, the current scenario seems more propitious for the regulator to succeed.

Are you or your company a target of CFTC regulatory action? HerskovitsPLLC New York securities lawyers with a national practice helps financial industry participants avoid or defend against CFTC enforcement actions. 212.897.5410 or Connect online

On May 21st, the Commodity Futures Trading Commission issued a new document offering valuable guidance for registered market participants.

The head of the CFTC’s Division of Market Oversight, Amir Zaidi said in an accompanying press release,

“The CFTC staff is committed to providing regulatory clarity as much as possible. As the virtual currency market continues to evolve, CFTC staff will seek to provide additional guidance to help market participants keep pace with innovation while complying with CFTC regulations.”

The advisory’s text explains that Bitcoin and other cryptocurrencies have been defined by the CFTC as commodities since 2015 and warns that, “The significant risks associated with virtual currency markets justify close scrutiny by both CFTC staff and registered entities,” also emphasizing that, “virtual currency platforms present heightened concerns about potential impacts on CFTC-regulated markets, including potential market manipulation, because they lack the transparency and robust regulation as U.S. derivatives platforms.”

The document cites the market’s youth as a potential risk factor, also commenting on the frequency of dramatic price swings.

“This raises questions about whether clearinghouses can adequately assess the inherent risk of virtual currency contracts in setting margin levels for these contracts,” the advisory concludes.

Overview of the Advisory’s Key Areas:

• Enhanced Market Surveillance: Focus on transparency, Know Your Customer and Anti Money Laundering regulations, as well as real-time monitoring “of all trading activity on its electronic trading platforms to identify disorderly trading and any market or system anomalies.”
• Close Coordination with CFTC Surveillance Group: “Staff expects exchanges to regularly discuss with Commission staff a wide range of issues related to the surveillance of virtual currency derivatives contracts, and provide surveillance information as requested by Commission staff.”
• Large Trader Reporting: “Staff recommends that the exchange set the large trader reporting threshold for any virtual currency derivative contract at five bitcoin (or the equivalent for other virtual currencies). Staff believes that this level could help facilitate surveillance of the futures and options markets by increasing the exchange’s ability to focus on relevant information in the spot market.”
• Outreach to Members and Market participants: “Prior to listing a new contract on virtual currency, staff expects an exchange to solicit comments and views on issues relating to the listing, beyond those that relate to the contract’s terms and conditions and its susceptibility to manipulation.”
• Derivatives Clearing Organization Risk Management: “Staff will review the DCO’s proposed initial margin requirements to assess whether they are commensurate with the risks of the contracts, including risks that result from any unusual product characteristics. Staff will review, among other things, the ability of proposed margin requirements to adequately cover potential future exposures to clearing members based on an appropriate historic time period.”
• CFTC Oversight: Regarding the current self-certification for new contracts, the advisory states, “To bring greater transparency to the process, if Commission staff is unable to confirm that the contract being self-certified complies with the CEA and regulations, but the exchange lists (or intends to list) the contract, staff may notify the exchange of its concerns in writing.”

Understanding the CFTC Guidance

According to CFTC Commissioner Rostin Benham, the staff advisory is meant to clarify expectations, but it does not constitute a formal change to the regulatory process.

“Such changes require a more fulsome and formal process, subject to Commission deliberation and public notice and comment. I look forward to continuing to explore our options, which I hope will include some parameters for determining when self-certification may not be appropriate, and for determining when such matters are appropriately brought before the Commission,” the Commissioner said in a speech.

For the head of the regulatory entity’s Division of Clearing and Risk, Brian Bussey, “CFTC staff is providing this information, in part, to aid market participants in their efforts to design risk management programs that address the new risks imposed by virtual currency products.

In addition, the guidance is designed to help ensure that market participants follow appropriate governance processes with respect to the launch of these products.”

Working with virtual currency products? Avoid regulatory problems before they start or head off challenges at their inception. Herskovits PLLC lawyers focus exclusively on securities related regulatory issues. More than 20 years’ experience and well-versed on cryptocurrency issues. Call US 212.897.5410 or Connect Online

The over 80 subpoenas recently issued to companies in the cryptocurrency sector have provided a logical corollary to the agency’s many warnings about ICOs potential violations of security laws.

The time for warnings is over. Now, the SEC’s intentions have evolved into enforcement actions, forever changing the scenario for new cryptocurrency initiatives.

In late 2017, Bitcoin’s spectacular rise in value lured both would-be cryptocurrency developers and new investors with the promise of returns higher than 2,000 percent. Although the digital currency’s value eventually stabilized, these price fluctuations and the surge in ICO initiatives raised alarm among regulators, who pointed to issues of valuation, liquidity, and arbitrage.

One of the main concerns for CFTC and SEC regulators is the lack of transparency that is inherent to blockchain.

While the heads of both agencies have publicly expressed their optimism about the future of financial technology, they have clearly advised companies raising capital through ICOs to take “appropriate steps to ensure compliance with the federal securities laws.”

As per the U.S. Supreme Court’s Howey test to determine what constitutes a security, ICO activities fit the bill: they involve the investment of money with a reasonable expectation to obtain profits resulting from the entrepreneurial/managerial efforts of others. In other words, the sector’s semantic attempts to dodge SEC scrutiny have failed.

The recently issued SEC subpoenas demanded a variety of documents from cryptocurrency companies, from marketing materials, to establish if there has been false advertising, to investor information, and details about organizational structure.

Recent SEC and CFTC Enforcement Actions

• April, 2018 – SEC complaint filed against Centra Tech, a company that used celebrity endorsements and fake CEO bios to lure investors. Their ICO involved a cryptocurrency-funded debit card supposedly backed by Visa and Mastercard. Three executives were arrested.
• April, 2018 – Over $27 million in fintech trading proceeds were frozen after the SEC filed a complaint accusing Delaware-based Longfin of causing a surge in stock prices as a result of the sale of restricted shares and subsequent acquisition of a “purported cryptocurrency business” that had “no ascertainable value.”
• January 2018 – Texas-based AriseBank received a court order halting an offering of its cryptocurrency AriseCoin. According to the SEC, the bank lied to investors when it said it was in the process of acquiring a federally insured bank. Endorsed by sports stars, the ICO was viewed by the SEC as an “outright scam;” one that managed to raise $600 million in barely two months.
• January, 2018: The CFTC filed a complaint against Las Vegas-based My Big Coin Pay, a company that secured $6 million from investors in a virtual currency, through various misrepresentations, and used customer funds for the owners’ personal expenses.
• January, 2018 – The CFTC accused Colorado-based Dillon Michael Dean and his UK-registered company, The Entrepreneurs Headquarters Limited, of engaging in a Ponzi scheme by securing Bitcoin investments, which were subsequently used to pay earlier investors in a commodity pool.
• January, 2018: Patrick K. McDonnell and his New York-based company CabbageTech were charged with “fraud and misappropriation in connection with purchases and trading of Bitcoin and Litecoin.” The CFTC alleges that the defendants “used their fraudulent solicitations to obtain and then simply misappropriate customer funds.”
• December 2017 – $15 million ICO launched by Munchee Inc. halted by the SEC. The California-based restaurant review company was told it should have registered its endeavor as a securities offering.

2018 Outlook

Since the issuing of the subpoenas and the creation of the SEC’s Cyber Unit, it has become clear that the agency will continue to scrutinize the sale, exchange, and marketing of digital currencies during the rest of the year and beyond.

Regulatory efforts will likely expand, as the SEC appears to be preparing to crack down on a large number of cryptocurrency-focused private fund managers. Disclosures about risk and potential conflicts of interest are likely to become the main targets of the agency’s scrutiny.

Ensuring compliance with federal securities laws is going to be one of the keys to ICO survival. Cryptocurrency entrepreneurs should also keep track of state legislation, as it has been known to define digital tokens in a way that may impact their categorization as securities.

This was recently the case in Wyoming, where “utility tokens” are not deemed to be securities, and Massachusetts, a state that is aggressively enforcing the notion that they are.

On the other hand, the creation of the cross-agency “Distributed Ledger Technology (DLT) Working Group,” which includes the SEC, the CFTC, U.S. Attorney’s Offices, and the Treasury points to continued coordinated efforts to increase and improve regulatory efforts targeting ICOs and other cryptocurrency initiatives.

In the words of a former SEC Commissioner, “there is going to be a ton of enforcement activity.”

If you are facing SEC or CFTC enforcement activity on cryptocurrency or ICO issues, we can help. At Herskovits PLLC we focus exclusively on regulatory defense with specific attention to ICO and cryptocurrency charges. Call early in the process and we might be able to head off an intrusive investigation. 212.897.5410 OR CONNECT ONLINE

On March 19, 2018, federal prosecutors once again reinforced the notion that cryptocurrencies can be securities, as they upheld their certainty that ICOs offered by Maksim Zaslavskiy through his companies REcoin and Diamond Reserve Club, were in fact, securities, and thus, under the SEC’s jurisdiction.

As a criminal case relating to securities fraud in the ICO sphere, the complaint against Zaslavskiy and his companies has few precedents, but it may likely have many successors.

The defendant’s original response to his accusers, back in February, was that his ICOs were not securities, and thus he could not be charged with securities fraud.

Brooklyn prosecutors decided that calling an instrument a cryptocurrency does not exclude it from the SEC’s jurisdiction, and that its true nature must be determined by examining the “economic reality of the investments as they were advertised.”

After carrying out such an analysis, the Eastern District prosecutors determined REcoin and Diamond were ipso facto securities.

According to the SEC complaint, from July 2017 to March 2018, Zaslavskiy used his two companies to raise in excess of $300,000 from investors, “through various material misrepresentations and deceptive acts relating to supposed investments in digital ‘tokens’ or ‘coins’ offered, first by REcoin, then by Diamond, during the ICOs.”

The SEC claims the ‘tokens’ were “illegal offerings of securities,” which the company advertised as being backed by real estate for REcoin and by diamonds for Diamond Reserve Club.

Investors would supposedly see returns based on “(i) the appreciation in value of the investments Defendants would make, in the case of REcoin, in real estate assets, or, in the case of Diamond, in diamonds; (ii) the appreciation in value of the REcoin and Diamond tokens as the Companies’ businesses grew to the managerial efforts of teams of ‘experts;’ and (iii) the supposed increase in demand for the tokens,” the SEC said.

In order to market the ICOs, the defendants allegedly made several misleading statements, saying, for example, that they had raised millions of dollars for the ReCoin ICO, that they had a team of experts to decide on which diamonds and which real estate to purchase, to maximize returns for investors, and that the Diamond ICO would yield as much as 15% in returns from Diamond’s operations alone.

When the companies shut down, they told investors that the US government had forced them to do so, when in fact, according to Zaslavskiy’s own testimony, he “stopped the REcoin ICO because a token of the nature he had promised was ‘impossible to do.’”

“As the Supreme Court has recognized, Congress crafted a definition of ‘security’ sufficiently broad to encompass virtually any instrument that might be sold as an investment,” the SEC concluded.

Facing SEC scrutiny in a cryptocurrency or ICO (Initial Coin Offering) case? Herskovits PLLC is a New York based, nationwide law practice, focused on securities law. Experienced lawyers and great results. 212.897.5410 ORCONNECT ONLINE

In a commentary that appeared in the Wall Street Journal, Jay Clayton, chairman of the Securities and Exchange Commission, and J. Christopher Giancarlo, chairman of the Commodity Futures Trading Commission, referred to the new regulation scenario for cryptocurrency trading.

In fact, they expanded the concept to ”distributed ledger technology (DLT)” defined as “an array of new financial products, including cryptocurrencies and digital payment services.”

Emphasizing the potential of DLT as the “next great driver of economic efficiency,” the regulators made it clear that the SEC and the CFTC will focus on enforcing rules and ensuring market integrity to protect retail investors looking to invest in cryptocurrencies and initial coin offerings (ICOs).

While this market has offered many investors spectacular yields, it also involves great risks.

The authors of the article compared the boom of cryptocurrency trading to the 1990s dot.com boom, when a small portion of companies survived and only a few investors saw the spectacular returns everyone expected.

While neither the SEC nor the CFTC wish to hinder innovation, the regulators clarified that “transparency, investor protection and market integrity are critical to ensuring that innovation continues.” They expressed concern about “substantial DLT-related market activity that shows little or no regard to our proven regulatory approach.”

As cryptocurrencies reach a market capitalization of $700 billion, the regulatory entities are looking at offshore trading platforms, which are not registered with them, and thus free from scrutiny.

Cryptocurrencies vs Traditional currencies

As opposed to traditional currencies, cryptocurrencies have:

• No governance standards
• No oversight
• No sovereign backing
• No reliable trading reporting

Today, most investors purchase cryptocurrencies as an investment, rather than as a medium of exchange. Regulators advocate policy efforts to oversee the market as with any other financial instrument.

Platforms dedicated to trading cryptocurrencies are registered as payment services, thus, they are currently outside the CFTC´s and SEC´s range of action, but judging from the commentary by regulators, that may be about to change.

Today, some anti-money-laundering obligations do apply to cryptocurrency trading. But there is little federal oversight. A few recent examples illustrate how that may be beginning to change. Not too long ago, two large exchanges worked closely with the CFTC for listing Bitcoin products. Although this was not a requirement under current regulations, the companies “agreed to implement risk-mitigation and oversight measures,” giving significant access to the CFTC, which gained crucial oversight over the market.

On the other hand, the SEC has identified certain cryptocurrency products which are, in fact, securities. “The offer, sale and trading of such products must be carried out in compliance with securities law,” regulators stated, “The SEC will vigorously pursue those who seek to evade the registration, disclosure and antifraud requirements of our securities laws.”

When it comes to the ICO market, the SEC understands that it does have full oversight, and it has repeatedly made it clear.

In this respect, the SEC´s representative clarified that it doesn´t matter whether these securities are called “coins” rather than, for example, “bonds.” “We are disturbed by many examples of form being elevated over substance,” Clayton added.

As the CFTC and SEC promise to strive for transparency and integrity in these innovative markets, it is clear that prosecution of fraud will immediately follow. Individuals and entities who have gotten used to trading in the former no-man´s-land of Bitcoin and other cryptocurrencies should brace themselves, because things are clearly about to change, and regulators will go as far as Congress to make sure it happens fast.

Are you, or might you become, a target for SEC or CFTC regulators regarding cryptocurrencies? We can help. Call securities lawyer Rob Herskovits and learn your options. Nationwide practice – more than two decades’ experience. 212.897.5410 or CONTACT ONLINE

In line with its expressed intent to increase its oversight over the cryptocurrency market, the Commodity Futures Trading Commission has filed three related fraud suits in a single week.

The third lawsuit targets the creators of “My Big Coin,” who allegedly used $6 million dollars received from buyers to pay off early investors and shop for luxury items. The allegations caused the freezing of all assets belonging to the creators of the supposed next-big-cryptocurrency.

The Nevada-based company, My Big Coin Pay Inc.; was founded by Randall Crater. The suit, filed in January, also named one of its salesmen, Mark Gillespie. According to the allegations, between 2014 and mid-2017, the defendants defrauded 28 investors out of six million dollars.

There is nothing wrong with creating cryptocurrency and marketing it. But My Big Coin advertised its product as being accepted as widely as a Mastercard, gold-backed, and coveted in markets worldwide. In fact, according to the CFTC, My Big Coin wasn´t traded on any established exchanges and its prices were a mere fabrication.

Crater was not shy at marketing My Big Coin; he promoted it with YouTube videos and poor quality press releases, targeting perhaps a cash-thirsty, yet little-informed audience. Crater´s predictions that the price of My Big Coin would skyrocket were enough to convince some unwitting investors, including several based in Massachusetts.

The proceeds of My Big Coin sales were allegedly used by Crater´s family members to purchase real estate, collectible art, and other luxury items. Over half a million dollars were withdrawn from banks and ATMs. Several relatives of Crater were also mentioned in the suit.

In its complaint, the CFTC referred to My Big Coin´s promised results as “illusory,” and to the whole business as a “Ponzi scheme.”

The suit will likely have a sobering effect on a largely unregulated market. The CFTC´s Enforcement Chief, James McDonald, made this all the more clear in a statement:

“The CFTC is actively policing the virtual currency markets and will vigorously enforce the anti-fraud provisions of the Commodity Exchange Act… In addition to harming customers, fraud in connection with virtual currencies inhibits potentially market-enhancing developments in this area.”

Bitcoin´s price can rise astronomically; most spectacularly, it recently went from $1,000 to $11,000 over a short period of time. This attracts a lot of attention, and it can often inspire fraudsters to try to “make it big” with a made-up cryptocurrency marketed as “the next Bitcoin.”

But now the CFTC is watching.

The first time the Commission filed a cryptocurrency fraud suit was in September, 2017. Since then, the regulator´s quest for increasing oversight has only escalated, and it will, no doubt, continue to do so.

If you are facing a CFTC cryptocurrency action, it is important to act fast and prepare your defense – early intervention can make all the difference. However, if you are already embroiled in a CFTC battle, we can also help. The Herskovits PLLC team focuses exclusively on securities law defense and our cryptocurrency team is tracking the rules, the interpretations, and the realities for clients nationwide. Call now to learn your rights and options. 212.897.5410 or CONNECT ONLINE

Once in a while, regulators and courts take actions that have no precedent, but which may influence justice over time. That is the case of a recent ruling from a Florida federal judge, who ordered a defendant to disclose that he had “violated commodity laws” whenever he writes or speaks about commodity trading in the future.

The U.S. Commodity Futures Trading Commission announced the ruling in a statement, perhaps in the hope that it might serve to deter potential fraudsters.

The defendant, Anthony J. Klatch II, had been arrested several times since 2011, charged with running a kind of Ponzi scheme, and ordered to pay back $13 million in various civil proceedings. In 2012, for example he was convicted in connection with a $2.3 million investment scam.

While he was out of custody, between April 2014 and September 2015, he managed to run a number of schemes that put him under the radar of the Commodity Futures Trading Commission, which sued him, his company, and partner-in-crime Lindsey Heim.

The CFTC maintains that Klatch reunited with Heim shortly after being released from custody. Together, they set up an ACM, misrepresenting themselves as high-earning traders. To entice investors, Klatch created an alias, “Larry J. Heim,” whom he endowed with a series of degrees from respected institutions, such as Harvard University.

The novelty of the case was that besides seeking civil penalties and injunctions, the CFTC decided to ask the judge to order Klatch to include a detailed list of his past violations whenever he posts online, publishes an article, or gives a speech in any way related to commodities.

The text Klatch is to append to any written or spoken statement includes the following statements,

“I have violated the Commodity Exchange Act and CFTC regulations… After being sued by the CFTC in federal courts in New York and Florida, I have been collectively ordered to pay $13,476,225 in restitution to victims of my illegal conduct. I have also been ordered to pay $1,845,008 in civil monetary penalties for my illegal conduct.”

The required disclosures also include a detailed list of Klatch’s violations of commodity laws. According to a spokesperson from the CFTC, there is no record of such a confessional “affirmative disclosure” requirement being imposed on traders found guilty of similar wrongdoing.

Klatch represented himself in legal proceedings. A choice that may explain why he ended up with a kind of “Scarlet Letter” sewn on his lapel for as long as he continues to work as a trader. Klatch’s mother had once told a reporter that her son had a genius IQ. Klatch himself once described himself in a letter as a “brain surgeon of the market.” It is doubtful that his alleged genius will help him persuade new investors in the light of the compromising disclosures that will be a mandatory addition to his usual sales pitch.

If you are in the securities industry and facing possible legal action, you should speak with an experienced securities lawyer to learn your options. While you might be the best in your industry, at Herskovits PLLC securities law firm, we’re among the best and most experienced in ours. Call Us at 212.897.5410 or Online