In my 18-month tenure at the CFTC, I have seen too many retail customers become victims of illegal acts in precious metals markets and foreign currency (forex) markets.  In order to protect customers, the CFTC should do all that it can to bring justice and accountability for illegal acts in precious metals and forex markets that harm retail customers, and we should strengthen our efforts to deter future illegal acts in these markets.[1]

I support this enforcement case against the defendant LYFE/Squared Financial Services Limited who operated as a broker with an unregistered platform for retail customers and others to trade leveraged gold, silver and leveraged forex.  However, I cannot support this settlement because it does not send a strong enough deterrent message and does not bring sufficient accountability.  The defendant will only pay a $170,000 penalty when customers lost nearly $2.7 million, and it would not be required to admit its wrongdoing.  Therefore, I respectfully vote to concur.

Requiring defendant admissions in CFTC enforcement cases serves the public interest goals of federal law enforcement—justice, accountability, and deterrence.[2]  Last year, I proposed the Heightened Enforcement Accountability and Transparency test (HEAT Test) to assist the Commission in assessing whether specific cases demand heightened justice for victims, heightened accountability, and heightened deterrence that would accompany defendant admissions.  This would include cases with one or more of the following factors:

• Egregious conduct;
• The presence of a criminal scheme;
• Significant harm or risks of harm to customers and/or market participants;
• Significant harm or risks of harm to market integrity;
• A recidivist defendant;
• Obstruction, lying or concealment, in an investigation/examination by the CFTC, other federal authority on the same conduct, or a self-regulatory organization; and/or
• The need to send a pronounced message about particular conduct or practices.

Several of those factors exist in this case.  There was egregious conduct with significant harm to U.S. retail customers, including customers whose funds were pooled.  The defendant did not register with the Commission or follow CFTC requirements that limits this type of trading for retail customers to exchanges registered with the CFTC.  The defendant solicited an investment company (commodity pool operator) and its adviser through emails, phone calls, on-line events, and an in-person meeting.  Customers lost almost all of $2.7 million collected by the defendant because the defendant failed to conduct due diligence on this company and its adviser who used the defendant’s platform and quickly lost investor funds. 

The defendant failed to conduct due diligence on the company and its adviser.  Due diligence would have shown that neither were registered with the CFTC, and would have shown a history of regulatory violations of the law.  The defendant failed to follow its own policy and procedure to obtain proof of registration.  The defendant failed to review the company and adviser’s website and YouTube channel that promoted the pool as profitable even though they had lost most of the pool’s funds.  It also allowed them to use an introducing broker that the defendant knew or should have known had a history of forex violations.

There was significant risk of harm to market integrity.  The defendant failed to implement adequate anti-money laundering (AML) and know your customer (KYC) programs, which are foundational to market integrity.  Pursuant to the Bank Secrecy Act (BSA), brokers that operate in the commodities and derivatives markets, including precious metals and forex, are financial institutions that must establish an AML program.

Finally, there is a significant need for the CFTC to send a pronounced message about the sales, marketing, and promotional practices in the precious metals and forex industry, an industry with significant hype.  It is important for the CFTC to demand admissions of wrongdoing in settlements for brokers and other market intermediaries who generate hype around precious metals and forex, where there are retail investor victims.

Promoters of retail precious metals and forex markets who break the law should not get a free pass from admitting their wrongdoing.  Wrongdoers that significantly harm retail customers must be held publicly accountable.  Victims deserve the full measure of justice that comes from the defendant admitting how they hurt their victims and that their actions were wrong.  Requiring the defendant to admit its wrongdoing would also help deter illegal actors in these markets.  With the Commission regularly investigating and charging precious metals and forex illegal actors, we should bring all of our enforcement tools to bear to protect retail customers.

[2] Commissioner Christy Goldsmith Romero, Proposal for Heightened Enforcement Accountability and Transparency in Settlements:  Proposal for a Heightened Enforcement Accountability and Transparency (HEAT) Test to Require More Defendants to Admit to Wrongdoing in Settlements (September 19, 2022).