Compliancex

CFTC Commish Speaks on Hill about MF Global

CFTC Commissioner Jill Sommers offered testimony before the Senate panel yesterday to the effect that the probe is ongoing.

Not much new there,but she alluded to routes that a civil enforcement action could take. The operative word there is “civil,” as it is becoming less likely that MF Global’s shenanigans will lead to criminal charges.

In the wake of the primary trader’s collapse, federal authorities have been hunting for the $1.6 billion in customer funds that somehow disappeared. Ms. Sommers is now the top dog in this hunt as she has stepped in to fill the spot recused by Gary Gensler.

As has widely been reported, Mr. Gensler stepped out of the way because of his prior relationship with fallen MF Global chief Jon Corzine while they were colleagues at Goldman Sachs. In fact, Richard Shelby (R-AL) got things rolling yesterday by slamming Gensler for his dodge ball play.

While federal prosecutors and the FBI continue their criminal probe, no one at the defunct firm, including Senor Corzine have been accused of any wrongdoing.

Was Level Global Founder “All In” On Insider Trading Call?

The ongoing cases on the docket connected to the “expert-network” insider trading snafu in the hedge fund sector are about to heat up again. In addition to the high profile case of Rajat Gupta slated for late May, the case against former Level Global big wheel David Ganek is cooking.

According to DealBook, Level Global is the most prominent fund to be snared since the Galleon Group got tripped up. Ganek is said to be a “highly successful trader” who founded Level Global soon after his departure from SAC Capital.

Level Global has since gone belly up, and Mr. Ganek is accused of trading Dell Computer stock based on  tips from the experts, including Raj Rajaratnam, the biggest wheel to go down so far. Evidence is emerging from the government’s complaint that Ganek, along with his sidekick, Anthony Chiasson, was “in on” several calls related to Dell’s earnings announcement before it hit the Street.

But DealBook quickly points out that there is “no indication that Ganek knew the information on Dell was illicit, and he has not been accused of any wrongdoing.”

CFTC and Court Tag Team to Smack down Forex Liquidity

The CFTC announced that a California federal court has ordered Forex Liquidity LLC to cough up $400,000 for failing to maintain sufficient net capital. The currency player was also slapped for failing to maintain books and records in accordance with CFTC guideline and has been permanently barred from the industry.

The consent order handed down by the court on April 19^th also closes the door on Forex Liquidity from “engaging in any commodity related plays including trading, registering, or seeking exemption from registration with the CFTC. ”

The last prohibition is significant in that it heads Forex Liquidity off at the pass from attempting to open up shop under a new name.

But the wheels of justice do spin slowly as this case has been ongoing since 2007. The foreign exchange player’s misdeeds were said to have occurred in the period from November 30, 2007 to December 7, 2007.

H&R Block Subsidiary Agrees to Pay $28.2 Million in Option One Case

The subprime mortgage chickens continue to come home to roost as the SEC settled charges with H&R Block subsidiary Option One Mortgage Corporation.

In announcing the consent order, the SEC noted that the subprime unit misled investors by failing to disclose that its financial condition “was significantly deteriorating.” (Option One has since morphed into an outfit known as Sand Canyon Corporation.)  Option One has agreed to pay $28.2 million to settle the charges.

Option One was one of the nation’s largest subprime mortgage lenders with originations of $40 billion in its 2006 fiscal year. Those loans were packaged and sold as mortgage-backed securities or whole loan pools before the entire market went into the swim in 2008.

But in a saga that has become all too familiar, the mortgage lender’s revenues went into a tailspin in the summer of 2006. In settling the case, Option One has been hit with a $10,000,000 penalty and ordered to pay the remaining $18.2 million in disgorgement and interest.

The order needs to be approved by the court, and it is uncertain if Sand Canyon will be able to continue as a viable entity.

Treasury Secretary “Just Says No” to Dodd-Frank Rollback

In a recent letter to congressional lawmakers, Treasury Secretary Timothy Geithner warned against proposed legislation designed to weaken these “vital Wall Street reforms.”

Of most concern for Mr. Geithner is the proposal being considered to roll back the government’s authority to break up or unwind failing financial firms as this could potentially “undermine the government’s ability to limit the damage to the economy in the event of future financial crises.”

Another proposal is to undercut the funding structure of the Consumer Financial Protection Bureau. Mr. Geithner claims that such a play would “weaken the ability of the Bureau to provide stronger protection to consumers against financial fraud and abuse.”

One has to wonder what the FTC has been up to all these years as that agency had consumer protection under its regulatory umbrella. But to borrow a line from the defunct band The Police, “it’s a big enough umbrella, but it’s always me that ends up getting wet.”