On May 13, the special master of a New Jersey federal court recommended that Traders Global Group’s motion for Rule 11 sanctions against the Commodities and Futures Trading Commission (CFTC) be granted.
The following day, that motion for sanctions was granted by US District Judge Edward Kiel, who dismissed the case and awarded the company attorney’s fees.
CFTC’s false statements
In August 2023 the CFTC filed a complaint against Murtuza Kazmi and his companies – Traders Global Group Inc, a New Jersey corporation, and Traders Global Group Inc, a Canadian business entity – operating collectively under the name My Forex Funds. The CFTC charged the companies with fraudulently soliciting customers while minimizing the likelihood that they would trade profitably.
However, according to a special master’s recommendation for sanctions, the CFTC engaged in “willful and bad faith conduct” by making multiple false statements to the court and committing “numerous instances of sanctionable behavior” over the course of a year.
Those false statements included the CFTC stating that Traders Global had illegally funneled $31,550,000 to the company’s CEO, relying on representations by a witness and his analysis of the defendants’ financial accounts.
The agency claimed that this was evidence that the CEO intended to dissipate his assets.
However, those payments were in fact lawfully made to Canadian tax authorities, a fact that CFTC attorneys had learned in an email from the Ontario Securities Commission before they filed the complaint.
The erroneous claim was used by the CFTC to support its motion for a Statutory Restraining Order (SRO) and Preliminary Injunction (PI) against Traders Global, which the court ultimately granted.
CFTC lawyers waited four months without informing the court or defense counsel of the email, even though they had discovered the discrepancy soon after filing the complaint. Trial judge Zahid Quraishi ultimately unfroze the assets and admonished the agency for its conduct.
“In this case in particular, the need for specific deterrence is paramount and a significant sanction is warranted,” the special master’s report concluded, noting that the conduct was both “intentional and self-serving,” meeting the standard of willfulness under Rule 11.
Acting Chairman Pham responds
In response to the recommendation for sanctions, CFTC Acting Chairman Caroline Pham released a press release harshly criticizing the agency’s unethical behavior.
“This is inexcusable. 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,” she stated. “These types of failures are rarely an isolated incident and point to a broader breakdown in the culture of the Division of Enforcement.”
Pham previously publicly raised concerns about the agency’s conduct after the motion for sanctions was initially filed, as well as internally before the complaint was filed.
She had also previously criticized the decision to have the CFTC’s Division of Enforcement handle the Rule 11 sanctions motion, rather than the CFTC’s Office of the General Counsel or the Department of Justice.
The CFTC has been embroiled in several ethical issues recently; several agency staff members were recently put on leave while an ethics investigation is underway.
Agency staff have also accused Acting Chairman Pham of professional misconduct, claiming that she had fostered an abusive work environment. Pham described that effort as a “malicious campaign of retaliation and defamation designed to impugn my character and integrity” based on her criticisms of enforcement staff.
