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Enforcement Round-Up
With the longest government shutdown on record taking up nearly half of the month and Acting Chair Pham waiting to pass the baton to Mike Selig (who is quickly progressing through the confirmation process), November was another enforcement-lite month. Consistent with the CFTC’s tough on fraud approach, on November 20, 2025, the CFTC announced that the U.S. District Court for the Central District of California entered a final judgment against Safeguard Metals LLC and an individual ordering them to pay $25.6 million in restitution to victims, mostly elderly or retirement-aged individuals, and a $25.6 million civil monetary penalty for operating a nationwide, precious metals fraud. The defendants lured customers with false claims about the risk of their traditional retirement investments and then sold them silver coins and other precious metals at inflated prices by misrepresenting their price markups causing the customers substantial and immediate losses. The judgment was entered on September 30, 2025, however, the CFTC’s announcement was delayed due to the shutdown commencing the next day
on October 1. The judgment resolved a February 2022 enforcement action brought by the CFTC and 30 state securities regulatory agencies that are members of the North American Securities Administrators Association. In a separate case brought by the SEC, the court ordered the defendants to pay $25.6 million in disgorgement and a $25.6 million civil monetary penalty, although the amounts paid to either the SEC or CFTC offset each other.
On November 21, 2025, the CFTC also announced that it had filed a complaint in the U.S. District Court for the Eastern District of Michigan against two individuals and their unregistered commodity pool operator, Young Pros Investment Group LLC. The complaint alleges that from about December 2020 through May 2022, the defendants fraudulently solicited and received funds from pool participants to trade commodity futures based on misrepresentations about their trading success, false guarantees of profit and protections against loss, and failure to disclose the risks involved in futures trading. The complaint further alleges that the defendants incurred losses in most months they traded on behalf of the pool, which they allegedly concealed through false account statements and the distribution of
payments through a Ponzi scheme. In addition, the complaint alleges several other violations of CFTC regulations, including failure to register as a commodity pool, failure to register as associated persons, failure to operate the pool as a separate entity, and commingling pool participants’ funds with their own. One of the individual defendants is further alleged to be in violation of a 2021 CFTC order based on his failure to register as a commodity trading advisor, which prohibited him from directly or indirectly trading on any CFTC-registered entity and engaging in any activities requiring CFTC registration for three years.
Tiffany Payne | Email
CFTC Staff Issues CPO No-Action Letter Regarding Qualifying Credit Risk Transfer Transactions
In the November Edition of the Desk we provided an overview of Credit Risk Transfers (CRTs) which can be structured in a number of ways. Banks can now have greater comfort that the descriptions of the use of credit default swaps (CDS) in CRTs and the way that investors can gain CDS like exposure in offering documents, do not constitute marketing of a commodity pool subject to the registration requirements of the Commodity Exchange Act.
On November 21, 2025 the CFTC’s Market Participants Division (MPD) issued No-Action Letter 25-37 (NAL), granting relief to operators of CRT transactions from registering as Commodity Pool Operators (CPOs) under certain conditions. The MPD’s NAL came in response to a request from the Structured Finance Association (SFA) with respect to banks that are SFA members, their affiliates and any other persons that, on behalf of SFA Banks, set up or operate special purpose vehicles (SPVs) in CRT transactions that use CDS and who claim the exemption from CPO registration contained in CFTC Regulation 4.13(a)(3). SFA’s request for relief related to CRTs that involve (a) the establishment of an SPV that will issue notes in the form of debt securities to sophisticated investors; and (b) the use of CDS or other risk-sharing agreements between the SPV
and SFA bank.
There are four prongs under CFTC Regulation 4.13(a)(3) that a pool must meet to qualify for a registration exemption:
- Interests in the pool are exempt from registration under the Securities Act, and the interests are marketed and advertised to the public in the United States solely, if at all, in compliance with 17 CFR 230.506 or with Rule 144A (17 CFR 230.144A), as applicable;
- At all times, the pool meets one or the other of the following de minimis tests with respect to its commodity interest positions, whether entered into for bona fide hedging purposes or otherwise:
- The margins, premiums and required minimum security deposits do not exceed 5% of the liquidation value of the pool’s assets after giving effect to unrealized profits or losses; or
- The aggregate net notional value of the pool’s commodity interest positions, determined at the time the most recent position was established, does not exceed 100 percent of the liquidation value of the pool’s portfolio, after taking into account unrealized profits and unrealized losses;
- The CPO reasonably believes, at the time of investment, that each person who participates in the pool is one of several categories of sophisticated investor, e.g., accredited investors or qualified eligible persons (QEPs, as defined in CFTC Regulation 4.7(a)); and
- Participations in the pool are not marketed as or in a vehicle for trading in commodity interests.
Most SPVs used in CRTs easily meet the first three prongs; however, based on CRT offering documents and marketing materials, SFA requested no-action relief related to the fourth marketing prong.
The MPD was persuaded and noted that the CRT SPV structure is distinguishable from actively managed commodity pools, involving a variety of asset classes and multiple types of commodity interests that drive performance for pool participants. The NAL provides that MPD will not recommend to the Commission that it take an enforcement action against any SFA Bank, an affiliate thereof, or any other person involved in setting up or operating the SPVs in the CRT transactions described therein on behalf of an SFA Bank, for failure to register as a CPO.
The relief in NAL 25-37 is subject to a long list of enumerated conditions. Specifically related to the marketing prong, a CRT must meet the following criteria:
- the only commodity interest transaction held by the SPV will be the CDS necessary to accomplish the risk-sharing initiative between a SFA Bank and the SPV noteholders with respect to the referenced pool of SFA Bank assets;
- there will be no active management of assets and liabilities over the lifetime of the SPV;
- any marketing materials or disclosure documents circulated by or on behalf of an SFA Bank with respect to the CRT SPV must indicate that the CRT CPO is not registered with the Commission as a CPO and is in compliance with the conditions of the no-action position provided in this letter.
Stuart Armstrong | Email
IOSCO Pre-Hedging Final Report
In November, IOSCO published pre-hedging guidance in an effort to create greater consistency and clarity regarding pre-hedging practices across FX markets. You can read our summary of the guidance here. There are plenty of “so what’s?” to consider when thinking about this guidance, but we have been getting a lot of questions about two points in response to our summary, so we thought we’d share with the group.
First up is, this is just guidance right? Yes, but, the CFTC and SEC are IOSCO members, so you could very likely be seeing pre-hedging regulations from either agency during this administration or possibly the next. Other international markets regulators are also members of IOSCO, so when transacting internationally, you could be subject to foreign pre-hedging requirements that are based on IOSCO’s guidance. In lieu of U.S. regulations, you could also see examiners leaning on the IOSCO guidance in any gray areas to help support their own investigations and conclusions and regulatory agencies exercising existing enforcement
authorities informed by the guidance.
The next “so what” we have been discussing with clients is with regard to consent. Consent is one of the points that IOSCO noted its stakeholders (e.g., markets regulators) have divergent views on. Specifically, when and how to obtain consent and how such consent can be withdrawn.
Ultimately, IOSCO’s recommendation (Recommendation B3) is that dealers should “seek to receive” prior consent to pre-hedge at the outset of the relationship, and give clients a “clear process to modify or revoke that consent”. Consent is not a recommendation or otherwise mentioned in the FX Global Code, the Global Precious Metals Code or the FMSB Standards for the execution of Large Trades in FICC markets. Does this mean dealers need clients to check a box or sign a document solely to consent permitting the dealer to pre-hedge? Likely no, this would really be the client opting-in and opting-out of pre-hedging. Instead,
under the guidance, it would be permissible for the dealer to receive implied consent through their terms of business, so long as such terms of business provide that the client can revoke that consent.
As dealers consider mechanisms to capture consent and permit the withdrawal of consent, they should weigh whether either is gathered at the relationship or transaction level. IOSCO’s guidance provides for an approach that would recommend collecting consent at the outset of the relationship, but it would seem to be permissible for a Dealer to offer two paths for withdrawing consent – either at the relationship or transaction level.
Barrett Morris | Email
Places We’ll Be
ISDA’s December Holiday Party
ABA’s Derivatives and Futures Law Committee Meeting January 2026
Interesting Links
OCC Confirms Bank Authority to Hold Small Amount of Crypto-Assets to Pay Gas Fees
Conference of State Bank Supervisors Guidance on Tokenized Deposits
CFTC Staff Interpretation on FCM Deposits of Securities with Foreign Brokers and Foreign Clearing Organizations to Market Customer Positions
ISDA’s OTC Derivatives Compliance Calendar
Happy Holidays from The Desk
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