|
Enforcement Round-up
Wells and Investigative Process Enhancements. On December 1, 2025, former Acting Chair Pham announced another significant enforcement-related policy change in what was a transformative year for the CFTC and the Division of Enforcement (DOE) under her leadership. Consistent with certain changes at the SEC, the CFTC amended its Rules of Practice and Rules Relating to Investigations to provide greater transparency and strengthen due process protections, notably by “discontinuing the practice of ‘secret’ charges.” The amendments include, among other changes:
- In lieu of adjudicatory proceedings under subpart B of part 10, the Commission may accept an offer of settlement by an order instituting proceedings pursuant to the Commodity Exchange Act, and making findings and imposing remedial sanctions, and the Commission may accept such an offer of settlement either by Commission meeting or by the Commission’s seriatim process.
- In recommending that the Commission accept an offer of settlement, DOE must provide an objective memorandum containing a comprehensive explanation of the factual and legal foundation for the recommendation, including citations to evidence in the investigative record or stipulations by the parties as well as supporting legal points and authorities. The memorandum must also distinguish unfavorable facts or legal precedents.
- While DOE retains discretion over when to issue a Wells notice, if they decide to issue a Wells notice, DOE: (i) must provide it in writing when possible, and follow-up in writing if it is given orally; (ii) may provide information regarding the facts and circumstances that form the basis for the recommendation by referring to specific evidence; and (iii) may provide the defendant the opportunity to submit a written statement for the staff’s consideration, provided that when they do so, the defendant is afforded at least 30 days to submit a response instead of the previous 14 days. Where a defendant provides a Wells response, the amendments state that he may request that the response be provided to the Commission “promptly,” and in any event, DOE is
now required to forward all Wells responses to the Commission regardless of whether the defendant makes such a request.
December Enforcement Actions. With the Pham-Selig transition at the forefront, December was another relatively quiet month for enforcement actions, although fraud-based actions continued to be in focus.
First, on December 9, 2025, the CFTC announced that the U.S. District Court for the District of Oregon had entered a consent order against SimTradePro Incorporated and its principal/controlling person for fraudulently soliciting funds to trade in leveraged foreign currency exchange and leveraged gold and silver contracts in multiple illegally operated commodity pools. The order requires the defendants to pay over $2 million in restitution to approximately 100 victims, many of whom were planning for retirement, and also permanently bans them from trading and registering with the CFTC. In a related criminal action involving the same misconduct, the individual defendant was sentenced in August 2025 to 2.5 years in prison and ordered to pay restitution. U.S. v. Adams, No. 6:23-cr-00211-MC (D.
Or. Aug. 12, 2025).
Second, on December 18, 2025, the CFTC announced that the U.S. District Court for the Eastern District of Wisconsin had entered a consent order against an individual who, from at least December 2013 through March 2021, despite not being registered with the CFTC as a CTA and having a previous judgment against him in a case involving the SEC, persuaded clients to let him manage their commodities futures trading accounts by making numerous false and misleading statements but then abandoned them after losing money trading their accounts and misappropriating their investment funds. The order requires the defendant to pay more than $185,000 in restitution to the defrauded victims and also permanently bans him from trading and registering with the CFTC. In a related criminal case, in May 2022, the defendant
pleaded guilty to one count of wire fraud and one count of money laundering and was sentenced to 15 years and ordered to pay $1.68 million in restitution. U.S. v. Narvett, No. 21-cr-00050 (E.D. Wis. Mar. 2, 2021).
Third, on December 19, 2025, the CFTC filed a complaint in the U.S. District Court for the Northern District of Oklahoma against Wolf Capital Crypto Trading LLC and an individual alleged to be its sole operator for engaging in a fraudulent “Ponzi” scheme by soliciting individuals to participate in a commodity pool. Defendants allegedly promised investors that they would receive daily returns of one percent to three-and-a-half percent, depending on the time period, based on money that Defendants would allegedly generate from the trading of digital assets. The complaint further alleges that trading losses eventually became
significant enough that Defendants used a portion of participants’ funds (which totaled over $10 million) to pay returns to certain other participants until the scheme collapsed and the “vast majority” of participants lost their initial deposits. The complaint seeks a civil monetary penalty, disgorgement, and a permanent injunction, among other relief. Following a previous guilty plea for one count of wire fraud conspiracy, in November 2025, the individual defendant was sentenced to five years in prison and ordered to pay restitution and forfeiture totaling over $1.1 million for the same misconduct.
2025 Enforcement Recap. In our February update, we analyzed former Acting Chair Pham’s dissents and other public statements and speculated on the potential trajectory of the CFTC under her leadership. Since then, among other things, DOE issued a new policy on self-reporting, cooperation, and remediation and clarified its process for criminal referrals to the Department of Justice, and the Operating Divisions now will only refer “material” supervision matters or non-compliance-related matters to DOE based on a “reasonableness” standard. These notable policy updates
accompany the CFTC’s broader shift away from technical or operational regulation by enforcement toward focusing the staff’s more streamlined resources on matters involving evidence of fraud, misappropriation, or market manipulation in the CFTC’s core markets. Ten months later, former Acting Chair Pham appears to have adhered to her stated principle: “We should say what we mean and mean what we say.” Looking ahead in 2026, under Chair Selig’s leadership, we anticipate continued emphasis on transparency, consistency, and accountability in the enforcement process, with priority given to cases involving customer harm or market impact rather than non-systemic operational or technical errors.
For a more detailed recap of CFTC enforcement in 2025 and key takeaways for 2026, check out our Law360 article: How CFTC Enforcement Shifted In 2025 And What's Next
Tiffany Payne | Email
Revisions to Business Conduct and Swap Documentation Requirements
On December 30, the CFTC released its final rule adopting changes to certain business conduct rules and swap documentation requirements for Swap Dealers and Major Swap Participants. The new rules are effective on January 29, 2026. We hit some of the high points from the proposed rule here.
There are a few changes from the proposed rule worth noting. Importantly the rule removed the prescriptive language that defined how to calculate the daily mark for swaps not subject to daily variation margining. The changes to the proposed rule largely tracks with the ISDA/SIFMA comment letter in November.
The proposed rule had a prescriptive definition for the “Daily Mark”, which read that the daily mark must be “the estimated price that would be received by the counterparty to sell (expressed as a positive number), or be paid by the counterparty to transfer (expressed as a negative number), the uncleared swap in the market in an orderly transaction, calculated in accordance with the methodology agreed in the documentation required by 23.504, or if applicable, 23.158.” This language is gone in the final rule and now for an uncleared swap not subject to daily VM, the rule simply reads that a daily mark must be provided to the
counterparty during the term of the swap. The requirement also previously applied to just uncleared swaps (whether or not subject to VM). The final rule modifies the Disclosure of Material Information provision by making the daily mark only applicable to “uncleared swaps not subject to variation margining” as opposed to “uncleared swaps” in the proposed rule.
Another change is that the final rule adds two prongs to the definition of an intended to be cleared swap that is not executed on or pursuant to the rules of a DCM or SEC, or a trading facility exempted from registration as a SEF, and the swap entity takes reasonable measures to ensure (used to be just that they ensure) both parties submit the swap for clearing and either (1) the parties agreed prior to or at execution that if the swap is rejected from clearing, the swap is deemed to be void ab initio, or (2) the parties, prior to execution, have entered into a breakage agreement or similar arrangement that addresses the
disposition of the rejected swap and includes arrangements that would permit a swap entity to comply with the requirements of its Subparts H (Business Conduct Standards) and I (Swap Documentation) of the CFTC’s rules.
The final rule also changes the definition of “Prime Broker Arrangement” (in accordance with the ISDA/SIFMA comment letter) such that the second prong of the definition is no longer that a second transaction with a counterparty is booked, but “one or more additional” transactions are entered into and no longer that the transaction be “substantially equal but opposite terms and conditions” to the first transactions, but instead that the transaction be “equal but offsetting transactions as a credit intermediary; provided that one or more of the Covered Transactions may include a spread or fee to be paid to the Prime Broker
and/or an intermediary that has arranged the transactions (or a portion thereof) as compensation for the Prime Broker’s credit intermediation services and/or the services of the intermediary”. Additionally, the final rule removes the concept of the “Regulatory Disclosures” for a Qualified Prime Broker Arrangement.
If you would like a redline of the final rule against the proposed rule, we are happy to provide. Just send us a note.
Barrett Morris | Email
CFTC Statement on IOSCO Pre-Hedging Final Report
We have covered IOSCO’s Pre-Hedging Final Report here and here. Well, now we have a statement from former Acting Chair Caroline Pham on the report and it will be curious to see how the new CFTC administration brings this forward – or if that’s it and we don’t get to cover it here anymore.
The CFTC’s statement notes two very key takeaways for readers (1) IOSCO’s final report reinforces the standards the CFTC sets already for pre-hedging and (2) the prior CFTC administration did not anticipate additional rulemaking or guidance to address IOSCO’s recommendations.
It remains to be seen whether or not the new administration will carry the same view that no additional rulemaking or guidance is required to address IOSCO’s Pre-Hedging Final Report.
Barrett Morris | Email
Select December CFTC Guidance
Tokenized Collateral Guidance 25-39
MPD, DMO and DCR issued guidance providing the Divisions’ views on the use of tokenized assets as collateral for swaps and futures noting that a tokenized digital asset is a digital representation of a real-world asset (such as a U.S. treasury or agency security, corporate bond, share in a money market fund or equity security) that has been recorded on a block chain as a digital asset.
The Divisions’ guidance:
- Recommends that market participants focus tokenized collateral efforts on assets currently eligible to serve as regulatory margin, where the underlying assets are liquid, with established haircuts and will hold value in times of financial stress.
- Notes the standards set forth in regulation 39.13(g), providing that a DCO must limit assets it accepts as initial margin to those that have minimal credit, market and liquidity risks and apply appropriate haircuts.
- Points to regulation 23.156 setting forth the assets that can be posted or collected as margin for uncleared swaps, noting that market participants should consider whether a tokenized form of an asset provides legal and economic rights that are the same or functionally equivalent to the rights of the asset in traditional form.
- Notes that assets retain their margin eligibility so long as they satisfy applicable regulatory requirements, such as those addressing legal enforceability, custody and segregation, and risk management.
- Encourages market participants to specifically address how using blockchain/DLT to transfer and/or custody tokenized collateral meet the standards in the Divisions’ guidance and consider how proposals fit within existing risk management frameworks.
With regard to legal enforceability, registered entities or registrants are required to demonstrate that non-cash assets collected as regulatory margin meet legal enforceability requirements. The Divisions encourage engagement with staff as market participants and industry groups continue to consider and develop best practices for analyzing tokenized collateral in accordance with existing frameworks.
The Divisions also believe that haircuts for tokenized assets can utilize the same risk-based approach already applied to underlying assets in accordance with these rules. Registered entities and registrants should be prepared to analyze whether a tokenized form of an asset can be subject to an equivalent haircut as the asset in traditional form, subject to adjustment for any settlement-time differences or other differences in credit, market, or liquidity risks.
The Divisions encourage entities considering holding or transferring DLT-enabled tokenized assets as collateral to consider operational readiness, including technical capabilities or expertise that may be required to support them. These may include identifying measures to address potential cybersecurity, access/authorization, or networkwide threats, among others.
The CFTC Divisions’ are expressing a responsiveness to comments received on the back of former Acting Chairman Pham’s CFTC’s Tokenized Collateral and Stablecoins Initiative and willingness to consider the use of tokenized versions of commonly used collateral but express that firms and the market will need to iron out the details and ensure that the tokenized assets meet the standards set forth in CFTC regulations and function similarly to the traditional version of those assets in that regard.
Digital Assets as Margin Collateral No-Action 25-40
The MPD issued no-action relief to FCMs that accept payment stablecoins and other non-securities digital assets as customer margin collateral and:
(a) taking into account the value of such payment stablecoins and digital assets when:
- determining whether or to what extent a customer account is undermargined for purposes of Commission Regulations 1.17(c)(5)(viii) and 1.44 and
- performing segregation calculations as required by Commission Regulations 1.20(i)(5), 1.32(b), 22.2(f)(5) and 30.7(f)(2); or
(b) deposits its own payment stablecoins into segregated customer accounts as residual interest, notwithstanding the restrictions of Commission Regulations 1.23(a)(1), 22.2(e)(3)(i), 22.17, and 30.7(g)(6).
The relief is subject to detailed conditions set forth in the letter including that an FCM must file a notice with MPD prior to relying on the no-action position.
U.S. Person No-Action Letter 25-42
MPD, DCR and DMO issued a no-action letter to harmonize the triumvirate definition of U.S. person under the Commission’s guidance and regulations, providing that the Divisions will not recommend enforcement action against any person for failure to:
- Classify a counterparty based on the interpretations or definitions of “U.S. person” and “guarantee” set forth in the 2013 Guidance or the Cross-Border Uncleared Margin Rule so long as such counterparty is classified based on the definitions of “U.S. person” and “guarantee” set forth in the 2020 Cross-Border Rule; or
- Classify a counterparty based on the definitions of “U.S. person” or “guarantee” set forth in the 2020 Cross-Border Rule so long as such counterparty is classified based on representations made by the counterparty pursuant to the interpretations or definitions of “U.S. person” and “guarantee” set forth in either the 2013 Guidance or the Cross-Border Uncleared Margin Rule prior to the effective date of the 2020 Cross-Border Rule.
Specifically, No-Action Letter 25-42 provides that until such time as the Commission promulgates rules addressing the disparate cross-border definitions of “U.S. person” and “guarantee” as described above, the Divisions, both before and following December 31, 2027, will not recommend that the Commission commence enforcement action against any person solely as a result of the person doing any of the following:
1. For purposes of determining applicability of the Unaddressed Requirements and CFTC margin requirements for uncleared swaps, the person elects to classify a counterparty based on the definitions of “U.S. person” and “guarantee” set forth in 17 CFR 23.23 (i.e., the 2020 Cross-Border Rule);
2. For purposes of determining the applicability of the Group B requirements and Group C requirements (each as defined by the 2020 Cross-Border Rule), the person elects to classify a counterparty based on:
- Representations made pursuant to the “U.S. person” and “guarantee” definitions in Commission Regulation 23.160 (i.e., the Cross-Border Uncleared Margin Rule) if the counterparty initially made the representation prior to the effective date of the 2020 Cross-Border Rule; or
- Representations made pursuant to the interpretations of the terms “U.S. person” and “guarantee” in the 2013 Guidance if the counterparty initially made the representation prior to the effective date of the 2020 Cross-Border Rule; or
3. For purposes of determining applicability of the Unaddressed Requirements, the person does not include non-U.S. person counterparties that are conduit affiliates, as such term was interpreted in the 2013 Guidance.
The “Unaddressed Requirements” are: (i) the swap clearing requirement; (ii) trade execution requirement; and (iii) real-time reporting or swap data reporting requirements.
This is much needed relief for swap dealers and market participants grappling with a myriad of cross-border transactional scenarios for counterparties that may have provided representations at different points in time and is a step in the direction of what should be the goal of codifying a singular definition of U.S. person, bringing clarity and enhanced efficiency to cross border derivatives markets.
No-Action Position Concerning Error Correction Rules 25-43
DMO issued no-action relief at the request of ISDA regarding certain requirements in CFTC regulations 43.3(e) and 45.15(a), which require reporting counterparties to correct errors in swap transaction and pricing data and swap data submitted to swap data repositories. ISDA requested relief for (1) “Dead Swaps” – reporting swap data corrections for those swaps which are matured, terminated, or no longer open at the time an error is discovered, (2) “Open Swaps” – reporting swap data corrections for “all data submitted (not just the most recently submitted data)”, and (3) with respect to both Dead Swaps and Open Swaps, that
the Part 43 Error Correction Rules only require a reporting counterparty to update data that (x) relates to a data element listed in Appendix A to Part 43 and (y) was (or was required to be) submitted to an SDR as of the later of the “Last Change Date” or one year prior to discovery of the relevant error. ISDA stated that both instances unnecessarily burden reporting counterparties and provide little to no benefit to market participants.
The CFTC granted no-action relief for error corrections required by regulation 45.14(a)(1) for swaps that are matured, terminated, or otherwise no longer open:
- as of the most recent change to the Part 45 rules that affects the content or format of the data required to be reported or the most recent technical specifications for the applicable asset class published pursuant to regulation 45.15 or matured, terminated or otherwise was no longer open two years prior to the discovery of the relevant error; and
- for failure to correct an error for any other swap that matured, terminated, or otherwise is no longer open with respect to Part 45 data, except if the error relates to an LEI, UTI, or a data element listed in Appendix A to Part 43For commodity swaps, a reporting counterparty must also correct errors in any product related data element reported in lieu of a Unique Product Identifier.
Additionally, the Division will not recommend the CFTC initiate an enforcement action against a reporting counterparty for failure to correct an Open Swap’s errors other than in the most recently reported swap data for a given swap.
Finally, the Division will not recommend the CFTC initiate an enforcement action against a reporting counterparty for a failure to correct errors under regulation 43.3(e)(1), other than a data element listed in Appendix A to Part 43 for a swap that was (or was required to be) submitted to an SDR.
Time-Limited No-Action Relief for Certain Provisions under the CFTC’s Dormancy Framework for Registered Entities 25-46
The CFTC’s Division of Market Oversight granted Small Exchange Inc. (a designated contract market (“DCM”)), temporary relief from certain requirements under the CFTC's dormancy framework for registered entities, specifically addressing provisions in Commission regulations 38.3 and 40.1.
The dormancy framework refers to CFTC regulations that govern how designated contract markets handle situations where a registered entity becomes inactive or has minimal trading activity. The no-action position provides Small Exchange with flexibility regarding these dormancy-related procedures, though the relief is explicitly time-limited and subject to specific terms and conditions outlined in the letter.
This letter is distinct from the letters described below regarding event contracts, which focused on prediction market operators and swap reporting relief. Letter 25-46 instead addresses operational and regulatory compliance matters specific to Small Exchange's status as a DCM.
No-Action Letters Regarding Event Contracts 25-44, 25-45, 25-47, & 25-48
The CFTC’s Division of Market Oversight issued four no-action letters providing relief to different prediction market operators from certain swap data reporting and recordkeeping requirements under Parts 43 and 45 of the CFTC regulations.
All four letters reflect the CFTC's recognition that while these event contracts are technically classified as "swaps" under the Commodity Exchange Act, they more closely resemble exchange-traded options on futures with standardized terms and clearing, thereby justifying relief from traditional swap reporting burdens. This operational relief and the removal of FCM restrictions significantly expands market access for these prediction market platforms.
No-Action Letter Regarding CPO Registration for Certain SEC-Registered Investment Advisers 25-50
The Market Participants Division of the CFTC put out a no-action letter providing relief for any Member of the Managed Funds Association (“MFA”) that either (i) fails to register as a Commodity Pool Operator (“CPO”) or Commodity Trading Advisor (“CTA”), or (ii) that withdraws from CPO or CTA registration, as a result of the letter. The relief lasts until the CFTC completes a formal rulemaking to reinstate the exemption from registration that was previously set out in regulation 4.13(a)(4), also known as the “QEP Exemption”.
In response to the MFA’s request, the MPD issued relief in accordance with (i) and (ii) above if:
- The person is currently, or would be, until such time as the Commission may promulgate regulations to reinstate the QEP Exemption, required to be registered with the CFTC as a CPO for its commodity pool operations, or relies upon an existing exemption from such CPO registration in CFTC regulation 1.3;
- The person is registered with the SEC as an investment adviser;
- The interests of the pool operated by the person are exempt from registration under the Securities Act and sold without marketing to the public in the United States (provided, that the prohibition on marketing to the public shall not apply to a pool that is also offered pursuant to 17 CFR 230.506(c);
- The person believes at the time of investment, or at the time of relying on the no-action position from CPO registration, that each pool participant meets the QEP definition under CFTC regulation 4.7(a)(6);
- The person files a Form PF with the SEC with respect to the pool(s) covered by the no-action position, which is received by the CFTC;
- The person complies with CFTC regulations 4.13(b) (except paragraph (b)(2)) and 4.13(c) as if reliance on the no-action position contained herein were an exemption from registration under 4.13(a), with the exception that notices documenting reliance on this no-action position are filed via email to mpdnoaction@cftc.gov. Provided that a notice claiming this no-action position is materially complete, it should be considered effective upon emailing to the Division.
The letter also states that if a QEP No-Action CPO qualifies for the no-action position in 25-50, the MPD will not recommend an enforcement action if such QEP No-Action CPO either fails to register or withdraws from registration, as a CTA.
Stuart Armstrong & Barrett Morris | Email
Places We’ll Be
ABA’s Derivatives and Futures Law Committee Meeting January 2026
Interesting Links
Prediction Market User Makes Large Bet on Maduro Capture
ISDA’s OTC Derivatives Compliance Calendar
“Banks in the Age of Stablecoins” from the Federal Reserve
Proposed Exemptive Relief for Cross-Margining of Customer Positions at CME & FICC
First-ever listed spot crypto trading on U.S. regulated exchanges
|
