Responding to Target Letters From the CFTC

Getting a target letter from the Commodity Futures Trading Commission can be scary. It means you’re being investigated for possible violations of commodities trading laws. Don’t panic! With the right approach, you can get through this.

I know folks getting these letters feel anxious. It’s a big deal being investigated by the feds! But staying calm and knowing your rights is key. This article will walk through the basics so you understand what’s happening and can respond appropriately.

What is the CFTC?

First up, a quick primer on the agency sending these letters. The CFTC – short for Commodity Futures Trading Commission – is an independent US government agency. They regulate the commodities, futures, and swaps markets. Their job is to protect traders and the public from fraud and manipulation.

The CFTC has the authority to investigate potential violations of the Commodity Exchange Act and CFTC regulations. They can issue subpoenas, take testimony, and recommend civil or criminal prosecution. So getting a target letter from them is serious business.

What’s in a target letter?

A CFTC target letter informs you that you’re under investigation for possible violations of commodities trading laws. It will identify the specific laws or regulations you allegedly violated. This gives you an idea of what activity prompted the investigation.

These letters are often light on specifics. They won’t lay out all the facts or evidence against you. The goal is to put you on notice that you’re a target. This gives you a chance to respond before an enforcement action is formally initiated.

First steps after receiving a letter

Okay, you’ve just gotten a target letter from the CFTC. Don’t freak out! Here are some initial steps to take:

• Carefully read the letter to understand the exact allegations.
• Contact an experienced commodities fraud defense lawyer. Do this ASAP.
• Start gathering relevant documents like emails, trading records, and statements.
• Don’t try to handle this alone. These cases are complex.
• Don’t destroy or alter any documents. That can lead to obstruction charges.
• Don’t immediately respond to the CFTC. Talk to a lawyer first.

Having an experienced commodities lawyer on your side early is critical. These cases have major implications, so you need someone who understands the complex laws and regulations.

Responding to the allegations

After reviewing the target letter and consulting with your attorney, you may want to respond to the CFTC. This gives you a chance to present your side of the story early.

If you do respond, be thoughtful in your approach. Avoid overly emotional language and stick to the facts. Your lawyer can help craft an appropriate response.

In some cases, it may be better not to respond immediately. Your lawyer may want to interact informally with the investigators first. They can get more details on the allegations before you put anything in writing.

Possible outcomes

So what happens after you receive a CFTC target letter? Here are some potential scenarios:

• The investigation closes with no action. This happens if they don’t find evidence of wrongdoing.
• You receive a “Wells notice” indicating the CFTC may bring civil charges.
• Settlement discussions begin. Many cases end in a settlement.
• The CFTC files a civil complaint against you.
• They refer the case to the Department of Justice for criminal prosecution.

The outcome depends on the strength of the evidence and specific facts of your case. Your lawyer will assess this and advise on the best response.

Areas of CFTC oversight

To understand CFTC investigations, it helps to know what they regulate. Here are some of the main areas:

• Commodities fraud – Manipulation, false reporting, Ponzi schemes, etc.
• Insider trading – Using nonpublic information to trade commodities.
• Registration violations – Breaking rules around registration requirements.
• Supervision failures – Inadequate oversight of traders or advisors.
• Recordkeeping – Not retaining required trading records.

Violations can lead to civil fines, trading bans, and even criminal prosecution. It’s essential to take these cases seriously.

SEC vs CFTC

The CFTC regulates commodities – things like gold, oil, wheat, and livestock. The Securities and Exchange Commission (SEC) oversees securities like stocks and bonds.

The two agencies have similar powers but focus on different markets. It’s possible to receive target letters from both if your case spans commodities and securities.

Responding to a subpoena

In some cases, you may receive a subpoena from the CFTC before or after getting a target letter. This legally compels you to provide documents, testimony, or other information.

Carefully comply with all deadlines and specifications in the subpoena. But review the details with your lawyer before responding. In certain cases, it may be possible to get the scope modified or to have the deadline extended.

If you receive a subpoena, be sure to consult an attorney to understand how to respond appropriately. Never ignore a subpoena, as that can lead to contempt charges.

Practical tips

Here are some practical tips for responding to a CFTC target letter:

• Stay calm. Panicking helps nothing.
• Be truthful with your lawyer so they can best advise you.
• Follow your lawyer’s guidance about responding.
• Don’t try to handle this alone. Commodities laws are complex.
• Carefully comply with any subpoenas and information requests.
• Don’t discuss the case publicly or alter/destroy any relevant documents.

By following these tips and working closely with your lawyer, you’ll be in the best position to navigate the investigation.

Conclusion

Getting a target letter from the CFTC is unsettling. But try not to get too anxious. Now that you understand the basics, you can start gathering information and consulting experienced counsel.

With the right legal guidance, these investigations can often be resolved favorably. Don’t go it alone. Have an experienced commodities lawyer help craft your response.

Stay calm, know your rights, and let your lawyer handle interactions with the investigators. This measured approach will serve you well in navigating the complexities of a CFTC investigation. You’ve got this!