U.S. Commodity Futures Trading Commission v. Fan Wang

Citation: 261 F. Supp. 3d 383Docket: 16-cv-6961 (JGK)

Court: District Court, S.D. New York; August 8, 2017; Federal District Court

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On September 6, 2016, the U.S. Commodity Futures Trading Commission (CFTC) filed a Complaint against Fan Wang, also known as Alex Wang, for violations of the Commodity Exchange Act (CEA). A Consent Order for Permanent Injunction was issued on April 17, 2017, which resolved all liability claims against Wang and imposed a permanent injunction against future CEA violations. However, the issues regarding statutory relief, equitable relief, and civil monetary penalties were reserved for further consideration.

The CFTC is currently seeking a Supplemental Order that includes a civil monetary penalty, a permanent trading ban, and a prohibition on registering with the Commission. The Court’s findings are based on submissions from both parties, the Complaint, and the Consent Order, which accepts the allegations as true for this motion.

Wang, born in China in 1986, immigrated to the U.S. at age 15 and graduated from Cornell University in 2009. He began working as a clerk at a financial services firm and was later promoted to assistant trader, managing two proprietary trading accounts. In October 2011, he incurred significant losses in one account and, to conceal these losses, transferred profitable trades from another account without approval, violating company policy. This led to a short position in the first account. In November 2011, Wang attempted to recover losses by executing unauthorized trades and subsequently falsified trading records to hide these actions, constituting violations of the CEA. A margin call on the account prompted inquiries from the firm's Managing Partner regarding the discrepancies.

The defendant was terminated from his company on November 18, 2011, after admitting to misconduct, and remained unaware of any governmental investigation until March 2014. No evidence of wrongdoing was identified during this period. In 2014, he was charged and later pleaded guilty to making a false report related to a commodities transaction, violating 7 U.S.C. 6b(a)(1)(B) and 13(a)(2). He expressed remorse during his sentencing on November 13, 2014, acknowledging his mistake, apologizing to the court, the government, the company, and his parents, and committing to lawful behavior in the future. The court characterized his actions as a result of panic and immaturity, noting it was his first criminal conviction. It also considered his efforts to contribute positively to society through tutoring since his termination. The court imposed a reduced sentence of three months imprisonment, followed by three years of supervised release, along with a restitution order of $2.2 million. The defendant has since completed his prison term, is on supervised release, earns approximately $3,700 monthly tutoring math and physics, lives with his mother, and has been making timely restitution payments. The Commission seeks a permanent injunction to prevent the defendant from registering and participating in regulated markets, requiring proof of a likelihood of continued violations for such an injunction to be granted.

Courts have the discretion to impose broader trading restrictions beyond identical future violations if there is evidence that defendants are unlikely to comply with regulations in good faith. In assessing the likelihood of reoffending, courts evaluate the totality of circumstances, which includes factors such as the severity of past misconduct, its frequency, the intent behind actions (scienter), the credibility of assurances against future violations, acknowledgment of wrongdoing, and the potential for future infractions based on the defendant's occupation. In this case, the court determined that a permanent injunction beyond an agreed-upon restriction was not warranted, as the Commission failed to demonstrate a likelihood of future violations by the defendant. The court noted that the defendant's past misconduct was not severe, occurring over a short duration and characterized by panic rather than intent to defraud. The defendant quickly confessed to his actions and showed acceptance of responsibility without evidence of ongoing wrongdoing. The Commission's argument for a permanent bar from trading was dismissed as irrelevant, focusing instead on whether future violations were likely, which was not established. Additionally, the Commission sought a civil monetary penalty (CMP) of $335,466 for two violations of the CEA, arguing that each falsified entry constituted a separate violation, thus occurring multiple times within a single hour.

The defendant acknowledges a violation of the Commodity Exchange Act (CEA) but contests the frequency of the violations, advocating for a civil monetary penalty (CMP) of $167,728, the maximum for a single violation. Courts assess penalties based on the seriousness of the violation and any mitigating or aggravating factors. Here, the court finds the proposed CMP rationally related to the defendant's misconduct, considering that multiple records were falsified but also acknowledging extensive mitigating circumstances. Past cases demonstrate that serious violations sometimes resulted in lower sanctions than sought by the Commission. The court emphasizes the importance of setting a penalty that the defendant can realistically pay, despite the Commission's argument that the defendant's financial situation is irrelevant due to 1992 amendments to the CEA. The court concludes that the CMP of $167,728 is appropriate given the violation's nature and mitigating factors, determining that the CMP sought by the Commission is excessive. The court grants the Commission's motion in part, directing the imposition of the $167,728 penalty and instructing the parties to submit a proposed final judgment within two days. The court’s findings are based on established precedents regarding enforcement actions under relevant statutes.