The Commodity Futures Trading Commission filed a lawsuit in a federal court in Illinois against Yumin Li and Kering Capital Ltd. – a company formed in November 2014 by Ms. Li’s mother – claiming that Ms. Li engaged in multiple illegal futures transactions from March 17 to May 6 of this year designed to transfer US $300,000 from an account of her employer to an account in the name of Kering Capital. Simultaneously, the CFTC obtained an ex parte asset freeze against Ms. Li and Kering Capital. According to the CFTC, Ms. Li entered multiple non-competitive buy and sell trades in her employer’s account meant to lose money and corresponding sell and buy trades in the Kering Capital account to make an equal amount of money, all in distant Eurodollar futures contracts traded on the Chicago Mercantile Exchange. The CFTC claimed Ms. Li chose these distant futures contracts and traded them on CME Group’s Globex platform outside of regular trading hours to ensure she could trade the two accounts opposite each other. The nature of the trades was a “money pass,” said the CFTC – “a form of non-competitive trading in which one traders loses money to another trader, typically where one trader buys a quantity of contracts at a high price opposite the other trader, and sells back the same quantity of contracts at a low price opposite the same trader, leaving neither trader with a resulting futures or options position.” The CFTC seeks disgorgement of funds allegedly transferred to Kering Capital, a prohibition of similar conduct, and fines, among other relief. (Click here for an additional perspective on this enforcement action in the article “CFTC Sues Chinese Citizen Accused of Executing Fraudulent Money Pass Trades” in the July 10, 2015 edition of Corporate & Financial Weekly Digest by Katten Muchin Rosenman LLP.)

Compliance Weeds: Many futures exchanges have express prohibitions against executing transactions designed to pass money between accounts (Click here, for example, to access CME Rule 432.G and here to access ICE Futures U.S. Rule 4.02(f).) Typically such transactions are executed non-competitively and may violate other exchange rules too (e.g., pre-execution communications. Click here to access the relevant CME Group Market Regulatory Advisory Notice.)