The Commodity Futures Trading Commission (CFTC or “Commission”) recently sanctioned four commodity pool operators (CPOs) for failing to file timely reports with the National Futures Association (NFA), accepting combined settlements totaling $275,000.
This advisory provides background information on the Commission’s action and highlights its importance for commodity pool operators.
What Is the Background Behind the Sanctions?
CPOs generally are required by Commission rules to file an annual report with the NFA and to distribute this report to each pool participant at the end of the pool’s fiscal year. Although a CPO may claim relief from certain CFTC recordkeeping, disclosure, and reporting requirements where the CPO offers or sells participation in the pools solely to qualified eligible persons, in an offering that is exempt from registration under the federal securities laws and where the offering is not marketed to the public, the CPO claiming such exemption is still required to file an annual report with the NFA and to distribute this report to each pool participant within 90 days of the end of the pool’s fiscal year. The annual report must contain information that allows an investor to assess the pool’s trading performances and overall financial condition. Where a pool is a fund-of-funds, a CPO may claim an extension to no more than 150 days from the end of the pool’s fiscal year.
Spring Mountain Capital G.P., LLC, Spring Mountain Capital, LP, Fortis Investment Management US, Inc. and UBS Fund Advisor, LLC were all charged with failing to distribute to investors, and to file with the NFA, one or more of their commodity pools’ annual reports. Although certain of the sanctioned CPOs had obtained extensions for assorted pools and reporting years, each ultimately failed to file or distribute one or more of the pool’s annual reports in a timely fashion.1 The sanctioned CPOs agreed to pay a combined total of $275,000 in civil monetary penalties, without admitting or denying the Commission’s findings.2
What Is the Implication of These Sanctions?
These sanctions evidence the Commission’s determination to vigorously enforce the filing deadlines for reports by CPOs. Accordingly, CPOs should take care to ensure that they timely file annual reports with the NFA and distribute such reports to pool participants. Absent an extension, CPOs adhering to a fiscal year that coincides with the calendar year are required to distribute their annual reports by the end of March.