U.S. Commodity Futures Trading Commission v. Wang
MEMORANDUM OPINION AND ORDER re: 22 MOTION for Permanent Injunction and Other Statutory and Equitable Relief Against Defendant Wang filed by U.S. Commodity Futures Trading Commission, 27 MOTION for Oral Argument fi led by Fan Wang. The foregoing constitutes the Court's Findings of Fact and Conclusions of Law. The Court has considered all of the arguments raised by the parties. To the extent not specifically addressed, the arguments are either moot or without merit. For the foregoing reasons, the Commission's motion is granted in part and denied in part. The Clerk is directed to close all pending motions. The parties are directed to submit a proposed final judgment within two (2) days providing for a civil monetary penalty of $167,728 and closing this case. (Signed by Judge John G. Koeltl on 8/8/2017) (mro)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-----------------------------------U.S. COMMODITY FUTURES TRADING
-----------------------------------JOHN G. KOELTL, District Judge:
On September 6, 2016, the plaintiff, the U.S. Commodity
Futures Trading Commission (the “Commission”), filed a Complaint
against the defendant, Fan Wang a/k/a Alex Wang, seeking
injunctive and other equitable relief and civil penalties for
violations of the Commodity Exchange Act (the “CEA”), 7 U.S.C.
§ 1 et seq..
On April 17, 2017, the Court entered a Consent Order for
Permanent Injunction and Other Statutory and Equitable Relief
against the defendant. Dkt. 18 (the “Consent Order”). The
Consent Order resolved and settled all liability claims against
the defendant and entered a permanent injunction prohibiting him
from violating the CEA as charged. Consent Order ¶¶ 29-32. The
issues of statutory relief pursuant to Section 6c of the CEA, 7
U.S.C. § 13a-1, appropriate equitable relief --- including
injunctive relief as to registration and trading --- and the
amount of a civil monetary penalty (“CMP”) to be assessed were
reserved. Consent Order ¶¶ 33-34.
Pending before the Court is the Commission’s Motion for a
Supplemental Order of Permanent Injunction and Other Equitable
Relief against the defendant. The Commission seeks a CMP, a
permanent commodity interest trading ban, and a permanent ban
from registering with the Commission. The following constitutes
the Court's Findings of Fact and Conclusions of Law.
The following facts are based on the parties’ submissions,
the Complaint, and the Consent Order. The allegations in the
Complaint and the Findings of Fact and Conclusions of Law in the
Consent Order are accepted as true for purposes of this motion.
See Consent Order ¶ 35.
The defendant was born in China in 1986. Wang Decl. ¶ 2.
The defendant immigrated to the United States when he was 15; at
the time, he did not speak English. Wang Decl. ¶ 3. The
defendant attended Cornell University, majored in Electrical and
Computer Engineering, and graduated in 2009 with a Bachelor of
Science degree. Wang Decl. ¶ 4. After graduation, the defendant
was hired as a clerk at a certain financial services firm that
engages in the proprietary trading of futures, options, and
other securities (the “Company”). Wang Decl. ¶ 7. In early 2010,
the defendant was promoted to assistant trader. Wang Decl. ¶ 9.
His responsibilities included reconciling accounts, transferring
trades among firm accounts, making trades for traders as
directed, and various other ministerial tasks. Wang Decl. ¶ 9.
Eventually, the defendant was assigned to manage two of the
Company’s proprietary trading accounts, Account-1 and Account-2.
Wang Decl. ¶ 11. The defendant could make transfers between the
two accounts, and trade from the two accounts, subject to
certain restrictions dictated by the Company’s policy. Wang
Decl. ¶ 12.
In October 2011, the defendant made certain trades in
Account-2 that resulted in substantial losses. Wang Decl. ¶ 13;
Simonson Decl., Ex. D (Sentencing Transcript) at 12. To hide the
losing trades, the defendant transferred “certain profitable
trades from Account-1 to Account-2 without receiving the
requisite prior approval,” which violated the Company’s policy.
Wang Decl. ¶ 14. The transfers resulted in a short position in
Account-1. Wang Decl. ¶ 15. The situation spiraled down from
On November 16, 2011, in an effort to recoup the shortfall
in Account-1, the defendant purchased futures contracts in
Account-1, without receiving requisite approval from the
Company. Consent Order ¶¶ 19, 29; Wang Decl. ¶ 16. Worried that
his violations of Company policy would be discovered, the
defendant attempted to hide the fact that he had made the
additional trades. Wang Decl. ¶ 17. The defendant made multiple
manual false entries in the Company’s computerized trading
records to disguise the status of many of the trades
(specifically, to make certain futures contracts appear to be
closed out even though they in fact remained open), and to
disguise the fact that he had made the purchases. Consent Order
The manual entries on November 16, 2011 were false reports
in connection with a commodity transaction in violation of
7 U.S.C. § 6b(a)(1)(B). Compl. ¶¶ 1, 20.
Two days later, on November 18, 2011, the Company’s
Managing Partner asked the defendant to explain why the Company
had received a margin call on Account-1. Wang Decl. ¶ 20. The
defendant explained what he had done, and then met with his
supervisor and a clerk to show them what he had done. Wang Decl.
¶ 20. The defendant was terminated from the Company on the same
day. Wang Decl. ¶ 21.
From the time of his termination on November 18, 2011 until
March 2014, the defendant was unaware that he was under any kind
of investigation by the Government. Simonson Decl., Ex. D at 7.
The Commission identifies no evidence of wrongdoing during that
In 2014, the defendant was charged criminally, and, on July
16, 2014, pleaded guilty to making a false report in connection
with a commodities transaction in violation of 7 U.S.C.
§§ 6b(a)(1)(B) and 13(a)(2). See Simonson Decl., Ex. C.
On November 13, 2014, the defendant was sentenced before
Judge Pauley. During sentencing, the defendant addressed the
Thank you for giving me the opportunity to speak.
I want to begin by apologizing for what I have done. I
am very sorry for my mistake. I know that what I did
was wrong. I apologize to the Court and to the
government. I also want to apologize to [the Company]
for what I have done. And, I want to apologize to my
parents. They raised me to always do the right thing
and I am deeply ashamed for what I have done.
. . .
At this point I want the Court to know that I have
learned my lesson. I have otherwise been a law-abiding
citizen my whole life and I promise that I will never,
ever, do anything like this again.
Simonson Decl., Ex. D at 19. In reviewing the case, the
court asked the Government whether the defendant was “low
hanging fruit.” Simonson Decl., Ex. D at 17. The court observed:
This is [Mr. Wang’s] first criminal conviction and the
underlying acts here were stimulated by a panicked,
misguided state of mind. The young man was terrified
that he was going to get in trouble with his employer
and so he falsified trading records. This was, as his
lawyers argue, a foolish and immature act. But, of
course, he also did not want to jeopardize his bonus
in trying to preserve an approximately $100,000 bonus
he incurred losses the government has now computed at
Looking at all of Mr. Wang’s life and the submissions
that were made on his behalf, his conduct was aberrant
behavior. . . .
Since Wang's termination three years ago he has tried
to use his natural gifts to tutor students in various
disciplines. Some of that tutoring has been voluntary
community service and other tutoring has been through
his current employment. The sentencing submissions
reflect the devotion to his students. He came to this
country and pulled himself up and until this matter
came to light, had a promising future. This Court
still believes that he has a promising future and that
he can make a meaningful and important contribution to
the United States if he is permitted to remain in the
Simonson Decl., Ex. D at 24-25. The court varied downwardly
from the Guidelines recommended sentence of between 30 and 37
months imprisonment and imposed a sentence of three months
imprisonment, followed by three years of supervised release.
Simonson Decl., Ex. D at 22, 25-26. The court also ordered the
defendant to pay restitution in the amount of $2.2 million as a
condition of supervised release. Simonson Decl., Ex. D at 26.
The defendant has served his term of imprisonment and is
currently on supervised release. The defendant tutors students
in math and physics, for which he earns approximately $3,700 per
month. Wang Decl. ¶ 23. He lives with his mother and has
virtually no assets. Wang Decl. ¶ 22. He has been making timely
The Commission has moved for a permanent injunction barring
the defendant from registering with the Commission and
participating in the markets regulated by the Commission.
Section 6c(b) of the CEA provides that “[u]pon a proper
showing, a permanent . . . injunction . . . shall be granted
without bond.” 7 U.S.C. §13a-1(b). In order to obtain an
injunction, the Commission must show that “there is a likelihood
that, unless enjoined, the violations will continue.” CFTC v.
Am. Bd. of Trade, Inc., 803 F.2d 1242, 1250–51 (2d Cir. 1986);
see also Commodity Futures Trading Comm'n v. Creagh, No. 15-CV6140 (JPO), 2017 WL 1929624, at *2 (S.D.N.Y. May 10, 2017)
(“Courts need not enjoin only identical future violations; they
may extend to restrictions on trading activity generally, if a
court finds that defendants are not likely to ‘make good faith
efforts to comply with restrictions,’ more broadly, in the
future.”). In determining whether an “inference that the
defendant is likely to repeat the wrong” is warranted, courts
consider the “totality of the circumstances,” including the
“commission of past illegal conduct.” SEC v. Mgmt. Dynamics,
Inc., 515 F.2d 801, 807 (2d Cir. 1975).1 In doing so, courts
consider the following factors:
[T]he egregiousness of the defendant's actions, the
isolated or recurrent nature of the infraction, the
In analyzing enforcement actions under 7 U.S.C. §13a-1(b),
courts (as did the parties in this case) generally rely on the
reasoning of cases, such as Mgmt. Dynamics, 515 F.2d at 807,
that analyzed enforcement actions under Section 20(b) of the
Securities Act of 1933 and Section 21(e) of the Securities
Exchange Act of 1934. See, e.g., Commodity Futures Trading
Commission v. Morgan, Harris & Scott, Ltd., 484 F. Supp. 669,
677 (S.D.N.Y. 1979).
degree of scienter involved, the sincerity of the
defendant's assurances against future violations, the
defendant's recognition of the wrongful nature of his
conduct, and the likelihood that the defendant's
occupation will present opportunities for future
Commodity Futures Trading Comm'n v. Wilshire Inv. Mgmt. Corp.,
531 F.3d 1339, 1346 (11th Cir. 2008) (citation omitted); accord
Commodity Futures Trading Comm’n v. Incomco, Inc., 580 F. Supp.
1486, 1489 (S.D.N.Y. 1984) (citing SEC v. Universal Major
Industries, 546 F.2d 1044, 1048 (2d Cir. 1976)).
Upon careful consideration of the record, the Court
concludes that a permanent injunction, other than the consentedto injunction against violation of the CEA, is not warranted. To
justify an injunction, the Commission relies almost exclusively
on the underlying wrongdoing itself. But that conduct does not
show that the defendant is likely to commit further violations
of the CEA in the future. Judge Pauley has already concluded
that the misconduct was aberrant. The misconduct was not
egregious. The violations of the CEA occurred over the course of
one hour, and the violations of Company policy (which, the
Commission argues, is indicative of future misconduct) occurred
over the course of about one month. The Commission has
identified no evidence of wrongdoing before or after that
period, including during the approximately two-and-a-half years
between the defendant’s termination and his realization that he
was the target of a Government investigation. Instead, as Judge
Pauley found, the defendant’s actions seem to have been driven
by panic, one mistake compounding another, which ultimately
resulted in the violations of the CEA.
The defendant confessed to his wrongdoing almost
immediately once the Company’s Managing Partner questioned him
about the margin call. There is no evidence that the defendant
attempted to fabricate an excuse for the margin call.
The evidence demonstrates that the defendant has
acknowledged his wrongdoing and accepted responsibility for his
The Commission argues that an injunction is warranted
because the defendant has failed to establish that he cannot
secure employment in a field other than commodities trading.
That consideration is irrelevant to the analysis. The only
question is whether the defendant is likely to violate the CEA
again unless he is enjoined from registering with the Commission
and trading commodities. The Commission has failed to establish
that is true. The defendant’s dream is to return to trading
commodities. Wang Decl. ¶ 24. If he is able to accomplish that
goal, there is no evidence that he will violate the CEA again.
Similarly, the fact that the defendant has paid just a
small portion of restitution does not change the calculus. The
evidence shows that the defendant has complied with his
obligations to pay restitution within his means.
Accordingly, the application to bar the defendant
permanently from registering with the Commission and
participating in the markets regulated by the Commission is
The Commission argues that a CMP of $335,466 for two
violations of the CEA should be imposed on the defendant,
reflecting the maximum statutory penalty of $167,728 per
violation. 17 C.F.R. § 143.8(a)(4)(ii)(B). The Commission
arrives at that CMP by arguing that each falsified data entry
constituted a violation of the CEA, meaning that the defendant
violated the CEA multiple times within one hour. The defendant
concedes that he violated the CEA, although he disputes the
number of times. He urges that the CMP imposed should be no more
than the amount for one violation at the statutory maximum of
$167,728 in light of the circumstances of the case.
“In determining an appropriate penalty, [a court]
‘considers the general seriousness of the violation as well as
any particular mitigating or aggravating circumstances that
exist.’” Creagh, 2017 WL 1929624, at *2 (quoting Wilshire Inv.
Mgmt. Corp., 531 F.3d at 1346). The penalty imposed must be
“rationally related to the offense” and rests within the
discretion of the Court. Id. (quoting R&W Technical Servs. Ltd.
v. CFTC, 205 F.3d 165, 177 (5th Cir. 2000)).
For similar reasons to those discussed in connection with
denying the requested injunction, the Court concludes that a CMP
of $167,728 is rationally related to the defendant’s misconduct.
The defendant did falsify more than one record but there are
extensive mitigating factors in this case. The violation of the
CEA --- although serious --- does not warrant a higher penalty.
See, e.g., id. at *1-2 (imposing a sanction of $125,000, even
though the Commission sought a sanction of $500,000, for
misconduct that stretched over two years); Commodity Futures
Trading Comm'n v. Fleury, 479 F. App'x 940, 944 (11th Cir. 2012)
(summary order) (affirming sanction of $120,000 where the
defendants “violated the CEA for a significant time and
defrauded many customers”). The penalty serves the deterrence
goals of the CEA and is rationally related to the wrongdoing.
In addition, the lower fine is more consistent with what
the defendant can realistically pay. See, e.g., U.S. Commodity
Futures Trading Comm’n v. 4X Sols., Inc., No. 13-CV2287(RMB)(FM), 2015 WL 9943241, at *3 (S.D.N.Y. Dec. 28, 2015)
(“[C]ourts should be realistic and not set a figure which is
impossible for a defendant to comply with due to lack of
monetary resources.” (citations omitted)), report and
recommendation adopted, No. 13-CV-2287(RMB)(FM), 2016 WL 397672
(S.D.N.Y. Jan. 29, 2016).
To argue that the defendant’s ability to pay is not a
relevant consideration, the Commission points to the 1992
amendments to 7 U.S.C. § 9a(1), which “obviated the Commission’s
duty to consider a respondent’s net worth when assessing a
monetary penalty.” JCC Inc., v. CFTC, 63 F.3d 1557, 1570-71 n.42
(11th Cir. 1995) (emphasis added). The weight of well-reasoned
authority has found that the amendments did not impact what a
court can consider. See, e.g., U.S. Commodity Futures Trading
Comm'n v. Hall, 49 F. Supp. 3d 444, 454-55 & n.5(M.D.N.C. 2014),
aff'd, 632 F. App'x 111 (4th Cir. 2015) (summary order);
Commodity Futures Trading Comm'n v. King, No. 06-CV-1583-M, 2007
WL 1321762, at *5 (N.D. Tex. May 7, 2007); Commodity Futures
Trading Comm'n v. R.J. Fitzgerald & Co., No. 99-CV-1558-T-MSS,
2006 WL 1406542, at *1 (M.D. Fla. May 19, 2006).2 7 U.S.C. § 9a
speaks to what the Commission can consider in assessing a
penalty for a violation. But this action is brought pursuant to
7 U.S.C. § 13a-1(d)(1), which provides that the “Commission may
seek and the court shall have jurisdiction to impose . . . a
civil penalty.” That section does not limit what mitigating
circumstances a court can consider in setting a CMP. It is no
But see Commodity Futures Trading Comm'n v. Aurifex Commodities
Research Co., No. 1:06-CV-166, 2008 WL 299002, at *12 (W.D.
Mich. Feb. 1, 2008).
accident that, in imposing civil penalties pursuant to 7 U.S.C.
§ 13a-1(d)(1) following the 1992 amendments, courts have
generally continued to consider what a defendant can
realistically pay. E.g., 4X Sols., 2015 WL 9943241, at *3; U.S.
Commodity Futures Trading Comm'n v. Yorkshire Grp., Inc., No.
13-CV-5323(AMD)(ST), 2016 WL 8256380, at *6 (E.D.N.Y. Aug. 19,
2016), report and recommendation adopted, No. 13CV5323(AMD(ST),
2016 WL 5942310 (E.D.N.Y. Oct. 12, 2016); Commodity Futures
Trading Comm'n v. Amerman, No. 1:07-CV-2280-(WBH), 2013 WL
12099156, at *7 (N.D. Ga. Apr. 19, 2013), aff'd, 645 F. App'x
938 (11th Cir. 2016) (summary order); Commodity Futures Trading
Comm'n v. Rosenberg, 85 F. Supp. 2d 424, 455 (D.N.J. 2000).
Under all the circumstances, the CMP that the Commission
seeks would be excessive and unrealistic.
Accordingly, the Court will impose a CMP of $167,728 on the
defendant. That is a just penalty considering the nature of the
violation and all of the mitigating factors in this case.
The foregoing constitutes the Court's Findings of Fact and
Conclusions of Law. The Court has considered all of the
arguments raised by the parties. To the extent not specifically
addressed, the arguments are either moot or without merit. For
the foregoing reasons, the Commission’s motion is granted in
part and denied in part. The Clerk is directed to close all
pending motions. The parties are directed to submit a proposed
final judgment within two (2) days providing for a civil
monetary penalty of $167,728 and closing this case.
New York, New York
August 8, 2017
John G. Koeltl
United States District Judge
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