Deja Vu Again Justified?: CFTC Fines Respondents for Wash Sales Less Than Two Weeks After COMEX Fines and Suspends Two Principals for Same Offense

A settlement of a potential administrative action against two Dubai residents (Kunal Bansal and Vinit Agarwal) and firms for which they each traded (Aralia Securities, Ltd. and Vintage Bullion DMCC, respectively) for engaging in 13 alleged wash sales was announced by the Commodity Futures Trading Commission on December 27, 2021. The CFTC said that Mr. Bansal and Mr. Agarwal orchestrated to non-competitively move gold futures contracts purchased by Aralia to Vintage, as Vintage required the physical delivery contemplated by the relevant contracts. According to the CFTC, the respondents' wash sales involved 189 gold futures contracts traded on or subject to the rules of the Commodity Exchange, Inc. (COMEX) -- a licensed CFTC exchange and self-regulatory organization that is part of the CME Group -- during April 2020.

To resolve the CFTC matter, Mr. Bansal and Mr. Agarwal agreed to pay, jointly and severally, a fine of US $100,000 and to cease and desist from violating a relevant provision of law and a CFTC rule prohibiting wash sales and non-competitive trades. (For the CFTC, a wash sale involving futures contracts typically involves the intentional non-competitive purchase and sale of the identical delivery month of the identical futures contract at the same or similar price for a single beneficial owner.)

From the CFTC's announcement and settlement order, it appears clear that, if the facts alleged by the CFTC were true, the respondents' conduct was impermissible under applicable law and a CFTC rule. 

Notwithstanding, it is not clear that the CFTC's enforcement action was warranted given that, on December 16, 2021, COMEX announced it had filed and settled disciplinary actions against Mr. Bansal and Mr. Agarwal originating from the exact same conduct. To resolve these COMEX actions, Mr, Bansal agreed to pay a fine of US $25,000 and Mr. Agarwal a fine of US $10,000, and both individuals consented to being barred from trading on any CME Group exchange for ten business days. Indeed, the CFTC expressly acknowledged these COMEX disciplinary actions in its press release announcing its own enforcement action. (Click here for the COMEX action against Mr. Bansal and here for the COMEX action against Mr. Agarwal.)

As I have written on multiple prior occasions, where CFTC-licensed exchanges investigate, commence and resolve disciplinary actions against persons alleged to have violated exchange rules (e.g., prohibitions against wash trades), it is not clear the societal benefit of the CFTC expending any resources to investigate and commence a parallel action alleging effectively the same violations -- albeit under federal law and a CFTC rule. If industry self-regulation works (as apparently it did here), federal duplication of efforts hardly seems justified.