The Commodities Futures Trading Commission (CFTC) Allowed Ponzimonium to Happen

In a telephone conference today, Bart Chilton, the commissioner of the Washington-based Commodity Futures Trading Commission (CFTC) referred to the recent discovery of unprecedented numbers of ponzi schemes as “rampant Ponzimonium.” According to a Reuters article published today, Mr. Childers was making a play on the word “Lollapalooza,” a popular music festival.

In that article, Mr. Chilton was also quoted as saying, “Because of the economy, people are seeking redemptions more than they ever have and that’s making a lot of these scams go belly up.”

Mr. Chilton should have made another play on words and said that “a lot of these scams go ‘pork-belly’ up.”  That is because many of the recently discovered ponzi schemes involve commodities futures trading.  Mr. Chilton admitted that so far this year, the agency has uncovered 19 ponzi schemes, up from 13 for all of 2008.

While the SEC has certainly received its fair share of criticism recently, the CFTC has not received much negative press. It deserves some though.

What many investors do not know is that the CFTC along with the National Futures Association (NFA) regulate the commodities industry, not the SEC.  Investors often are unaware that the rules and regulations of the NFA have the practical effect of being less stringent on its members than those imposed on brokerage firms that sell securities.  Risk disclosure requirements are more relaxed and less effective because the rules shift much of the burdens of risk disclosure to the commodities trading advisors and away from the brokerage firms.  As a result, it is more difficult to hold the brokerage firms actually making the trades liable for unsuitable recommendations.

In addition, because much of the commodities trading is done through online forex trading platforms, it is not difficult for criminals to open accounts in his or her name and trade (without a license) on behalf of groups of investors. Because of lax regulations, commodities brokerage firms called Futures Commodities Merchants (FCM) disregard their due diligence duties and do nothing to stop ponzi schemes from forming.  As a result, the scams are not discovered until it is too late and rampant ponzimonium takes effect. 

It is no wonder, therefore, that crooks looking to rip off consumers view the commodities industry as their Afganistan of the scam artist criminal landscape.