Hedge Fund Fined For Misleading Options Market

Nov 17 2009 | 3:51am ET

A New York-based hedge fund has settled charges that it misled the Chicago Board of Trade, the U.S. Commodity Futures Trading Commission said.

EMF Financial Products has agreed to pay $4 million to settle the CFTC allegations. The regulator had accused it of hiding the size of its position in U.S. Treasury futures four years ago. While the hedge fund controlled almost $12 billion in contracts, it allegedly told the CBOT—which was conducting market surveillance in advance of the expiration of the September 2005 contract—that it had a cash position of just $200 million.

In fact, its cash position was more like $2.2 billion, the CFTC said, and the hedge fund also had more than $10 billion in contracts on the repurchase market.

EMF eventually told the CBOT of the size of its holding only after the exchange sent it a written request for information. In response, the CBOT barred the hedge fund from increasing its position further.

In addition to the fine, the CFTC has also restricted the hedge fund’s registration as a commodity pool operator and commodity trading adviser for three years.

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