The Commodity Futures Trading Commission (CFTC) has issued an Order filing and settling charges against Swapnil Rege, a former portfolio manager for Connecticut-based hedge fund Marinus Capital registered with the CFTC as a commodity pool operator (CPO), for fraudulently mismarking swap valuations to artificially inflate the profits of his employer’s trading book in order to obtain an increased performance bonus.
The Order requires Rege to pay a $100,000 civil monetary penalty, as well as to disgorge the $600,000 performance bonus he received (plus pre-judgment interest in the amount of $49,170.84). It also bans Rege from trading on or subject to the rules of any CFTC-registered exchange or other CFTC-registered entity and from seeking registration with the CFTC for at least three years, among other prohibitions.
The Securities and Exchange Commission (SEC) also announced today that it filed and settled a related action against Rege for aiding and abetting violations of the Investment Advisers Act by the fund’s investment adviser (the CFTC-registered CPO was also registered with the SEC as an investment adviser). The SEC Order imposes disgorgement and pre-judgment interest in amounts identical to the CFTC Order, as well as a $100,000 civil monetary penalty; disgorgement amounts paid pursuant to the SEC Order shall offset (dollar-for-dollar) Rege’s obligation to pay disgorgement under the CFTC Order.
The Order finds that from about June 2016 through April 2017, Rege mismarked the valuations of certain interest rate swaps. He accomplished his mismarking scheme in several ways, including by manipulating the discount curve settings of the valuation model used by the CPO to mark its swaps and other related instruments, and by using incorrect day count settings for fixed and floating legs of some swaps and swaptions to reduce or increase the model value of future payments to or by the CPO.
The Order also finds that Rege took steps to conceal his mismarking scheme, including by asking counterpart traders at swap dealers used by the CPO to provide him with quotes to verify the fraudulent model valuations. The Order finds that this conduct constituted fraud under the federal commodities laws.
“With this action, the Commission shows its continued commitment to holding accountable individuals who engage in fraudulent conduct that undermines the integrity of our markets,” James McDonald, CFTC’s director of enforcement, says. “This Order also reflects the CFTC’s continued commitment to working in parallel with our enforcement partners like the Securities and Exchange Commission to ensure that bad actors are identified and held accountable, even when their misconduct stretches across multiple regulators’ jurisdictions.”