CFTC vs My Forex Funds – Arguments in MFF’s Motion for Sanctions

Hard to believe, but it has been almost a year and a half since the CFTC shockingly shut down My Forex Funds by freezing their bank accounts. The case could drag on much longer – perhaps well into 2025 or longer if the case goes all the way to court.

There is, however, a very important judgement coming up, that could quickly advance the case. MFF has filed a motion for sanctions (penalties) against the CFTC. MFF is requesting that either the judge throw out the case entirely or make the CFTC pay a substantial portion of the legal bills.

Both sides presented their written arguments, and the oral arguments are on December 18. I’ve included below what I consider highlights from the written arguments, and at the very bottom, you can find pdfs of the entire arguments.

Quick background on the motion for sanctions

MFF filed a motion for sanctions against the CFTC, mainly because the CFTC made a critical error in their initial charges. The CFTC initially claimed that MFF’s accounts should be frozen in part because of a $31.5 million CAD payment that went from MFF’s bank account directly to CEO Murtuza Kazmi’s bank account.

There was nothing suspicious about this payment, however. It was for taxes, nothing more. At some point the CFTC realized they had a mistake, but they took a long time to correct the record. MFF claims the CFTC purposely let the error stand, while the CFTC says it wasn’t intentional or that important to the overall case.

MFF’s argument for sanctions

In preparation for the big hearing on December 18, MFF released its argument for sanctions. Here’s some of the highlights. The entire document is at the end of this article in pdf form.

MFF’s overall objections

Here’s the most powerful summary of MFF’s overall objections to the CFTC’s handling of their case:

Can’t say I remember the last time I’ve heard the word “slapdash,” but whatever it means, it does seem to fit. It is incredible to me that the CFTC would take such a dramatic step as shutting down the entire business without talking to a single MFF customer or staff member.

CFTC’s failure to correct their mistake

As mentioned above, the biggest CFTC error was their mischaracterization of the $31.5 million CAD payment to Kazmi’s account. While mistakes can be made, MFF is arguing that the CFTC let the mistake stand to bolster their case. By MFF’s count, the CFTC had seven chances to correct the record but did not:

MFF’s argument is that the CFTC had so many chances to correct their mistake that they must have been intentionally choosing not to.

Enter Edelstein & Burden

According to MFF, the main culprits in this mess seem to be CFTC investigator Matthew Edelstein and lawyer Ashley Burden. Edelstein was notified that the $31.5 million was a tax payment some but by the CFTC’s own admission “forgot to update the declaration.” Whoops. Burden, who also got the email notification about the tax payment, was on vacation didn’t remember reading it, although he stored it in his MFF folder. Whoops again.

Neither went back and reviewed the email or revised the record,.

Edelstein’s testimony in the various evidentiary hearings was a little all over the place, and at one point he was even forced to admit “it was very clear that I testified inaccurately about the timeline.”

Not a good look when your chief investigator and lawyer both miss emails, don’t correct the record, and can’t even properly recall when they discovered the potentially very impactful error.

Statement of CFTC Commissioner Caroline Pham

The investigation was, in fact, so rushed and flawed, that even one of the CFTC’s own commissioners, Caroline Pham made a public statement chastising her own agency for their conduct.

MFF, of course, cited her statement in their argument:

That “bare minimum amount of work” line from one of his bosses had to sting Investigator Edelstein, although his principle excuse was that he was on vacation when the critical email arrived, so I’m not sure he has much ground to object.

I’m not sure how much Commissioner Pham’s words will effect the judge, but it provides a great collaboration for MFF’s accusations. Someone from inside the CFTC also sees deep flaws in the CFTC’s case.

Order to unfreeze assets

After some of the dust settled, MFF was able to get in front of a judge and contest the order to freeze their assets. A big part of this hearing in front of Judge Quraishi was the $31.5 million, and when he heard that this was indeed a tax payment, he unfroze more than 90% of MFF’s assets and chastised the CFTC for their error:

This may be some of the most compelling evidence. A judge very clearly stated that the $31.5 million was a factor that supported the freezing of assets, which shut down MFF’s operations. Clearly the CFTC benefited from their error, whether they did so on purpose or not.

Requested sanctions

MFF and its principle lawyer, Craig Carpenito (the I in the statement below) believe that the CFTC, as a result of their error and failure to correct it, should be forced to drop all charges:

This seems like a long shot, but MFF would not have put up a year and a half’s worth of legal fees if they did not believe they had some chance of winning this Motion.

The second option for sanctions that MFF suggested was that the CFTC be forced to pay all legal fees that MFF had incurred. Some sort of financial sanctions seems likely, but a full repayment of the legal fees also seems like a reach.

We shall see!

CFTC’s argument against sanctions

MFF clearly made some very compelling points in their argument. The CFTC made an obvious mistake, can’t fully account for when that mistake was realized, took their sweet time to correct it, and used that mistake to shut down a massive prop trading firm.

As mentioned above, the CFTC chalks this all up to a few simple errors: an email missed on vacation, a memory lapse, and a failure to understand how critical their error was.

That’s not a great look for the CFTC, but here’s how the CFTC further defended themselves:

Tip of the iceberg

To the CFTC, the $31.5 million tax payment wasn’t such a big deal, because they found additional income from MFF’s operations that were being sent to Kazmi’s personal accounts — more than $107 million.

With so much cash already flowing into Kazmi’s account, the CFTC claimed the $31.5 million mistake was an oversight, but just a drop in the bucket.

The $31.5 million didn’t affect the decision to freeze MFF’s assets

Contrary to what MFF said, and seemingly contrary to the judges revision of the asset freeze, the CFTC believes that their error did not impact the judge’s initial decision to effectively shut down MFF.

I’m not sure I understand this defense because Judge Quraishi overturned much of the asset freeze, as mentioned above, as a result of the error.

Motion of sanctions as a bargaining tool

The CFTC also suggested that MFF’s Motion of Sanctions was simply a bargaining tool to push for a favorable settlement:

I assumed it was happening, but this is actually the first time I’ve heard any word about either party considering a settlement. It seems like MFF called the CFTC’s bluff.

Haven’t you yelled at us enough?

The CFTC also believes that they’ve been punished enough because of how many times they’ve been admonished by the court.

What about the victims?

Finally the CFTC also expressed concern for the victims, who they claim would be harmed by the dismissal of charges.

Considering the CFTC never talked to any of MFF’s clients, this seems like a shot in the dark on their part. I know a lot of traders who would very much like MFF to come back, if for nothing else than the fact that their refunds and profits have been tied up since the asset freeze.

MFF and CFTC Arguments – Full PDFs

If you’d like to read the full arguments, I’ve attached both below. I get all motions and updates through pacer.uscourts.gov, which is a government site that charges for public information. I asked them if I was allowed to dissiminate the information I received, and they told me this:

“The information gathered from the PACER system is a matter of public record and may be reproduced without permission. However, the PACER user assumes all responsibility for consequences that arise from use of the data. “

So if you print these out and get a paper cut, don’t come suing me.