Regulatory purge on deceptive marketing continues as NFA goes after 28-year established firm


A recent regulatory focus in many jurisdictions has been with regard to the use of promotional materials, and how potential gains are presented to a retail audience.

This has manifested itself in several ways which range from the New Zealand Financial Markets Authority having assisted in warding off clients from FX schemes which carry claims of highly overstated potential returns, to Britain’s Financial Conduct Authority (FCA)’s insistence that regulated firms under its supervision must practice what they preach, as well as abide by a set of comprehensive rules when using social media for distributing promotional material.

The dim view with regard to using firms which use deceptive marketing practices has now reached North America, where the National Futures Association (NFA) has issued a complaint against commodity trading adviser (CTA) Primary Assets Management Corporation (PAMC) and an associated introducing broker (IB) which trades under the name of Accredited Investment Management Corporation (AIM).

On March 17, 2015, NFA issed this particular omplaint charging PAMC, AIM and the principal of PAMC, Peter Catranis with using misleading and unbalanced promotional material which included hypothetical performance results that was not identified as hypothetical.

The Complaint also charged PAMC and AIM with failing to maintain required records relating to promotional material. In addition, the Complaint charged PAMC, AIM and Catranis with failing to observe high standards of commercial honor and just and equitable principles of trade and failing to diligently supervise.

PAMC currently shares offices with AIM in Tortola, British Virgin lslands. It has been registered as a CTA since January 2006 and as a CPO since September 2011. Mr. Catranis is PAMC’s only  principal.

The NFA commenced an examination of AIM and PAMC in June 2014 based on questions that the NFA had concerning the December 31, 2013 Certified Pool Financial Statement (PFS) of Primary Assets Fund LLC (Primary Assets Fund), which was a pool operated by PAMC. Such questions related to the qualifications of the certified public accountant (CPA) firm that performed the audit of the pool and several material errors that NFA noted in the PFS which required correction and resubmission to the the NFA.

The Primary Assets Fund ceased trading on July 31, 2014 and all money was distributed to pool participants and, according to Catranis, all powers of attorney (POAs) were revoked.

In addition to the Primary Assets Fund, AIM had three active customer accounts at the time of NFA’s June 2014 exam. Although these three accounts were not fully managed by AIM and Mr. Catranis, Mr. Catranis did have time and price discretion with respect to the trading in these accounts. All but one of the AIM/PAMC accounts were introduced by AIM. The only exception was the Primary Assets Fund, which NFA IB Member Index FX LLC (Index) introduced.

Index FX became IB after PFG bankruptcy

Mr. Catranis represented that he personally solicited the only Primary Assets Fund participant and that Index became the Fund’s IB after Vision Financial Markets LLC took over the Fund’s account after PFG’s bankruptcy.

Mr. Catranis represented further that each PAMC and AIM customer account, including Primary Assets Fund, had the same commission/fee split breakdown as follows: Catranis – 68%, Tanner – 12% and the FCM – 20%.

Also, like AlM, the PAMC managed accounts were all charged commissions, rather than management and incentive fees as is more typicalfor CTAs. Although the Primary Assets Fund’s account was eligible to be charged an incentive fee there were no profits to trigger any such payments.

Mr. Catranis provided the NFA with notional funding agreements for several customers and told the NFA exam team that any commission to equity ratio issues or perceived high commissions were a result of notional funding.

Dramatic profits promised, results hypothetical

In addition to the problems that the NFA noted with the Primary Assets Fund’s PFS, NFA’s exam team found that Mr. Catranis and both AIM and PAMC used misleading promotional material to solicit the public which touted the likelihood of investors achieving dramatic profits, included hypothetical trading results which were not clearly identified as hypothetical, and downplayed the risk of loss by discussing it within the context of presenting large profit examples.

Further, the NFA’s examination found that Mr. Catranis and both AIM and PAMC routinely traded their customer accounts in a manner that maximized commissions while ignoring the best financial interests of their customers. Based on the deficiencies noted in the examination, NFA also determined that Mr. Catranis and the firms failed to diligently supervise their operations.

Following this complaint, a decision will be made by the NFA in due course.

For the official complaint from the NFA, click here.

 

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Regulatory purge on deceptive marketing continues as NFA goes after 28-year established firm

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