On March 18, the Commodity Futures Trading Commission (“CFTC”) issued a Customer Advisory cautioning the public to be on alert for increased fraudulent activity amidst the COVID-19 pandemic. The agency’s alert followed a series of similar warnings published by other agencies. The CFTC advised that fraudsters may be attempting to profit by taking advantage of investors’ desire to recoup losses or seek safety in the wake of recent market volatility. Fraudsters may promise investors special insider knowledge or insights, unusually large returns, guarantees, surefire trading signals, or low costs to open accounts.
The CFTC acknowledged that commodity futures and options allow traders to hedge against market risk. For instance, it highlighted that gold and other precious metals futures have historically seen short-term increases in times of economic uncertainty. In addition, over-the-counter digital asset or foreign exchange traders can identify pairings that go up in value when other markets decline. Still, the Commission cautioned that “there is no such thing as a risk-free strategy, and no person or program can guarantee future results.”
The CFTC’s Director of Enforcement, James McDonald, warned that the Commission will “aggressively pursue misconduct in [the] markets tied to the impact of the coronavirus pandemic.” Even though the CFTC is primarily teleworking across its offices, its Enforcement program remains active, meaning the agency is still likely to pursue investigations and bring actions to curb market manipulation. Moreover, the Commission’s Division of Market Oversight and Division of Enforcement have a number of tools to actively look for market manipulation and will be in close contact with other agencies to share views and pursue bad actors.
As markets continue to experience turmoil during the unprecedented national response to COVID-19, many companies face the need to shift their market positions. Given the heightened market surveillance being employed by regulatory agencies, market participants should plan carefully in making any major trading strategies or making major market moves.