CFTC Settles Charges Against Introducing Broker and its COO

The CFTC announced a court-entered consent order settling various charges against a registered introducing broker ("IB") and its COO for failures to implement policies and procedures to ensure compliance with CEA and CFTC Regulations. The court found that the IB: (i) failed to adequately record customer orders; (ii) failed to maintain required records relating to commodity futures transactions; (iii) submitted order tickets bearing false timestamps; (iv) participated in unauthorized trading; and (v) failed to provide adequate supervision. Also, the IB's COO was found liable as a "control person" under CEA Section 13(b) and for failing to supervise under CFTC Regulation 166.3.

The Order found that the Introducing Broker:

• failed to record all customer orders immediately upon receipt pursuant to CFTC regulations, and that FI employees instead often recorded order information only after orders were executed;
• ignored that employees routinely timestamped blank order tickets and then used these "pre-timestamped" tickets to document trades, "making it appear as though FI had complied with the applicable recordkeeping requirements" upon their submission to the Chicago Mercantile Exchange ("CME") for clearing;
• failed to maintain full and complete records of employees' electronic communications about commodity futures transactions, including via instant messages, which ultimately "resulted in an incomplete audit trail hindering the CFTC's ability to investigate violations of the Commodity Exchange Act (CEA) and CFTC Regulations;
• improperly exercised discretion over commercial customers' accounts without written powers of attorney;
• executed trades without first receiving instructions from customers as to the commodity to be purchased and the amount;
• executed trades without knowing whether any customer "would even accept the trade";
• did not initially have written policies and procedures regarding trading floor operations; and
• failed to implement policies, procedures and training to ensure compliance with the CEA and CFTC Regulations.

In addition to requiring the Introducing Broker and its CEO to pay a civil monetary penalty of $500,000, the Order permanently prohibits the IB and the CEO from further violations of the CEA and CFTC Regulations, as charged. The CFTC acknowledged the assistance of the CME Group, Inc. in their investigations.