CFTC Settles Action against FCM for Secured Amount Deficiency and Commingling of Customer Funds (with Lofchie Comment)

The CFTC announced that it entered an order against Friedberg Mercantile Group, Inc. ("Friedberg"), a registered futures commission merchant ("FCM"), for a secured amount deficiency, the commingling of customer funds with its proprietary funds and the failure to timely notify the CFTC of the secured amount deficiency.

According to the CFTC order, Friedberg's handling of a customer request to transfer $300,000 in segregated funds to secured funds caused Friedberg to fall below its secured amount requirement by approximately $240,000 on February 5, 2013. Additionally, Friedberg's subsequent movement of funds to its secured account in connection with the same customer request resulted in Friedberg's commingling customer funds with its proprietary funds improperly on February 6, 2013.

Additionally, the order stated, Friedberg failed to timely notify the CFTC of the secured amount deficiency as required.

Lofchie Comment: These events and the resulting disciplinary action illustrate the complexity of operating an FCM, which can involve numerous segregated accounts, particularly when customers seek to transfer funds or positions between different types of accounts. While the firm involved in this case was small, larger firms face similar challenges when they attempt to operate accounts subject to broker-dealer rules, FCM rules, SEC swap rules, CFTC swap rules and so on.

See: CFTC Order; CFTC Press Release.