March 13, 2012
Washington, DC - The U.S. Commodity Futures Trading Commission (CFTC) today charged MBF Clearing Corp. (MBF), a registered futures commission merchant (FCM), with violating the Commodity Exchange Act (CEA) and Commission regulations concerning segregation of customer funds and with supervision failures.
When an FCM deposits its customers’ funds in a bank account, the CEA and Commission regulations require that: the FCM title the account as a customer segregation account; the FCM obtain a written acknowledgement that the bank has been informed that the funds in the account belong to the FCM’s customers and indicates that the funds are separately accounted for and held in accord with the segregation provisions of the CEA; and that the funds must be available in one business day.
According to the CFTC’s complaint, MBF, which from September 2008 through March 2010, routinely held between $30 million and $90 million in customer funds in a non-compliant account, violated all of these requirements. Specifically, the complaint charges that MBF held customer funds in an improperly titled non-segregated money market fund account, which did not carry a legal obligation to make the funds available in one business day, and that because these funds were not properly considered as customer segregated funds, MBF had segregated customer fund deficiencies for more than one year. For example, MBF was deficient by more than $15 million as of month-end for June 2009, which MBF failed to report on its required monthly statement of financial condition to the Commission.
The complaint also charges that MBF failed to obtain and/or keep written acknowledgments for at least six additional accounts that held MBF customer funds, and for at least two more accounts that held funds invested in foreign futures. The complaint also charges MBF with supervision failures, alleging that MBF did not have written policies or procedures governing the opening and maintenance of customer segregated accounts, and did not implement an adequate supervisory structure to insure the proper segregation of customer funds.
“The CFTC’s segregated account requirements form a pillar of our regulatory scheme,” said David Meister, the Director of the CFTC’s Division of Enforcement. “As should be clear from today’s action, we expect strict compliance with these laws and will go after those that fall short of the mark.”
In the litigation, the CFTC seeks disgorgement of all benefits MBF received as a result of its conduct, civil monetary penalties, and a permanent injunction against further violations of customer segregated funds and supervisory provisions.
CFTC Division of Enforcement staff is responsible for this case are Elizabeth N. Pendleton, Melissa Glasbrenner, William P. Janulis, Rosemary Hollinger, Scott R. Williamson, and Richard B. Wagner.
Last Updated: March 13, 2012