September 21, 2012
Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today issued an order filing and settling charges against York Business Associates LLC, doing business as TransAct Futures (TransAct), for failing to supervise diligently its employees’ handling of an account held at TransAct in the name of Gordon Driver, who was using his account at TransAct to engage in commodity pool fraud. TransAct is a registered Futures Commission Merchant based in Chicago, Ill.
On July 5, 2012, the U.S. District Court for the Central District of California found that Driver engaged in commodity pool fraud Ponzi scheme from February 2006 through May 2009 that defrauded over 100 participants of over $14 million (see CFTC Press Release 6304-12, July 16, 2012).
The CFTC order requires TransAct to pay a $130,000 civil monetary penalty and disgorge $69,000. The order prohibits TransAct from violating CFTC regulation 166.3, which requires diligent supervision of customer accounts. The order also requires TransAct to strengthen compliance procedures designed to detect and prevent such violations in the future of the Commodity Exchange Act and CFTC regulations.
Specifically, the CFTC order finds that from about October 2007 to at least February 2008, TransAct’s employees failed to follow-up sufficiently on “red flags” concerning suspicious activity in the Driver account. Additionally, the order finds that TransAct’s officers, employees, and agents failed to sufficiently follow TransAct’s compliance procedures by accepting third-party deposits into Driver’s account. During this period, Driver’s account generated approximately $69,000 in gross commissions and fees to TransAct, according to the order.
When Driver opened his account at TransAct in February 2006, Driver made assertions to TransAct in the account opening documents, including that his annual income was over $100,000, his estimated net worth was over $500,000, and his estimated liquid net worth as between $250,001 and $500,000, according to the order. Driver also indicated that the account was an individual account and that no one else had a financial interest in the account, according to the order.
Beginning in October 2007, Driver’s deposits into his account surged to a minimum of at least $100,000 per deposit between October 2007 and February 2008, according to the order. Specifically, Driver deposited $100,000 in October 2007, $880,000 in November 2007, $200,000 on one day in December 2007, and $800,000 on three days in February 2008, according to the order. All of these deposits far exceeded Driver’s estimated liquid net worth listed in his customer application, the order finds. TransAct did not adequately investigate Driver’s claims that these funds were his own and permitted Driver to continue trading and making large deposits into his account, according to the order. Moreover, in February 2008, TransAct failed to follow its own procedures by allowing three deposits into the account totaling $800,000 from a third-party entity, Axcess Automation, rather than from an account in Driver’s name, the order finds.
On February 20, 2008, TransAct suspended Driver’s trading account until he provided documentation to prove his purported net worth, according to the order. On February 29, 2008, Driver provided TransAct with an unaudited net worth statement from an accountant, showing approximately $21 million in net worth, but Driver never provided the back-up documentation, according to the order. When TransAct suspended Driver’s account, he had lost nearly all of the $800,000 he had deposited in February 2008, according to the order.
CFTC staff responsible for this action are W. Derek Shakabpa, Judith M. Slowly, Timothy Wigand, David Acevedo, Lenel Hickson, Stephen J. Obie, and Vincent McGonagle.
Last Updated: September 21, 2012