CFTC News Release 4487-01
For Release January 10, 2001
CFTC FILES ENFORCEMENT ACTIONS AGAINST FOUR COMEX FLOOR BROKERS, CHARGING THEM WITH FRAUDULENTLY EXECUTING GOLD OPTIONS TRADES, AMONG OTHER VIOLATIONS OF FEDERAL COMMODITIES LAW
CFTC Accepts Offers of Settlement from Paul Merolla and Philip Selby and Files An Administrative Complaint Against Timothy Murphy and Vincent Coppola
WASHINGTON - The Commodity Futures Trading Commission (CFTC) announced today the filing of enforcement actions against four COMEX floor brokers: Paul Merolla of Ridgewood, New Jersey; Philip Selby of Passaic, New Jersey; Timothy Murphy of New Rochelle, New York; and Vincent Coppola of West Caldwell, New Jersey. Specifically, the CFTC issued an order filing and simultaneously settling an administrative action against Merolla and Selby and filed a separate administrative complaint against Murphy and Coppola. All of the brokers were dual traders who traded for their own accounts, as well as for customers.
CFTC Settlement Order Finds that Merolla and Selby Traded Ahead of Customer Gold Option Orders
The CFTC settlement order finds that on several days, particularly September 28, 1999 -- a record volume day in the COMEX gold market -- Merolla and Selby engaged in fraud by trading ahead of executable customer gold option orders and changing prices on executed trades to the detriment of their customers. Merolla and Selby consented to the entry of the CFTC order without admitting or denying the findings made in the order.
William J. Rainer, Chairman of the CFTC, said:
Through today’s actions, the Commission emphasizes the fundamental principle that floor brokers must always put the interests of their customers first. Dual traders must remain vigilant under all market conditions to ensure that they obtain the best executions for their customers and that their trading for their own accounts does not interfere with their obligations to their customers.
Specifically, the CFTC order finds that from September 27, 1999 through October 5, 1999, Merolla and Selby fraudulently executed trades in the gold options ring of the COMEX, a Division of the New York Mercantile Exchange. The order finds that the brokers engaged in a total of 15 instances of trading ahead of executable customer orders and a total of 10 instances of illegal price changes involving trades executed to fill customers’ orders. The CFTC order further finds that Merolla and Selby violated record keeping requirements.
The CFTC order finds that on September 28, 1999, gold futures and options contracts traded in record volume for both number of contracts and trades and that gold options brokers received an unprecedented number of mostly small-lot retail customer orders. The order finds that, at the time Merolla and Selby traded for their personal accounts on September 28, 1999 and several other days, they held executable customer orders in the same options in which they traded personally. The order finds that the respondents recklessly disregarded the fact that they held executable orders at the times that they traded at better prices for themselves.
CFTC Suspends Merolla's and Selby's Floor Broker Registrations, Imposes Cease and Desist Orders, Trading Bans and Dual Trading Prohibitions Against Them, and Orders Restitution and Civil Monetary Penalties
The CFTC order finds that Merolla and Selby each violated sections of the Commodity Exchange Act (CEA) and CFTC regulations and:
Murphy And Coppola Are Charged with Trading Ahead of Customers' Orders, Illegal Price Changes, and Record Keeping Violations
In the separate CFTC action against Murphy and Coppola, the complaint alleges that from September 27, 1999, through October 5, 1999, Murphy and Coppola knowingly or recklessly traded ahead of customers’ executable gold option orders on a total of 10 occasions and changed the premium prices on customers’ executed gold options trades to the detriment of customers on 10 occasions. The complaint further alleges that Murphy and Coppola aided and abetted price changes on a total of 7 occasions. In addition, the complaint alleges that Murphy and Coppola failed to record required trading information on their trading cards.
A public hearing has been ordered to determine whether the allegations in the complaint are true, and, if so, what sanctions are appropriate and in the public interest. Possible sanctions include an order directing the respondents to cease and desist from violating the CEA and CFTC regulations, requiring payment of restitution to defrauded customers, imposing a trading prohibition, and imposing civil monetary penalties of not more than $110,000 or triple their monetary gain, whichever is greater, for each violation.
The CFTC acknowledges the cooperation of the New York Mercantile Exchange in this matter.
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