For Release: February 25, 2002
FORMER CHIEF OPERATING OFFICER OF A COMMODITY FIRM SETTLES CFTC ACTION CHARGING SUPERVISORY FAILURES
CFTC Finds That Mark Vaughn Failed To Supervise Diligently the Handling of Foreign Customer Accounts
WASHINGTON, D.C. -- The Commodity Futures Trading Commission (CFTC) announced today that it instituted and settled an administrative proceeding against Mark Vaughn of Flossmoor, Illinois, the former chief operating officer of LFG, LLC (LFG), a former futures commission merchant in Chicago, Illinois. The CFTC order finds that Vaughn failed to supervise diligently LFG’s employees and its agents in their handling of discretionary foreign customer accounts, despite warning signs of possible churning or excessive trading of the accounts.
Specifically, the CFTC order finds that LFG had 32 discretionary German customer accounts introduced to LFG during 1997 and 1998 by foreign brokers and that a review of the trading in those accounts would have shown indicia of possible churning of those accounts, including high commissions relative to equity levels of the accounts. Despite the presence of such indicia, the order finds that Vaughn failed to conduct any meaningful review of the trading in the accounts and failed to ensure that LFG’s employees and agents followed LFG’s written procedures in connection with the handling of these customer accounts. For example, according to the order, LFG required office supervisors to conduct monthly reviews of customer account activity when the accounts had significant day trading activity or had incurred large realized losses and to ascertain if that activity was consistent with the customers’ trading objectives. LFG was also found to have required a supervisor to review all orders and order tickets for discretionary accounts to determine if the trading activity was consistent with any disclosures or strategies that had been conveyed to the customer. The order finds that Vaughn failed to ensure that these policies were followed and, as a result, he, directly and as a controlling person of LFG, failed to diligently supervise the handling of the German customer accounts, in violation of the CFTC regulation 166.3.
The CFTC order directs Vaughn to cease and desist from further violations of the Commission regulation 166.3. The order also restricts Vaughn’s registration as a floor broker and any other registration he may seek such that he is prohibited from acting in any supervisory capacity for a period of one year and requires him to pay a civil monetary penalty of $25,000.
Vaughn consented to the entry of the order without admitting or denying the findings made in the order.
A copy of the CFTC order may be found at http://www.cftc.gov/files/enf/02orders/enfvaughn-order.pdf.
Media Case Contact
Acting Regional Counsel
Central Regional Office
Division of Enforcement
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