U.S. COMMODITY FUTURES TRADING COMMISSION SETTLES ACTION AGAINST COMMODITY POOL OPERATOR FOR UNAUTHORIZED TRADING OF CLIENT FUNDS
Jeffrey Thomas Allen Banned From Trading Commodity Futures and Options
WASHINGTON, D.C. – The U.S. Commodity Futures Trading Commission (CFTC) announced today the issuance of an order settling an enforcement action against Jeffrey Thomas Allen (Allen) of Pittsburgh, Pennsylvania, and finding that over several months in 2002, Allen engaged in, and concealed from his clients, unauthorized trading, which included the trading of commodity futures and options that resulted in substantial losses for his institutional clients. The order permanently bans Allen from trading commodity futures and options for others and revokes his registration, among other sanctions.
According to the order, since the early 1990’s, Allen, as former Chairman, President, Chief Executive Officer, Chief Investment Officer and principal shareholder of Advanced Investment Management, Inc. (AIM), a former commodity pool operator and commodity trading advisor, advised and directed the trading of AIM’s clients, many of which were private and public pension funds. The order states that in early 2002, Allen implemented an aggressive strategy of trading highly leveraged commodity futures contracts and options, including S&P 500 futures contracts and S&P E-mini futures, among other derivatives, on behalf of certain AIM clients. That highly leveraged trading strategy significantly exceeded the risk parameters set forth in the various trading agreements with the AIM clients, according to the order.
Among other things, the order finds that on or near the last day of each month in the spring and early summer of 2002, Allen traded out of the positions that exceeded the clients’ risk parameters, created and issued monthly reports to the investors, and then immediately re-established those earlier, liquidated positions. According to the order, Allen’s “window dressing” of the monthly reports prevented the clients from discovering the unauthorized trading. As the market declined, the order continues, Allen escalated his unauthorized trading in a failed attempt to recover lost performance, ultimately causing more than $415 million in losses by July 2002. At that point, the order finds, Allen acknowledged the losses and resigned from AIM, and AIM closed its operations shortly thereafter, in September 2002. According to the order, many of AIM’s clients previously settled their claims against AIM, Allen and others through private litigation, and Allen’s contribution to that resolution significantly exceeded the fees he generated during the time of the unauthorized trading.
The CFTC order finds that Allen’s unauthorized trading violated the anti-fraud provisions of the Commodity Exchange Act, orders him to cease and desist from further violations, revokes his registration with the Commission, permanently bans Allen from trading commodity futures and options for others, permanently bars him from registering with the Commission, and imposes a personal trading ban of five years.
The order notes that a substantial civil monetary penalty reflecting the egregiousness of Allen’s fraud and the losses sustained by the AIM clients would be appropriate in this case, but is not being imposed because only limited restitution was available to, and obtained by, AIM clients in their private litigation against AIM, Allen, and others.
In consenting to the entry of the order, Allen neither admits nor denies the findings in the order.
The Securities and Exchange Action (SEC) filed and settled a related action against Allen today. The CFTC appreciates the cooperation of the SEC in this matter.
A copy of the CFTC order may be found at http://www.cftc.gov.
The following Division of Enforcement staff members were responsible for this case: Erin Vespe, Gretchen Lowe and Vincent McGonagle.
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