For Release:January 23, 1996
REFCO AGREES TO PAY A $925,000 CIVIL PENALTY TO SETTLE
A CFTC ADMINISTRATIVE PROCEEDING FINDING THAT REFCO VIOLATED CFTC SEGREGATION AND SUPERVISION REQUIREMENTS
The CFTC Action Also Finds that Refco's Failure to Supervise Diligently its Employees in this Case Violates Previous CFTC Cease and Desist Orders Against the Firm
WASHINGTON -- The Commodity Futures Trading Commission (CFTC) announced today that it has issued an order instituting administrative proceedings against Refco, Inc., a Chicago-based futures broker with worldwide operations, and simultaneously accepted Refco's offer of settlement under which Refco will pay a $925,000 civil monetary penalty and modify its internal procedures and lines of reporting, among other remedial actions.
The Commission's order finds that Refco violated the Commodity Exchange Act (CEA) and CFTC regulations by violating segregation requirements, failing to supervise diligently its employees, and violating previous Commission orders to cease and desist from failure to supervise violations.
Refco, by Combining Commodity Pool Account Balances, Violated the
Segregation Requirements of Federal Commodity Law and CFTC Regulations
Specifically, the CFTC order finds that in April 1992, Refco consolidated the balances of the accounts of five separate entities. These entities had been formed as unincorporated associations in Germany, and were intended to pool money exclusively from German investors and trade, among other things, commodity futures contracts.
The CFTC order finds that at the time of the consolidation, four of these entities, or pools, owed Refco approximately $3.8 million because of their combined net debit balances. The fifth pool had a credit balance of approximately $4 million, which represented the amount of funds held by Refco for that pool.
By combining the balances of all of the subject accounts, Refco violated the segregation requirements of the CEA and CFTC regulations, the order finds. Although the organizers and operators of the pools had the same parent company, and Refco had attempted to document its right to offset the balances of the different accounts, the CFTC order finds that at the time of the consolidation no such right of offset existed, and Refco had no authority for the consolidation.
Furthermore, the CFTC order further finds that at various times from May 1989 through April 10, 1992, Refco failed to supervise diligently the handling of these accounts by its employees. The consolidation was approved by Refco's Margin and Compliance Departments, but without a review of the complete files for the accounts, and without the approval or concurrence of a senior Refco officer, the order finds. The CFTC order also finds that Refco's failure to supervise violated previous CFTC cease and desist orders, in 1983, 1988 and 1990, concerning Refco's failure to supervise its employees.
Refco Agrees to Civil Fine and Other Sanctions to Settle the CFTC Action
To settle the action, Refco, without admitting or denying the findings of facts and findings of violations made by the CFTC, consented to a CFTC order finding that Refco violated the provisions of the CEA and CFTC regulations, and consented to a cease and desist order prohibiting further violations.
In addition, Refco agreed to pay a $925,000 civil monetary penalty and further agreed:
(1) to make changes in its lines of reporting and internal procedures concerning the establishment of multiple accounts;
(2) to require its Director of Compliance and its Senior Officer in Charge of Operations (COO) to review and approve in writing the establishment of multiple accounts, for the same customer or for different customers, with all consolidations of multiple accounts requiring the COO's written approval; and
(3) to make a structural change in its lines of reporting, so that its Director of Compliance and its Director of Margins report directly, and on a regular basis, to
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