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Home // About the CFTC // CFTC Reports // Commodity Futures Trading Commission Performance and Accountability Report 2009

Enforcement Litigation by Goal Three

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Financial, Supervision, Compliance and Recordkeeping

In re Fortis Investment Management USA, Inc.; In re Spring Mountain Capital G.P., LLC, et al.; and In re UBS Fund Advisor, LLC

On January 8, 2009, the Commission simultaneously filed and settled three separate administrative enforcement actions against the following four registered CPOs: Spring Mountain Capital G.P., LLC (Spring Mountain G.P.) and Spring Mountain Capital, LP (Spring Mountain Capital); Fortis Investment Management USA, Inc. (Fortis); and UBS Fund Advisor, LLC (UBS). The CFTC orders find that each of the four CPOs operated one or more commodity pools, including pools that operated as funds-of-funds. The Commission orders find that each of the CPOs failed to distribute to investors and file with the NFA one or more of their respective commodity pools’ annual reports in a timely manner. While some of the CPOs had obtained extensions of the prescribed deadlines for various pools and reporting years, each nevertheless failed to timely comply with its obligations, in violation of CFTC regulations. The Commission assessed sanctions including: cease and desist orders against each of the CPOs; and civil monetary penalties (Spring Mountain Capital G.P., $75,000; Spring Mountain Capital, LP, $75,000; Fortis, $75,000; and UBS, $50,000). In re Fortis Investment Management USA, Inc., CFTC Docket No. 09-05 (CFTC filed Jan. 8, 2009); In re Spring Mountain Capital G.P., LLC, et al., CFTC Docket No. 09-06 (CFTC filed Jan. 8, 2009); and In re UBS Fund Advisor, LLC, CFTC Docket No. 09-07 (CFTC filed Jan. 8, 2009).
In re Walsh Trading, Inc.

On March 11, 2009, the Commission simultaneously filed and settled an administrative enforcement action against registered IB Walsh Trading Inc. finding that from at least March 2006 to April 2008, Walsh failed to diligently supervise an AP’s handling of certain accounts managed by an unregistered CTA, and lacked procedures to detect unauthorized trading of these customer accounts. Specifically, the Commission found that the Walsh AP who managed Walsh’s Arkansas branch office solicited customers, primarily from the farming community, for an unregistered CTA and introduced those customers to a registered FCM. During this time, the Walsh AP placed orders at the unregistered CTA’s direction for at least five customer accounts. None of these accounts contained a power of attorney or a letter of direction authorizing the unregistered CTA, the Walsh AP, or anyone other than the customers to trade or manage their accounts. The CFTC order finds that none of the five accounts were properly reviewed by Walsh to determine how they were solicited and whether they were to be traded as discretionary or non-discretionary accounts. This initial failure to supervise was compounded by a continued failure to diligently monitor the Walsh AP’s handling of customers’ accounts. Furthermore, the lack of any supervisory procedures and adequate oversight of the Walsh AP’s branch office enabled unauthorized trading by the unregistered CTA to continue undetected for two years. The Commission assessed sanctions, including: a $50,000 civil monetary penalty; and an order that it comply with its undertaking to strengthen its supervisory oversight of APs, employees, and agents. The Commission received cooperation from the NFA in connection with this matter. In re Walsh Trading, Inc., CFTC Docket No. 09-09 (CFTC filed Mar. 11, 2009).
In re ADM Investor Services, Inc.

On March 26, 2009, the Commission simultaneously filed and settled an administrative enforcement action against registered FCM ADM Investor Services, Inc. (ADMIS) finding that during 2002 to 2004, it failed to diligently supervise its employees concerning post-execution allocations of bunched orders. According to the order, ADMIS had no written policy or procedures concerning post-execution allocations of bunched orders. To the extent ADMIS had unwritten procedures concerning such allocations, ADMIS on certain occasions failed to implement those procedures, the order finds. Additionally, ADMIS allowed an account manager to conduct post-execution allocations days after orders were originally executed and failed to maintain records that identify orders subject to the post-execution allocations. Finally, the order finds that ADMIS prepared, but failed to keep, forms related to such allocations. The Commission assessed sanctions including: a cease and desist order; $200,000 civil monetary penalty; and an order to comply with certain undertakings, including ADMIS’s agreement to implement enhanced procedures to assure adherence to rules governing post execution allocation of trades. Commission received cooperation from NFA in connection with this matter. In re ADM Investor Services, Inc., CFTC Docket No. 09-10 (CFTC filed March 26, 2009).
In re Interbank FX, LLC

On June 29, 2009, the Commission simultaneously filed and settled an administrative enforcement action against registered FCM Interbank FX, LLC (Interbank) finding that it violated rules designed to protect the confidential personal information of consumers. According to the order, in March 2008, an Interbank customer discovered that personal information about herself, such as her name, address, phone number, date of birth, social security number, driver’s license number, and bank account numbers was accessible on the Internet through a Google search. Interbank began an immediate investigation and learned that one of its Information Technology employees had placed files containing the confidential personal consumer information of approximately 13,000 customers and prospective customers on a personal Web site that was accessible on the Internet for at least a year. This security breach was possible because Interbank did not have policies or procedures directed to the protection of confidential consumer information at the time its employee uploaded the information to the Internet. Despite a lack of effective procedures, Interbank continuously issued a Privacy Notice to its customers as early as December 2004 that stated erroneously that Interbank maintained safeguards that complied with Federal standards to guard customer information. Interbank’s lack of effective procedures and issuance of the erroneous Privacy Notice violated several provisions of the CFTC’s regulations concerning the privacy of consumer financial information. The order recognizes that Interbank engaged in substantial remedial efforts after discovering the security breach and fully cooperated with the CFTC’s investigation of the matter. The sanctions imposed on Interbank take into account those remedial efforts and cooperation, without which the CFTC would likely have imposed a more severe sanction. The Commission assessed sanctions including: a cease and desist order; $200,000 civil monetary penalty; and an order that Interbank comply with its undertaking to establish, implement, and maintain a documented comprehensive security program that addresses administrative, technical, and physical safeguards for the protection of consumer information, and to obtain an assessment of that program from a certified security professional within 180 days of the entry of the order and annually for the next five years. The Commission received cooperation from the NFA in connection with this matter. In re Interbank FX, LLC, CFTC Docket No. 09-11 (CFTC filed June 29, 2009).
In re J.P. Morgan Futures Inc.

On September 9, 2009, the Commission simultaneously filed and settled an administrative enforcement action against registered FCM J.P. Morgan Futures, Inc. (JPMF), finding that it violated Commission rules governing segregation of customer funds, timely computation of its segregation obligations, timely reporting of under-segregation deficiency to the CFTC and diligent supervision of its employees. In 2007, JPMF maintained accounts for customer funds (segregated accounts) and kept its own funds in separate accounts. During this time, JPMF processed transactions related to the delivery of Treasury notes that resulted in JPMF’s segregated accounts being insufficiently funded by approximately $750 million. That is, JPMF drew upon customer segregated funds beyond its actual interest, which resulted in customer funds being commingled with JPMF’s funds. JPMF also failed to timely complete computing its segregation requirements and did not timely notify the CFTC that its segregated accounts had been insufficiently funded. JPMF did not have a process in place to determine the impact of expected withdrawals from the segregated accounts on the amount required to be kept in segregation. (JPMF has since enhanced existing procedures by implementing a segregation forecasting process to ensure that proper segregation is maintained.) The Commission imposed sanctions, including: a $300,000 civil monetary penalty; and order to comply with its undertakings to implement enhanced procedures to assure adherence to rules governing segregation of customer funds. In re J.P. Morgan Futures Inc., CFTC Docket No. 09-12 (CFTC Sept. 9, 2009).
In re Cadent Financial Services LLC

On September 30, 2009, the Commission simultaneously filed and settled an administrative enforcement action against registered FCM Cadent Financial Services LLC (Cadent), finding that it failed to diligently supervise its employees in the handling of a client’s account. Specifically, the order finds that, from at least May 15, 2007 until April 1, 2008, Cadent failed to diligently supervise its employees and APs in their handling of the Idylic Solutions Pty. Ltd (Idylic) account. The order finds that funds held by Cadent in the Idylic account were commingled and not properly segregated from those of a different entity with a similar name: Idylic Solutions Ltd. This failure to properly segregate and account for Idylic’s funds took place in connection with both the receipt and deposit of funds, and the transfer and distribution of funds into and from the Idylic account. According to the order, in each instance, Cadent failed to diligently supervise its APs to ensure that third-party funds were separately accounted for and not commingled with the funds already in the Idylic account. Cadent also failed to ensure that there was proper authorization from the account holder either to accept funds from a third party or to send funds to a third party. The Commission imposed sanctions, including: a $120,000 civil monetary penalty; and an order that Cadent comply with its undertaking to strengthen its supervisory system for overseeing its APs’, employees’ and agents’ sales solicitations and maintenance of customer accounts. In re Cadent Financial Services LLC, CFTC No. 09-13 (CFTC filed Sept. 30, 2009).

Trade Practice

In re Keane

On October 6, 2008, the Commission simultaneously filed and settled an administrative enforcement action against Brian Keane, a former NYMEX clerk, for fraudulently allocating favorable trades to an account from which he benefited. The CFTC charged Keane, a former employee of a NYMEX member, with diverting profitable transactions that had been filled for customers to an account from which he benefited. In the related criminal matter, Keane pled guilty on March 20, 2008 to the felony state crime of violating the anti-fraud provision of New York’s General Business Law for the same underlying conduct and received a four-month jail sentence, which he has already served. The Commission assessed sanctions, including a permanent trading ban and a $90,000 civil monetary penalty. The Commission received cooperation from the New York County District Attorney’s Office (NYCDA) and NYMEX in connection with this matter. In re Keane, CFTC Docket No. 09-01 (CFTC filed Oct. 6, 2008).
In re Otis, et al.

On December 16, 2008, the Commission simultaneously filed and settled an administrative enforcement action against Frank Otis, former President and CEO of a DFA subsidiary, and Glenn Millar, former Executive Vice President of the subsidiary, finding that they aided and abetted DFA’s speculative position violation by directing trading of Class III milk futures in an internal sub-account designated for the DFA subsidiary. (See discussion, above, of the related enforcement action, In re Dairy Farmers of America, Inc., et al., CFTC Docket No. 09-02 (CFTC filed Dec. 16, 2008).) The Commission assessed sanctions, including civil monetary penalties (Otis $60,000 and Millar $90,000). In re Otis, et al., CFTC Docket No. 09-03 (CFTC filed Dec. 16, 2008).
In re Moster

On February 11, 2009, the Commission simultaneously filed and settled an administrative enforcement action against Michael Moster, a former proprietary trader with BOA, finding that he committed fraud by submitting false reports to BOA. Specifically, the Commission order finds that, during a three-day period in January 2004, Moster falsely reported to the bank that he purchased 4,000 Treasury futures contracts to conceal the risk associated with large unauthorized positions in Treasury bonds that he established over the same time period, by making it appear as if the long futures position hedged the Treasury bond risk. By the following week, the fictitious trades inflated the value of his trading book by over $12 million, the order finds. The sale of Moster’s unauthorized Treasury bond position resulted in a loss of approximately $12.2 million to the BOA. Based upon the same conduct, Moster pled guilty on September 18, 2008, to a one-count violation of making false entry into the books and records of a bank in the Southern District of New York and was ordered to pay $10 million in restitution to BOA. The CFTC’s order recognizes the restitution made in the context of the criminal case and provides that Moster must pay and satisfy any criminal restitution obligation before his payment of the CFTC civil monetary penalty. The Commission assessed sanctions including: a cease and desist order; permanent trading and registration bans; and a $360,000 civil monetary penalty. In re Moster, CFTC Docket No. 09-08 (CFTC filed Feb. 11, 2009).

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