Release Number 8451-21
CFTC Charges Energy Broker, Its Owners, and Affiliated Firms with Fraud, Unauthorized Trading, and Supervision Violations
October 20, 2021
Washington, D.C. — The Commodity Futures Trading Commission announced today that it has filed a civil enforcement action in the U.S. District Court for the Northern District of Texas against Coquest Inc., a registered introducing broker (IB), and its owners Dennis Weinmann and John Vassallo, and their trading firms Buttonwood LLC and Weva Properties Ltd., all of Dallas, Texas.
The complaint charges the defendants with misappropriating the block trade order information of Coquest’s brokerage customers without their knowledge or consent, in violation of the Commodity Exchange Act (CEA) and CFTC regulations. Coquest, Weinmann, Buttonwood, and Weva are also charged with defrauding Coquest customers, and Coquest, Weinmann, Vassallo, and Buttonwood are charged with failure to diligently supervise.
“The Commission vigorously pursues individuals who abuse their positions of trust to seek profits, such as brokers who illegally trade on confidential customer information in violation of a preexisting duty,” said Acting Director of Enforcement Vince McGonagle. “This misconduct significantly undermines market integrity and harms customers in our markets.”
The CFTC seeks civil monetary penalties, disgorgement, restitution, registration and trading bans, and a permanent injunction against further violations of the CEA and CFTC regulations.
According to the complaint, from May 2015 through November 2019, Coquest brokered more than 2,000 trades in which, without customers’ knowledge or consent. Coquest’s broker and owner, Weinmann, traded on the opposite side of the brokerage customers using accounts at Buttonwood and Weva, which were companies that Weinmann and Vassallo owned and controlled.
The complaint alleges that Weinmann used material, nonpublic information relating to the Coquest customers, including the prices at which they were willing to buy or sell, to execute each of these trades.
In addition, the complaint alleges that Weinmann intentionally offered prices that were less favorable to Coquest customers than the true market price so that Buttonwood and Weva could transact at favorable prices to obtain “arbitrage” profits—which ultimately flowed to Weinmann and Vassallo—at the customers’ expense. The complaint further alleges that Weinmann affirmatively misled customers into believing they were negotiating and trading against third parties when in fact Weinmann was negotiating and trading against the customers. The complaint also alleges that Vassallo participated in this scheme by brokering trades in which he knew Weinmann was taking the opposite side of the trade without obtaining Coquest customer consent.
The complaint also charges Coquest, Buttonwood, Weinmann, and Vassallo with failing to implement or enforce policies to prevent Weinmann from misappropriating Coquest customer information or trading against customers without prior consent.
The Division of Enforcement staff members responsible for this case are Douglas Snodgrass, Bryan Hsueh, David Terrell, Scott Williamson, and Robert Howell.