A voice broker settled CFTC charges for (i) mishandling confidential customer information, (ii) failing to retain audio recordings of block trades and (iii) failing to supervise. The voice broker ("owner") was the founder, president, sole member, and associated person of a firm registered as an introducing broker ("IB").
According to the CFTC, the owner failed to disclose to customers that he was acting as a counterparty when facilitating block trades between IB customers and the firm's proprietary trading account. As a result, the CFTC stated, the owner (i) misappropriated material nonpublic information by trading on customers' block trade orders and (ii) created a "false impression" to customers that he was their broker instead of a potential counterparty. As a result, the CFTC alleged, the owner realized over $400,000 in trading profits in his proprietary trading account.
Additionally, the CFTC found that the owner failed to retain audio recordings of his block trades conducted over the phone. The CFTC found that a third party, to which the owner outsourced the audio recordings, had experienced a technical issue which resulted in the loss of all of the recordings.
To settle the CFTC charges, the IB and owner jointly agreed to (i) cease and desist from violating CFTC regulations, (ii) pay a civil monetary penalty of $1.5 million, (iii) a suspension until January 3, 2022 and (iv) comply with the conditions and undertakings outlined in the Offer.
Commentary
While there is no information relating to how the amount of the respondent's alleged wrongful gains was determined, the Order here represents one of the clearest and most informative descriptions by the CFTC of the alleged wrongdoing, how the conduct runs afoul of the CEA and CFTC rules, and why the conduct harmed customers.
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