The CFTC charged an introducing broker ("IB") and its majority owner and sole principal with supervisory and registration failures. The enforcement action was filed in the U.S. District Court for the Southern District of New York.
The IB's business involved receiving trading instructions from third-party trading systems and placing buy-and-sell orders for commodity interest transactions on behalf of customers who subscribed to the trading systems.
In its Complaint against the defendants, the CFTC asserted that the IB and its majority owner failed to:
- keep and produce the trading instructions it received electronically on behalf of customers who subscribed to third-party trading systems for which the IB provided execution services;
- prepare a written record of the customer orders that it had placed (whether filled, unfilled or cancelled) as a result of the trading instructions;
- keep all emails concerning its commodity interest transactions business;
- diligently supervise employees and agents' handling of customers' trading accounts;
- ensure that policies and procedures were in place to make and keep the books and records that are required to maintain the IB's status as a CFTC registrant; and
- adopt adequate procedures for handling its customers' margin deficiencies.
The CFTC also asserted that the IB's sole principal and majority owner falsely testified that he, or another employee working under his direct supervision, created and maintained spreadsheets relating to trades executed on behalf of customers whose orders were generated from trading instructions received from third-party trading system providers. Contrary to this testimony, the IB made or kept no such records, which the sole principal and majority owner later admitted through counsel.
Commentary / Bob Zwirb
In its Complaint, the CFTC faults the IB's chief compliance officer – who is the wife of the IB's owner – for using her personal email account to send and receive emails concerning the IB's commodity interest transactions business, and for failing to keep and maintain copies of those emails with the firm. These practices were cited by the CFTC as constituting violations of its recordkeeping requirements.
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