ARTICLE
23 June 2021

Broker And Founder Settle CFTC Charges For Misappropriating Customer Information

CW
Cadwalader, Wickersham & Taft LLP

Contributor

Cadwalader, established in 1792, serves a diverse client base, including many of the world's leading financial institutions, funds and corporations. With offices in the United States and Europe, Cadwalader offers legal representation in antitrust, banking, corporate finance, corporate governance, executive compensation, financial restructuring, intellectual property, litigation, mergers and acquisitions, private equity, private wealth, real estate, regulation, securitization, structured finance, tax and white collar defense.
An introducing broker and its founder settled CFTC charges for misappropriating inside information and paying brokerage kickbacks.
United States Finance and Banking

An introducing broker and its founder settled CFTC charges for misappropriating inside information and paying brokerage kickbacks.

According to the Order (the facts of which were admitted), the respondents, who were in the business of acting as a voice broker to facilitate block trades in energy products, misappropriated customer block trade information. The CFTC said the voice brokers disclosed the information to another trader, who then executed fictitious, non-arm's-length block trades in the founder's proprietary trading account. The CFTC stated that the respondents also defrauded an energy company customer of the firm by paying kickbacks to certain of the customer's traders, who would direct brokerage business to the respondents in exchange for a portion of the commissions charged to their company.

As a result, the respondents violated Sections 4b(a)(1) ("Contracts designed to defraud or mislead"), 4c(a)(1)-(2) ("Prohibited Transactions") and 6(c)(1) ("Prohibition regarding manipulation and false information") of the CEA and CFTC Rule 180.1 ("Prohibition on the Employment, or Attempted Employment, of Manipulative and Deceptive Devices").

Further, the CFTC determined that:

  • the respondents did not have in place an adequate system of oversight, in violation of CFTC Rule 3("Supervision"); and
  • the founder gave false information during an interview with ICE Futures, U.S.'s Market Regulation Department regarding trading at issue in a separate 2019 enforcement action, in violation of Section 9(a)(4)of the CEA.

To settle the charges, the respondents agreed to, among other things, (i) cease and desist from future violations, (ii) a permanent prohibition from trading privileges and (iii) disgorgement in the amount of $585,000. The CFTC noted that, in a parallel matter, the DOJ announced that the founder pleaded guilty to criminal charges.

Primary Sources

  1. CFTC Order: Mathew D. Webb and Classic Energy, LLC
  2. CFTC Press Release: CFTC Charges Former Energy Broker and Its Owner with Misappropriation of Nonpublic Information, Fraud, and Supervision Violations

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Mondaq uses cookies on this website. By using our website you agree to our use of cookies as set out in our Privacy Policy.

Learn More