Washington, DC -- The U.S. Commodity Futures Trading Commission (CFTC) today announced the filing and simultaneous settlement of charges against FCStone, LLC, a Chicago-based registered futures commission merchant, and Commodity Operations Inc., formerly a registered introducing broker in New York, for failing to diligently supervise the account of a floor broker. The CFTC order requires FCStone and Commodity Operations jointly and severally to pay a $260,000 civil monetary penalty and to cease and desist from violating CFTC regulations governing diligent supervision.
The CFTC order finds that from at least August 2007 until February 19, 2008, FCStone and Commodity Operations failed to diligently supervise the account of a floor broker trading Sugar No. 11 futures contracts on ICE Futures US, Inc. The broker’s account was cleared by FCStone and had been introduced to FCStone by Commodity Operations, according to the order.
The order finds that FCStone and Commodity Operations failed to enforce their own compliance rules and procedures and failed to diligently supervise the floor broker, in violation of CFTC regulation 166.3. According to the order, the floor broker repeatedly put on positions which greatly exceeded funds on deposit in his account and traded while his account had a deficit balance.
On one occasion, a principal of Commodity Operations loaned the broker funds to meet a margin call, in violation of the stated policies of Commodity Operations and FCStone, according to the order. On February 19, 2008, the broker’s excessive trading resulted in a margin call of over $2.9 million, the order finds. In addition, FCStone and Commodity Operations allowed the broker to enter trades in ICE Futures’ electronic trading system using another broker’s log-in ID, the order finds.
The CFTC thanks ICE Futures US for its assistance.
CFTC Division of Enforcement staff members responsible for this case are Karin N. Roth, David W. MacGregor, Lenel Hickson, Jr., Stephen J. Obie, and Vincent A. McGonagle.