WASHINGTON, DC – The U.S. Commodity Futures Trading Commission (CFTC) settled charges against Cadent Financial Services LLC for supervisory failures related to a fraudulent trade allocation scheme perpetrated by a guaranteed introducing broker (GIB) and its sole principal. The settlement, announced May 25, 2011, includes a $125,000 civil monetary penalty and a cease and desist order against Cadent, a Chicago, Illinois-based futures commission merchant.
The CFTC order details how, between February 2007 and October 2007, the GIB’s principal engaged in an unlawful scheme to allocate trades for personal gain, at the expense of the GIB’s customers and a commodity pool he operated. The principal allegedly allocated trades *after* they were executed, allowing him to direct profitable trades to his own accounts and less profitable trades to customer or pool accounts.
According to the CFTC, Cadent failed to enforce its own procedures regarding the placement of bunched orders and did not consistently require a post-allocation plan before or at the time of the bunched orders. Furthermore, Cadent permitted the principal to repeatedly alter account allocations, raising red flags that were not adequately addressed.
The order finds that Cadent failed to respond to numerous indicators of questionable activity and neglected to investigate whether the principal’s post-execution allocations were harmful to its customers. The firm also routinely allowed changes to account numbers for trade allocations, sometimes days after the trades occurred.
The CFTC’s investigation was led by Kevin S. Webb, Michelle S. Bougas, Heather N. Johnson, James H. Holl, III, Gretchen L. Lowe and Vincent A. McGonagle of the Division of Enforcement.
Source: CFTC.gov
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