Chicago, IL – Commodity futures brokerage R.J. O’Brien & Associates LLC (RJO) will pay a $600,000 penalty for failing to adequately supervise its employees and violating a prior CFTC order, the Commodity Futures Trading Commission announced Monday.
The CFTC order alleges that between January 2013 and January 2014, RJO failed to diligently oversee how its employees handled customer accounts, specifically regarding post-execution allocation of “bunched orders.” These failures hindered the detection of a fraudulent scheme perpetrated by one of RJO’s clients.
According to the CFTC, the client, a registered Commodity Pool Operator and Commodity Trading Advisor, improperly allocated profitable trades to accounts where they—or their associates—held a proprietary interest. Conversely, unprofitable or less profitable trades were allocated to customer accounts or the pool account.
Despite “red flags” indicating potential regulatory violations, RJO allegedly failed to adequately investigate the client’s allocation practices or take corrective action. The firm also reportedly didn’t adhere to its own internal protocols for processing bunched orders, and lacked sufficient compliance procedures to detect unusual activity.
The investigation revealed that the client had previously been subject to regulatory actions by the National Futures Association, including prohibitions on soliciting funds and withdrawing money from managed accounts, ultimately leading to a trading ban. However, the client was able to open a new account under their spouse’s name, and RJO processed withdrawals and cleared trades in that account even after the client’s ban.
“Registrants stand as a first line of defense to prevent unlawful activity in our markets,” said James McDonald, Director of the CFTC’s Division of Enforcement. “The Commission expects these registrants to fulfill their duties to monitor transactions…for suspicious activity.”
The CFTC order requires RJO to cease and desist from further violations of the Commodity Exchange Act, in addition to the $600,000 penalty. The findings also indicate RJO’s failures violated a previous 2013 Commission Order.
Source: CFTC.gov
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