Chicago, IL – January 2, 2013 – The U.S. Commodity Futures Trading Commission (CFTC) has settled charges against R.J. O’Brien & Associates, LLC (RJO) for failing to adequately supervise its employees, leading to a fraudulent trade allocation scheme perpetrated by a Guaranteed Introducing Broker (GIB) and its Associated Person (AP). The scheme, which ran from at least January 2003 through February 2007, resulted in losses of up to $183,000 for the GIB’s customers and a commodity futures pool operated by the AP.
According to the CFTC order, the AP engaged in an unlawful practice of allocating trades *after* they were executed. This allowed the AP to direct the most profitable trades to their personal accounts, while assigning less profitable or losing trades to customer accounts or the commodity futures pool. RJO failed to implement and enforce procedures that would have detected and prevented this manipulation.
Specifically, the CFTC found that RJO did not consistently require a pre-allocation plan for “bunched orders” placed by the account manager (the AP). The firm also lacked adequate monitoring procedures to identify and deter unusual trading activity related to post-execution allocations and the handling of these bunched orders. These failures constitute a violation of CFTC regulation 166.3, which requires diligent supervision of customer orders.
As a result of the CFTC’s investigation, RJO will pay a $300,000 civil monetary penalty. The firm is also required to cease and desist from any further violations of CFTC regulation 166.3. The case was led by CFTC Division of Enforcement staff including Kevin S. Webb, Michelle S. Bougas, Heather N. Johnson, James H. Holl, III, Gretchen L. Lowe, and Vincent A. McGonagle.
The settlement underscores the CFTC’s commitment to ensuring that registered firms adequately supervise their employees and protect customer assets from fraudulent activity.
Source: CFTC.gov
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