Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced the filing and simultaneous settlement of charges against Rosenthal Collins Group, LLC (RCG), a Chicago, Ill.-based registered futures commission merchant, for failing to diligently supervise the handling by its officers, employees, and agents of an account held at RCG in the name of Money Market Alternative, LP (MMA). Enrique F. Villalba, of Cuyahoga Falls, Ohio, used the MMA account in a multi-million dollar commodity futures Ponzi scheme. On March 29, 2010, the CFTC sued Villalba and MMA over their fraudulent scheme (see CFTC Press Release 5801-10.)
According to the CFTC’s order, from April 1, 2006 until April 29, 2009, RCG failed to diligently supervise the handling of the MMA account. Specifically, the order finds that RCG failed to follow its own compliance procedures that impose continuing duties to “know” its customers and detect and report “any suspicious money transfers, non-economic transactions, and other activity outside of the ordinary course of business.”
Despite significant changes in the amount of money flowing into the MMA account over time and numerous other warning signs of suspicious activity, RCG failed to seek updated information or detect and report suspicious activity in the MMA account during the period covered in the order. For example, MMA stated in its account opening documents that it had a net worth of $300,000 and an annual income of $45,000, but deposits in the MMA account at RCG exceeded $2 million in 2006, $3 million in 2007, and $14 million in 2008. The MMA account also experienced losses of over $17 million and generated $921,260.90 to RCG in gross commissions and fees. The order further finds that RCG failed to investigate and report years of excessive wire activity relating to the MMA account.
The order finds that RCG’s supervisory system was inadequate because the individuals responsible for reviewing MMA’s account had no knowledge of any financial information provided by MMA in its account opening documents and could not readily access such information. As such, no one reviewing activity in the MMA account knew MMA’s net worth or annual income, according to the order.
The order also finds that during the CFTC’s investigation into Villalba and MMA’s fraudulent scheme, RCG failed to respond accurately and completely to certain CFTC document requests as a result of its failure to conduct an adequate and diligent search for responsive documents.
The order requires RCG to pay a $1.6 million civil monetary penalty and to disgorge to Villalba’s victims $921,260.90 — the amount earned by RCG and its guaranteed introducing broker on the MMA account.
“This case reflects the CFTC’s resolve to hold FCMs liable for failing to adhere to their supervisory obligations,” said David Meister, the Director of the CFTC’s Division of Enforcement. “Even if an FCM does not knowingly assist in a Ponzi scheme conducted by an account holder, an FCM cannot ignore questionable transactions that stand out as red flags of fraudulent conduct, particularly when those flags should have been obvious under the FCM’s own policies and procedures.”
CFTC Division of Enforcement staff responsible for this case are Margaret Aisenbrey, Christopher Reed, Stephen Turley, Charles Marvine, Rick Glaser, and Richard Wagner.