The Commodity Futures Trading Commission (CFTC) announced on Monday that it has obtained a federal court order requiring MBF Clearing Corp. (MBF) to pay a $650,000 civil monetary penalty for violating the Commodity Exchange Act (CEA) and CFTC regulations concerning the segregation of customer funds, and for supervision failures.
The CFTC filed a complaint against MBF in March charging that from September 2008 through March 2010, it routinely held between $30 million and $90 million in customer funds in a non-compliant account. The complaint stated, “that MBF held customer funds in an improperly titled non-segregated money market fund account, which did not carry a legal obligation to make the funds available in one business day, and that because these funds were not properly considered as customer segregated funds, MBF had segregated customer fund deficiencies for more than one year.”
The complaint also charged that MBF failed to obtain and/or keep written acknowledgments for at least six additional accounts that held MBF customer funds, and with supervision failures.
At the time the action was filed MBF noted that it invested customer funds in the JPMorgan account to protect those funds during the 2008 financial crisis and while the CFTC alleged that the account did not meet its requirements for a customer segregated account, MBF was informed by JP Morgan on the actual account statements that JP Morgan sent to MBF, that the account was a “Commodity Customer Segregated Bank Account.”
It also noted that as soon as MBF was notified by the CFTC that the JP Morgan account might not qualify for segregation, MBF moved all of the customer funds out and reported what had occurred to CME Group, its designated self-regulatory organization.
MBF stated at the time, “We are disappointed that the CFTC has chosen to address this matter through an enforcement proceeding, particularly since MBF and its customers were, like many others, victims of the failure of MF Global to the tune of millions of dollars.”
The CFTC release notes, “The consent order resolves the charges against MBF.”
David Meister, the Director of the CFTC’s Division of Enforcement stated, “As was evident from the filing of this case in court earlier this year, we expect strict compliance with the CFTC segregated account requirements. When it comes to protecting customer funds, T’s must be crossed and I’s dotted. We will not tolerate less.”
As of press time MBF has not responded to the order but stands by its earlier release.