R.J. O’Brien sanctioned $300,000 for supervision violations

Related losses allegedly amounted to $183,000

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The following is from the CFTC...

The U.S. Commodity Futures Trading Commission (CFTC) today issued an order filing and settling charges against R.J. O’Brien & Associates, LLC (RJO), of Chicago, Ill., a registered Futures Commission Merchant, for failing to diligently supervise its employees in connection with the handling of commodity futures orders of a Guaranteed Introducing Broker (GIB) of RJO and the GIB’s Associated Person (AP), sole principal, and owner. 

The CFTC order finds that, from at least January 2003 through February 2007, the GIB’s AP engaged in an unlawful trade allocation scheme for his personal benefit and to the detriment of both the GIB’s customers and a commodity futures pool operated by the AP through accounts held at RJO.  The AP was able to allocate trades post-execution, allocating the more profitable trades to his personal accounts, and the unprofitable, or less profitable trades to either the GIB customer accounts or the pool account, the order finds.  The GIB’s and AP’s customers sustained losses of up to $183,000, according to the order.

In addition, RJO failed to follow procedures it had in place concerning the placement of bunched orders by account managers, the order finds.  For example, RJO failed to ensure that it always received a post-allocation plan prior to, or contemporaneously with, the GIB’s AP’s filing of bunched orders.  The order also finds that RJO did not employ adequate procedures to monitor, detect, and deter unusual activity concerning trades that were allocated post-execution, or for supervision of its employees’ handling and processing of bunched orders.  By such acts, RJO failed to diligently supervise the handling of customer orders in violation of CFTC regulation 166.3, 17 C.F.R. § 166.3 (2011).

The CFTC order imposes a $300,000 civil monetary penalty and requires RJO to cease and desist from further violations of CFTC regulation 166.3, as charged.

CFTC Division of Enforcement staff was responsible for this case are Kevin S. Webb, Michelle S. Bougas, Heather N. Johnson, James H. Holl, III, Gretchen L. Lowe, and Vincent A. McGonagle.

R.J. O'Brien released the following statement yesterday:

"RJO is committed to the highest standards, not only for those employed by the firm but by extension, its introducing brokers. This Order pertains to the misconduct of a single individual at an introducing broker which has not cleared trades through RJO since February 2007. Once the misconduct was discovered, RJO worked cooperatively with both the National Futures Association and the CFTC to resolve this matter amicably.  RJO undertook its own investigation and determined, in 2009, to return approximately $183,000 to customers who may have been affected.  Moreover, in the past five years, RJO has taken substantial measures to strengthen its compliance and supervisory systems firm-wide.  RJO does not believe that any similar misconduct could occur under its present compliance regime.

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