September 17, 2018

CFTC Orders Introducing Broker and Principal to Pay a $300,000 Civil Monetary Penalty for Supervisory and Recordkeeping Failures

Washington, DC – The Commodity Futures Trading Commission (CFTC) issued an Order filing and simultaneously settling charges against Global Asset Advisors LLC d/b/a Daniels Trading (GAA), a Chicago-based Introducing Broker (IB), and its principal and registered Associated Person (AP), Glenn A. Swanson, for failure to diligently supervise employees’ handling of customer accounts subject to post-execution allocation.  GAA was also charged with failure to preserve complete records.

The CFTC Order requires GAA and Swanson to pay, jointly and severally, a $300,000 civil monetary penalty and to cease and desist from further violations of the Commodity Exchange Act and CFTC Regulations, as charged.

Specifically, the Order finds that between at least January 2013 and February 2014 (Relevant Period), a client registered as a commodity pool operator and commodity trading adviser (CTA) engaged in an unlawful post-execution allocation scheme in which the CTA disproportionately allocated profitable trades to the accounts in which the CTA or the CTA’s associates had a proprietary interest, and unprofitable or less profitable trades to customer or pool accounts.  After being notified by the Futures Commission Merchant (FCM) that the CTA was sending allocation instructions hours after execution and, at times, after the close of trading, Swanson mandated in an email, copied to the FCM, that the CTA send allocation instructions to GAA within 30 to 60 minutes of the trade, and in no event later than 4:00 p.m. Central time. Even though Swanson was aware of the risk that a commodity trading advisor could use post-execution allocation to allocate bunched orders in a preferential manner, neither he nor other GAA supervisory personnel took further action regarding the CTA’s accounts, such as following up with the GAA AP or the FCM to determine whether the CTA was complying with Swanson’s guidelines, or reviewing the CTA’s allocation methodology, the Order states.  Moreover, although the CTA continued to submit allocations later than required by Swanson, the GAA AP continued to transmit the CTA’s post-execution allocation instructions to the FCM.  GAA and Swanson did not enforce compliance with their directive concerning the CTA’s submission of allocation instructions and failed to supervise the GAA AP in processing the CTA’s bunched orders.

The Order also finds that during the Relevant Period, the National Futures Association issued two regulatory actions—a Member Responsibility Action (MRA) prohibiting the CTA from soliciting funds or withdrawing money from managed accounts, and later, an order banning the CTA from trading.  Despite these prohibitions, a GAA AP facilitated the opening of a new account in the name of the CTA’s spouse (Spouse Account), for which the CTA never obtained a power of attorney authorizing him to trade.  In violation of GAA’s policy and the regulatory actions, the GAA AP, who was aware that the CTA was exercising discretion over the Spouse Account, repeatedly requested that the FCM process withdrawals from the Spouse Account and executed trades in the Spouse Account after the ban.  The Order also finds that in the period between the issuance of the MRA and the trading ban, Swanson and other GAA supervisory personnel were involved in discussions and communications regarding the relationship between the CTA and the Spouse Account.  During the Relevant Period, GAA did not have policy or system in place to monitor accounts owned or operated by CTAs subject to regulatory orders.

In addition to supervisory failures, the Order finds that GAA failed to maintain the GAA AP’s instant messages, which contained the CTA’s post-execution allocation instructions.

The CFTC thanks the National Futures Association for its assistance in this matter.

CFTC Division of Enforcement staff members responsible for this case are Lucy C. Hynes, George H. Malas, Christine M. Ryall and Paul G. Hayeck.