Release: 4512-01 (CFTC Docket No. 01-06)

For Release: April 30, 2001

CFTC SETTLES FRAUD ACTION AGAINST COMEX FLOOR BROKER TIMOTHY MURPHY

WASHINGTON – The Commodity Futures Trading Commission (CFTC) issued an order settling an enforcement action against Timothy Murphy of New Rochelle, New York, a floor broker registered with the Commission. The CFTC order finds that from September 27, 1999, through October 5, 1999, Murphy fraudulently executed trades in the gold options ring of the Commodity Exchange Inc. (COMEX). Murphy consented to the entry of the order resolving the administrative proceeding that was instituted on January 10, 2001 (see CFTC News Release 4487-01, January 10, 2001), without admitting or denying the findings contained therein.

CFTC Order Finds That Murphy Traded Ahead of Customer Orders

The order finds that from September 27, 1999 through October 8, 1999, gold trading volume and volatility increased on the COMEX. Further, on September 28, 1999, gold futures and options contracts traded in record volumes for both number of contracts and trades, and gold options brokers received an unprecedented number of mostly small-lot retail customer orders. According to the order, Murphy traded ahead of executable customer gold options orders for his own benefit on three occasions. The CFTC’s order finds that, at the time Murphy traded for his personal account, he held executable customer orders in the same options in which he traded personally. The order also finds that Murphy knowingly or recklessly disregarded the fact that he held executable customer orders at the times that he traded at better prices for himself. Moreover, on eight occasions, the order finds, Murphy changed prices on executed customer gold options orders to the detriment of the opposite broker’s customers and to the financial benefit of his personal account, or the account of a broker trading for his own account opposite the customer order or that of another COMEX member.

Additionally, on one occasion, Murphy aided and abetted another broker’s price change of a customer order, which financially benefited Murphy at the broker’s customer’s expense, the order finds. The order also finds that Murphy failed to record required trading information on his trading cards.

CFTC Suspends Murphy’s Floor Broker Registration, Imposes Cease and Desist Order, Trading Ban and Dual Trading Prohibitions, and Orders Restitution and Civil Monetary Penalties

The CFTC order finds that Murphy violated sections 4c(a)(A) and (B), 4c(b) and 4g(a) of the Commodity Exchange Act (CEA), 7 U.S.C. �� 6c(a) and (b) and 6g(a), and Sections 1.35(d), 1.38 and 33.10 of the Commission’s regulations, and imposes the following relief:

• orders Murphy to cease and desist from further violations of the CEA and CFTC Regulations;
• requires Murphy to pay restitution in the amount of $18,750;
• imposes a civil monetary penalty on Murphy of $30,000, part of which is payable pursuant to a payment plan;
• suspends Murphy’s floor broker registration for a period of six months, but allows him to trade off the floor for his own account after the first three months of this period;
• prohibits Murphy from dual trading for one year after the registration suspension period; and
• restricts his registration for two years after the registration suspension, and requires him to have a sponsor if he acts as a floor broker or floor trader.

Previous CFTC Order Entered in This Matter

On January 10, 2001, the CFTC instituted enforcement actions in this matter against four COMEX floor brokers: Paul Merolla of Ridgewood, New Jersey; Philip Selby of Passaic, New Jersey; Vincent Coppola of West Caldwell, New Jersey, and Murphy. Specifically, the CFTC filed and simultaneously settled an administrative action against Merolla and Selby, and filed a separate administrative complaint against Murphy and Coppola. All of the brokers were dual traders who traded for their own accounts and for customers.

The January 10, 2001, CFTC order found, among other things, that on several days, particularly September 28, 1999, Merolla and Selby engaged in fraud by trading ahead of executable customer gold option orders and changing prices on executed trades to the detriment of their customers. Merolla and Selby consented to the entry of the CFTC order without admitting or denying the findings made in the order.

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