COMMODITY FUTURES—CFTC suspends, fines Wisconsin broker more than $750k for deceptive trading - 24 October 2022

The Commission charged the principal of Prime Agricultural Investors with a pattern of fraudulent transactions in CME Group wheat, corn, soybean and cattle futures.

The CFTC simultaneously filed and settled charges against Prime Agricultural Investors, Inc., a Wisconsin-based introducing broker, and Chad Henderson, a principal and associated person of Prime, for violations of the Commodity Exchange Act and CFTC regulations relating to the improper allocation of customer trades (In the Matter of Chad Robert Henderson & Prime Agricultural Investors, Inc., October 20, 2022).

The order filed by the Commission instructs Prime to pay $100,000 and Henderson to pay $300,000 in civil monetary penalties. Prime and Henderson also are required to pay $463,459.65 in restitution. Further, the order requires Prime to implement new procedures and controls to prevent improper allocation of trades, and it permanently bars Henderson from trading customer funds in connection with transactions involving commodity interests.

The respondents consented to the order without admitting or denying any of its findings or conclusions.

How the deception worked. Henderson, acting in his capacity as an associated person and principal of Prime, at times transferred profitable futures trades from his customers’ commodity interest accounts to his own account during the period between January 2018 to September 2019, the CFTC alleged. During that same period he also transferred unprofitable futures transactions to his customers’ accounts, allocating profits to himself that should have gone to his customers and avoiding losses that he otherwise would have incurred. The transactions were cleared through a registered futures commission merchant.

Court documents described how the fraud apparently took place. Henderson would get an order, usually by telephone, from a customer who would direct Henderson to transact a futures trade but would give him leeway regarding the time, price and manner of the transaction. Henderson would then conduct the transactions consistent with the instructions in the customer’s account. If the transaction was not profitable, or not profitable in the short term, he would leave the transaction in the customer’s account.

However, if the market moved rapidly in the customer’s favor, Henderson would, in some instances, move the transaction to his own account. Henderson could then enter another transaction for the customer at a higher price or, alternatively, tell the customer that it had not been possible to transact within the requested price range, the CFTC said.

Lacked diligent supervision. The order also found that Prime Agricultural Investors failed to adopt appropriate internal policies and procedures to effectively prevent improper trading activity. For example, it did not have a policy that would have required someone other than the individual broker, which in this case was Henderson, review trade transfer requests such as the ones he routinely made.

Prime’s failure to implement robust policies and controls to prevent fraudulent trade transfers between employee and customer accounts, and its failure to diligently supervise Henderson, constituted violations of CFTC regulations, the Commission said.

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