A US federal court in Ohio ordered Bradley A. Miklovich, a former employee of Rice Investment Company, a Commodity Futures Trading Commission-registered introducing broker, to make full restitution to Rice of US $566,360 and pay a fine of US $100,000 for unauthorized trading and concealment. In March 2014, the CFTC brought charges against Mr. Miklovich claiming he traded without authorization through three accounts of one customer, and the single account of another customer from July 23 through July 30, 2013. Because, during this time, Mr. Miklovich temporarily assumed certain reconciliation functions on behalf of a Rice employee on vacation who ordinarily performed these tasks, he was able to falsify both the reconciliations viewed by Rice’s principals as well as daily account summaries viewed by one of Rice’s customers, claimed the CFTC. As a result, Rice did not become aware of Mr. Miklovich’s unauthorized trades, according to the CFTC’s complaint, until the morning of July 31, 2013, when it was advised by the FCM carrying the customers’ accounts that one of Rice’s customers required additional margin or would be liquidated. Rice previously paid to its carrying FCM US $566,360 to cover the customers’ losses. In connection with this matter, the court also imposed registration and trading bans on Mr. Miklovich. (Click here for further details regarding this matter in the article “CFTC Sues IB Employee for Unauthorized Trading and Concealment; Charges Violation of New Anti-Manipulation Law and Rule” in the March 24, 2014 edition of Bridging the Week.)
Legal Weeds: In addition to relying on its traditional tools for prosecuting fraud (e.g., Commodity Exchange Act §§4b(1)(A)-(C) – click here to access), in bringing this action, the CFTC also relied on its new broad anti-manipulation authority under law and regulation. These provisions prohibit (1) the use of any manipulative device, scheme or artifice to defraud; (2) making any untrue to misleading statement of a material fact or failing to state material fact in order not to be misleading; or (3) engaging in any act or practice that operates as a fraud or deceit on another person, or any attempt to engage in any of these prohibitions. (Click here to access CFTC Regulation 180.1(a).) These provisions are increasingly becoming a favorite tool of the CFTC to prosecute a wide range of conduct from traditional fraud, as in this action, to allegations of market price manipulation. (Click here for details regarding a case involving allegations of price manipulation in the article “Manipulation Is Not Hedging Says CFTC in Federal Court Lawsuit Against Kraft Foods Group and Mondelez Global” in the April 5, 2015 edition of Bridging the Week.) Unfortunately, the court in this matter did not take the opportunity to address what is the lawful perimeter of these provisions.