Rosenthal Collins Group LLC, a CFTC registered futures commission merchant, was fined US $700,000 and required to disgorge over US $100,000 in commissions it earned, in connection with activities of a dually registered associated person that worked outside of RCG’s offices at the other FCM that also sponsored him, contrary to RCG’s policies. The CFTC also cited RCG for permitting the same AP to arrange swap transactions for the other FCM where the counterparties apparently had futures accounts at RCG that he helped to open. Another AP at RCG received all the commissions for these futures accounts, but shared his commissions with the dually registered AP by personal check. This commission sharing arrangement also was prohibited by RCG’s policies, claimed the Commission in its 0rder instituting proceedings. Finally, the CFTC also claimed that RCG did not provide adequate supervisory training to its branch manager with oversight over the dually registered AP. The CFTC charged RCG with “failure to supervise” because of these episodes. The dually registered AP was not named in the CFTC action.
Compliance Weeds: This is the second CFTC enforcement action within just a few months where the Commission has sanctioned a firm essentially for a breakdown of its internal operational processes where there has been no evident material collateral impact. In the prior case, the CFTC sanctioned Merrill Lynch US $1.2 million for not being able to adequately reconcile its clearing fee payments with the Chicago Board of Trade and the Chicago Mercantile Exchange. (Click here to see more details in the article “CFTC Fines Merrill Lynch $1.2 Million for Not Having an Adequate Supervisory System for Its Exchange and Clearinghouse Fees Reconciliation Process” in the August 18-29 and September 2 edition of Bridging the Week.) In the Merrill Lynch matter, the firm was alleged not to have procedures for conducting the relevant reconciliations. In this case, RCG was alleged to have relevant procedures, but not to have adequately trained the branch manager of one of its offices regarding its procedures or enforced them. It appears that the CFTC is endeavoring to send a message that it is important for registrants to have procedures regarding operational aspects of their business, ensure relevant personnel are knowledgeable of such procedures, and that they follow them. A breakdown in these steps may constitute a failure to supervise, even where there is no demonstrable fraud or market abuse, or other specified regulatory violation.