Friedberg Mercantile Group, Inc.—a Canadian-based registered futures commission merchant—was fined US $70,000 by the Commodity Futures Trading Commission for having an insufficient amount of funds in its so-called “customer secured account” origin on one day, and for not reporting to the CFTC its deficiency on the same day, as required. According to the CFTC, on February 5, 2013, a Friedberg Mercantile customer requested a transfer of US $300,000 from its so-called segregated account (to support US futures and options) to its secured account (to support non-US futures and options) to cover a margin call. As a result of some erroneous attempted transfers of funds to accommodate the client’s request, the firm had insufficient funds in its customer secured account origin to meet its secured funds obligations to its customers. The following day, to fix this matter, the firm moved funds from its segregated customer account at its bank to its house account there, and then from its house account to its customer secured omnibus account at its carrying firm. However this commingling of customer segregated and house funds in the firm’s house account was also improper, said the Commission. Friedberg Mercantile also did not provide notice to the CFTC of its February 5 customer secured funds deficiency until February 14, instead of on February 5, as required, said the CFTC. Friedberg Mercantile consented to the terms of its sanction.
Compliance Weeds. This is the latest in a series of CFTC enforcement actions related to violations of its customer protection rules. The CFTC has indisputably put the industry on notice that, no matter what the cause or duration—even if the error was clearly clerical, it will sanction registrants for infractions. At a minimum, FCMs should augment their checks and balances to detect potential customer protection rules violations and regularly review their processes to help ensure that no prior mistakes have been made.