The Commodity Futures Trading Commission filed a lawsuit against EOX Holdings LLC, a Commission-registered introducing broker, and one of its associated persons, Andrew Gizienski, for illegally sharing their customers’ trading information with one customer, as well as impermissibly trading the one customer’s account on a discretionary basis relying on other customers’ trading information. The CFTC’s lawsuit was filed in a federal court in New York.
According to the CFTC, from approximately August 2013 through May 2014, Mr. Gizienski provided confidential, nonpublic information to one customer regarding the trading activities of other customers purportedly “knowing or with reckless disregard of the fact, that the information would be used for trading.” In addition, charged the CFTC, during this time, Mr. Gizienski also traded for the one customer while having nonpublic information regarding other EOX customers, and executed block trades against other customers for the benefit of the one customer more than 100 times. All of Mr. Gizienski's trades involved ICE Futures U.S. futures and options contracts, said the CFTC.
The CFTC charged that these alleged actions evidenced a breach of defendants’ obligation to protect confidential customer information and constituted the misappropriation of material nonpublic information by both defendants in violation of the provision of law prohibiting fraud-based manipulation as well as the corresponding CFTC rule. (Click here to access CEA § 6(c)(1), 7 U.S.C. § 9(1); click here to see CFTC Rule 180.1.) The CFTC also claimed that EOX failed to fulfill its supervisory obligations and to maintain books and records required by law and CFTC rule related to pre-trade communications and orders.
Last year, EOX agreed to pay a fine of US $442,500 to resolve charges brought by IFUS that, from August 2013 through July 2014, it may have failed to adequately supervise two of its employees in connection with their execution of block trades and handling of nonpublic customer information. Two of EOX’s employees – Mr. Gizienski and Eric Torres – consented to payment of fines of US $50,000 and US $7,500, respectively, to resolve related charges. (Click here for details in the article “ICE Futures U.S. Charges Introducing Broker and Employees With Impermissibly Disclosing Customer Order Information and Executing Block Trades Contrary to Requirements” in the December 10, 2017 edition of Bridging the Week.)
Additionally, last year ICE Futures settled disciplinary actions against AC Power Financial Corporation and Jason Vaccaro, the firm’s president, for a combined fine of US $225,000 for Mr. Vaccaro’s alleged use of nonpublic information “received from his Introducing Broker” related to a customers’ block trades unrelated to any negotiation of a block trade between Mr. Vaccaro and such customers. It appears likely the unnamed referenced IB was EOX. (Click here for details of these two ICE Futures disciplinary actions in the article “ICE Futures U.S. Settles Disciplinary Actions Against Three Respondents for Alleged Block Trade Violations For US $325,000 Combined Fine” in the May 14, 2017 edition of Bridging the Week.)
Concurrently with the publication of this enforcement action, the CFTC announced its formation of a new Insider Trading & Information Protection Task Force with its Division of Enforcement. The task force will not only investigate instances of potential misuse of client confidential information, but “ensure that registrants develop and enforce policies prohibiting the misuse of confidential information, as they are required to do under law.”
Legal Weeds: The CFTC has brought and resolved two prior enforcement actions charging persons with insider trading for misappropriating trading information. In the first action brought in 2015, the CFTC alleged that Arya Motazedi, a gasoline trader for an unnamed large, publicly traded corporation, similarly misappropriated trading information of his employer for his own benefit. In the second action, the CFTC brought and settled charges against Jon Ruggles, a former trader for Delta Airlines, for trading accounts in his wife’s name based on his knowledge of trades he anticipated placing for his employer. Both actions were grounded in the Dodd-Frank Wall Street Reform and Consumer Protection Act provision and CFTC rule that prohibit the use of a manipulative or deceptive device or contrivance in connection with futures or swaps trading. (Click here to access Commodity Exchange Act Section 6(c)(1), US Code § 9(1), and here to access CFTC Rule 180.1. Click here for background on these CFTC enforcement actions in the article “Ex-Airline Employee Sued by CFTC for Insider Trading of Futures Based on Misappropriated Information” in the October 2, 2016 edition of Bridging the Week.)