CFTC SETTLES ACTION AGAINST FUTURES COMMISSION MERCHANT

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 

CFTC Settles Action against Friedberg Mercantile Group, Inc., a Registered Futures Commission Merchant, for Secured Amount Deficiency, Commingling of Customer Funds and Failure to Timely Report Secured Amount Deficiency

Washington, DC — The U.S. Commodity Futures Trading Commission (CFTC) today announced that it entered an order requiring Friedberg Mercantile Group, Inc. (Friedberg), a registered Futures Commission Merchant (FCM) in Toronto, Canada, to pay a $70,000 civil monetary penalty for a secured amount deficiency of approximately $240,000 on February 5, 2013, commingling of customer funds with its proprietary funds on February 6, 2013, and failure to timely notify the CFTC of the February 5, 2013 secured amount deficiency as required.

Friedberg is a subsidiary of Canadian broker-dealer Friedberg Mercantile Group, Ltd., also in Toronto. The company maintains a futures business to accommodate its securities customers who wish to trade futures and is one of the smallest FCMs as measured by customer assets required in segregation.

The CFTC Order finds that Friedberg’s handling of a customer request to transfer $300,000 of segregated funds to secured funds caused Friedberg to be under its secured amount requirement by approximately $240,000 on February 5, 2013, and its subsequent movement of funds to its secured account in connection with the same customer request resulted in Friedberg improperly commingling customer funds with its proprietary funds on February 6, 2013.

According to the CFTC Order, Friedberg failed to timely notify the CFTC of the February 5, 2013 secured amount deficiency as required.

The CFTC’s Order requires Friedberg to cease and desist from further violations of the CFTC Regulations charged in the Order, and imposes a $70,000 civil monetary penalty.

The CFTC staff members responsible for this matter are Division of Enforcement staff Susan Gradman, Allison Passman, Joseph Patrick, Scott Williamson, Rosemary Hollinger, and Richard Wagner, and Division of Swap Dealer and Intermediary Oversight staff Nicholas Chiacchere, Robert Loeber, Gerald Nudge and Kevin Piccoli.

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MBF CLEARING CORP., ORDERED TO PAY $650,000 FOR VIOLATING CUSTOMER FUND SEGREGATION REQUIREMENTS

FROM: U.S. COMMODITY FUTURES TRADING COMMISSION

Federal Court Orders MBF Clearing Corp. to Pay $650,000 for Violating Customer Fund Segregation Requirements

Washington, DC - The U.S. Commodity Futures Trading Commission (CFTC) obtained a federal court order requiring MBF Clearing Corp. (MBF), a registered futures commission merchant, to pay a $650,000 civil monetary penalty for violating the Commodity Exchange Act (CEA) and CFTC regulations concerning the segregation of customer funds, and for supervision failures. The order also permanently prohibits MBF and its successors from further violations of the CEA and CFTC regulations, as charged, and from failing to diligently supervise its employees and agents to insure the proper segregation of customer funds.

The consent order resolves the charges against MBF.

The consent order for permanent injunction, entered on November 28, 2012, by Judge Shira A. Scheindlin of the U.S. District Court for the Southern District of New York, stems from a CFTC complaint filed on March 13, 2012. As set forth in the complaint, from September 2008 through March 2010, MBF routinely held between $30 million and $90 million of its customer funds in an account at another financial institution, but that account was not legally qualified to hold customer segregated funds.

The complaint charged that, in violation of CFTC regulations, the account did not have a legal obligation to make customer funds available for redemption by the next business day following a request, and was not properly titled as a "customer segregated funds" account. The complaint also charged that MBF failed to obtain from the financial institution a letter acknowledging that the funds in the account were customer funds to be kept segregated from MBF’s funds, and that MBF similarly failed to obtain and/or keep written acknowledgments for at least six additional accounts that held customer funds. The complaint also charged MBF with supervision failures, including that MBF did not have written policies or procedures governing the opening and maintenance of customer segregated accounts.

David Meister, the Director of the CFTC’s Division of Enforcement stated, "As was evident from the filing of this case in court earlier this year, we expect strict compliance with the CFTC segregated account requirements. When it comes to protecting customer funds, T’s must be crossed and I’s dotted. We will not tolerate less."

The order permanently enjoins MBF and its successors from violating the customer segregated funds provisions of the CEA and Commission Regulations and from failing to diligently supervise its employees and agents to insure the proper segregation of customer funds.

The following CFTC Division of Enforcement staff were responsible for this case: Elizabeth N. Pendleton, Melissa Glasbrenner, William P. Janulis, Michael P. Geiser, Joseph Rosenberg, Rosemary Hollinger, Scott R. Williamson and Richard B. Wagner, with assistance from CFTC Division of Swap Dealer and Intermediary Oversight (DSIO) staff Nicholas Chiacchere and Robert Laverty.