CFTC ORDERS REGISTERED FUTURES COMMISSION MERCHANT TO PAY $400,000 PENALTY

FROM: COMMODITY FUTURES TRADING COMMISSION
April 18, 2013

CFTC Orders The Linn Group, Inc., a Registered Futures Commission Merchant, to Pay $400,000 Civil Monetary Penalty for Customer Account Deficiencies and Supervision Failures

　

Firm failed to diligently supervise its officers, employees, and agents and to properly handle, monitor and report customer funds

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that it entered an Order requiring The Linn Group, Inc. (TLG), a Chicago-based Futures Commission Merchant (FCM), to pay a $400,000 civil monetary penalty for failing to properly handle, monitor, and report the customer funds that it maintained, as required by the Commodity Exchange Act (CEA) and CFTC Regulations, and for supervision failures. The CFTC Order also requires TLG to retain a consultant to review and improve TLG’s procedures as necessary to comply with the CEA and Regulations and to cease and desist from violating the provisions of the CEA and Regulations, as charged.

Specifically, the CFTC Order finds that TLG on 23 days failed to maintain a separate account to cover its obligation to U.S. customers trading futures and/or options on foreign exchanges and failed to timely notify the CFTC of such violations. The Order finds that TLG improperly deposited and held non-customer and proprietary funds in the same trading account from 2007 to 2011. TLG failed to timely obtain letters from banks acknowledging that the funds deposited into certain TLG accounts were customer funds prior to funding these accounts, as required on at least eight occasions between November 2007 and June 2012, according to the Order.

The Order also finds that TLG failed to timely notify the CFTC of material inadequacies brought to TLG’s attention by its certified public accountant (CPA) in March 2008 and March 2011 and failed to properly maintain and produce certain records requested by the CFTC relating to its business of dealing in commodity futures from 2007 to 2012.

In addition, the Order finds that TLG failed to diligently supervise its officers, employees, and agents as required. As a result of these supervision failures, TLG failed to comply with various reporting and notification requirements, as well as requirements related to audits and financial statements for FCMs, as set forth in the CFTC’s Regulations, the Order finds. For example, according to the Order, TLG engaged a CPA who: (1) had not provided audit services to any company for at least the preceding 20 years; (2) had never previously audited any other FCMs or entities required to hold segregated accounts for customers; and (3) did not have any understanding of the CFTC rules and Regulations prior to preparation for TLG’s 2011 audit. Moreover, the Order finds that TLG failed to take action when deficiencies with its CPA’s performance were brought to its attention.

The CFTC appreciates the assistance of the Division of Swap Dealer and Intermediary Oversight. The CFTC also appreciates the assistance of the National Futures Association.

CFTC Division of Enforcement staff members responsible for this matter are Allison Passman, Joseph Patrick, Susan Gradman, Scott Williamson, Rosemary Hollinger, and Richard B. Wagner.