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Wednesday, May 6, 2015

COMPANY SANCTIONED BY CFTC FOR FAILURE TO ADEQUATELY SUPERVISE

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION
May 1, 2015
CFTC Sanctions FCStone, LLC for Supervision Violations
Firm Ordered to Pay $140,000 Civil Penalty

Washington, DC — The U.S. Commodity Futures Trading Commission (CFTC) entered an Order filing and simultaneously settling charges against FCStone, LLC, a CFTC-registered Futures Commission Merchant (FCM) headquartered in New York, New York, for failing to provide and maintain an adequate program of supervision and for failing to diligently supervise its employees on one occasion in violation of CFTC Regulation 166.3.

The CFTC Order requires FCStone to pay a $140,000 civil monetary penalty and to cease and desist from violating CFTC Regulation 166.3, as charged.

Specifically, the Order finds that, from at least 2008 until May 2013, FCStone did not have adequate policies or procedures governing the transfer of positions between customers’ accounts, and no set written policy governing a request by a customer to transfer positions between accounts. Instead, FCStone had an unwritten policy such that its employees understood that they were to seek guidance if a transfer was requested between two accounts that were not under common control. That unwritten policy, however, did not provide specific guidance regarding the impact of beneficial ownership on account transfers, according to the Order. In particular, an FCM, like FCStone, may transfer positions among customers’ commodity accounts held at the firm 1) so long as the transfer merely constitutes a change from one account to another account, and 2) the underlying beneficial ownership in the two accounts remains the same, according to the Order.

The Order also finds that on one occasion FCStone’s employees transferred positions between two accounts that did not have the same underlying beneficial ownership. Specifically, they transferred approximately $20 million in gold and silver positions from an individual’s personal account to a corporate account in which the individual was a 98.95 percent owner. They made the transfer believing that, because the individual and corporate accounts had the same large trader number and the individual controlled both accounts, the positions could be transferred between the two accounts. In actuality, however, the tax identification numbers for the two accounts were different, and the accounts did not have the same underlying beneficial ownership because there were two fractional minority owners of the corporate account.

The Order further finds that FCStone cooperated fully with the CFTC’s investigation into this matter and that FCStone, on its own, revised its written procedures concerning the transfer of positions accordingly.

CFTC Division of Enforcement staff members responsible for this matter are James Deacon and Rick Glaser.

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