* RCG settles CFTC charges for supervisory failures
* RCG to pay $2.5 million
* CFTC says RCG failed to catch Ponzi scheme
By Alexandra Alper
WASHINGTON, April 12 (Reuters) – The Commodity Futures
Trading Commission announced on Thursday a $2.5 million
settlement with futures brokerage Rosenthal Collins Group (RCG)
over its failure to detect a Ponzi scheme run by one of its
customers.
The CFTC said the brokerage failed to “diligently supervise”
an account used for a multi-million-dollar commodity futures
Ponzi scheme from 2006 to 2009.
The scam was run by Enrique Villalba, who settled separate
charges with the CFTC in 2011.
In the settlement announced on Thursday, the CFTC alleged
that RCG “failed to seek updated information or detect and
report suspicious activity,” despite significant changes in the
amount of money flowing into the account and other warning signs
of suspicious activity, according to a CFTC release.
“Even if an FCM does not knowingly assist in a Ponzi scheme
conducted by an account holder, an FCM cannot ignore
questionable transactions that stand out as red flags of
fraudulent conduct,” David Meister, the Director of the CFTC’s
Division of Enforcement said in a press release, using the term
for Futures Commission Merchant, or a futures brokerage.
RCG declined to comment.
In the earlier suit — brought in March 2010 — the CFTC
alleged that Villalba operated a commodity futures Ponzi scheme
that defrauded more than $37.5 million from more than 35
investors through his firm, Money Market Alternative, LP. The
case settled in May, 2011.
Villalba later pleaded guilty to wire fraud and was
sentenced to more than 8 years in prison.
Rosenthal Collins Group was one of the biggest winners in
the aftermath of the October collapse of futures broker MF
Global, which itself had a long record of disciplinary actions
against it. As of the end of December RGC’s customer funds stood
at $237.8 million, a 17 percent increase from before the demise
of its bigger rival.
MF Global collapsed on October 31, after $6.3 billion in
risky bets on European sovereign debt spooked investors and sent
the futures brokerage spiraling into bankruptcy.
Federal investigators are still searching for up to $1.6
billion in missing customer funds that may have inappropriately
been used to cover the firm’s debts.
The order requires RCG to pay a $1.6 million civil monetary
penalty and to return $921,260.90 to Villalba’s victims – the
amount earned by RCG and its guaranteed introducing broker on
the MMA account.
