Interactive Brokers LLC Sanctioned for Failing to Supervise Its Compliance Staff

The U.S. Commodity Futures Trading Commission (CFTC) ordered Interactive Brokers LLC (IBL) to relinquish $175,000 in commissions, for failing to properly supervise its compliance employees while handling a commodity futures trading account. The National Futures Association (NFA) recently fined IBL $125,000 regarding the same matter and for failing to maintain adequate books and records.

IBL is a discount direct access brokerage firm and registered futures commission merchant (FCM) headquartered in Greenwich, Connecticut. According to the order, an account was maintained at IBL in the name of Kevin Steele, a Canadian who used the account to defraud more than 200 Canadian, German, and US citizens of over $8 million in a commodity pool fraud that was the subject of an earlier CFTC enforcement action.

The CFTC found that, from February 2003 through May 2005, IBL accepted 135 third-party deposits in the form of wire transfers and checks totaling $7.7 million into Steele’s personal account, but did not have procedures reasonably designed to detect the deposit of third-party funds in an individual trading account. The frequency and magnitude of deposits and withdrawals to Steele’s account, relative to his stated liquid net worth, and the pattern of deposits followed by withdrawals suggested that Steele might be operating as an unregistered commodity pool operator.

IBL compliance staff telephoned Steele on several occasions to inquire about the trading activity in his account. Yet, IBL’s compliance staff each time accepted Steele’s explanations as reasonable without conducting any additional or independent inquiries. The order states that IBL’s procedures for determining the source of funds received through wire transfers were inadequate to meet its supervisory responsibilities.

The ability to determine if funds in customer accounts are coming from someone other than the account holder is a necessary part of an FCM’s supervisory system. If an FCM fails to monitor the source of funds being deposited into customer accounts at the time such funds are received, its ability to detect illegal activity such as pool fraud or money laundering is impaired.

Shepherd Smith and Edwards represents investors nationwide in claims against financial firms. We have represented investors in more than 1,000 cases. To learn whether we may be able to assist you with a claim contact us to arrange a free consultation with one of our attorneys.