CFTC fines GAIN Capital for supervision violations

The United States Commodity Futures Trading Commission (CFTC) today issued an order filing and settling charges against registered futures commission merchant Gain Capital Group, LLC for supervision violations related to its handling of customer accounts introduced by an independent introducing broker that was subject to a prior CFTC enforcement action for fraud and other violations. The order requires Gain to pay a civil monetary penalty of $300,000 and cease and desist from violating CFTC Regulation 166.3.

According to the order, from at least February 1, 2014 to August 31, 2016, Gain failed to diligently supervise accounts by not following its policy regarding trade move requests and having inadequate policies and procedures for reviewing customer accounts. The accounts were introduced by Foremost Trading LLC and traded by the company’s principal, Mark Miller.

The order finds that Gain failed to ensure that its employees followed company policies for the processing of trade move requests between accounts owned by different persons. Specifically, Foremost made hundreds of suspicious trade move requests to Gain in connection with Foremost’s proprietary accounts and the injured customer’s accounts. Miller had discretion to trade this customer’s accounts and also traded the proprietary accounts. At least some of these trade move requests transferred winning trades out of the customer’s accounts and into Foremost’s proprietary accounts based on purported trade errors. Gain employees did not consistently seek additional information on these trade move requests, as was provided in Gain’s policies and procedures.

Additionally, as detailed in the order, Gain missed red flags—Foremost’s suspicious trade move requests and Miller’s trading of both the proprietary and the injured customer’s accounts in the same markets—and did not appropriately surveil these accounts. While Gain had a general policy that it would review activity in customer accounts for irregularities or concerns, the policy was inadequate because it did not define what reviews involved and, prior to 2016, did not include follow-on policies or procedures for doing such reviews.

In two previous orders, the CFTC resolved charges against Foremost and Miller for, among other things, defrauding a customer through multiple fraudulent trading schemes, including unauthorized fictitious trading, and through trade move requests Foremost submitted to Gain based on purported trade errors. The customer suffered more than $700,000 in losses.