NEW YORK (AP) — Financial services firm INTL FCStone Inc. was fined $1.5 million by the Commodity Futures Trading Commission as part of a settlement for failing to properly watch over accounts, one of which lost $127 million.
The CFTC said Wednesday that the New York firm, a securities broker, commodities trader and provider of risk-management services, failed to put in place adequate risk policies and controls in 2008 and early 2009, a period that included the depths of the financial crisis. The agency said FCStone had failed to properly supervise its staff’s activities as it related to risk associated with the customer accounts.
The agency cited one account, controlled by two FCStone customers who traded in natural gas futures, swaps and options contracts, that acquired “a massive options position that it could not afford to maintain.” The CFTC said that FCStone was forced to take over that account and lost about $127 million.
“When (a futures commission merchant’s) financial risk controls are so lacking that they do virtually nothing to prevent an unchecked customer from taking grossly excessive trading risks as happened here, a harmful domino effect of financially dangerous consequences can follow, affecting not only the FCM but also potentially other customers and the market at large,” said David Meister, the CFTC’s enforcement director.
The company neither admitted nor denied the CFTC’s findings.
Aside from the $1.5 million fine, FCStone must name an independent party to review its risk policies.
“We are fully committed to working within a risk and compliance framework that protects our customers’ and our firm’s assets,” FCStone CEO Sean O’Connor said in a statement.
