ADM unit fined $500K by CFTC for supervision failures

ADM Investor Services was penalized by the Commodity Futures Trading Commission (CFTC) for failing to detect repeated incidents where brokers employed by ADM executed improper or fictitious trade transfer requests that violated the Commodity Exchange Act and CFTC regulations. Most of the alleged activities occurred from 2016-19, although one broker’s misconduct dated back to 2012, according to the CFTC’s order.

The pattern of misconduct was not detected and halted because of inadequate compliance policies and procedures related to requests by ADM brokers to transfer, allocate, or move existing trades between or among customer accounts, the CFTC said.

ADM was “obligated to adequately supervise their agents and employees,” said Gretchen Lowe, the CFTC’s acting director of enforcement, in a press release Thursday. “As this case shows, it is essential that registrants have adequate policies and procedures in place to deter and detect wrongdoing and to ensure they perform their supervisory duties diligently.”

Compliance considerations: ADM’s compliance policies and procedures required all requests to transfer, allocate, or move existing trades between or among customer accounts that were deemed suspicious be reviewed by the company’s compliance department, according to the CFTC’s order. Suspicious transfer requests were those that were more than three days old, involved frequent or large nonroutine account transfers, involved frequent movement of funds or positions between/among accounts, or included changes with different tax IDs, the firm’s compliance manual stated.

While customer service representatives reviewing these requests had the authority to refer suspicious trades to compliance, there was no set criteria regarding which transfer requests were suspicious, the CFTC said.

The broker whose improper trade transfers dated back to 2012 was the subject of complaints from customers but wasn’t fired until August 2019, according to the CFTC. Another broker was improperly moving trades between a customer’s account and the customer’s family members’ accounts. Those transfers were not discovered “until they were identified by an investigation conducted by an exchange with self-regulatory responsibilities,” the order said.

“[ADM’s] supervisory system failed to detect these incidents of improper or fictitious trade transfers, which collectively persisted over the course of several years,” the order said.

In 2018, a customer complained a senior broker had conducted unauthorized trading on his or her account.

“As part of its internal investigation, [ADM] identified suspicious back-office trade transfers between the customer’s corporate account and the customer’s personal account,” the order said. “[ADM] terminated the broker and undertook efforts to develop enhanced procedures relating to account change requests.”

Later in 2018, ADM introduced an account change tool application designed to be the primary method through which brokers could request trade transfers. But a deadline for all brokers to implement the tool came and went; it was not until September 2019 that all brokers were using it.

ADM cooperated with the CFTC’s investigation and implemented remedial actions, including hiring additional staff to monitor and analyze account changes, enhancing its new account change tool to analyze the profit and loss impact of trade transfer requests, and other improvements to the monitoring of trade transfer requests throughout the company and its branches.

“[ADM Investor Services] has made significant investments to improve various compliance processes and cooperated with the CFTC in addressing this matter,” said Jackie Anderson, ADM’s director of external communications, in an emailed statement.