A Texas-based energy broker, its owners, and trading affiliates agreed to pay a total of nearly $3 million to resolve allegations from the Commodity Futures Trading Commission (CFTC) the firm failed in its oversight responsibilities regarding more than 2,000 trades made against its customers.
The CFTC sued Coquest; two of its owners, including President and Compliance Officer John Vassallo; and two affiliates in October 2021 in U.S. District Court for the Northern District of Texas. Coquest was faulted for defrauding its customers and failing to diligently supervise customer commodity interest accounts, the agency stated Wednesday in a press release.
Coquest, Vassallo, fellow owner Dennis Weinmann, and affiliates Buttonwood and Weva Properties agreed to pay a $2.5 million penalty and $496,021 in disgorgement to settle the charges. The CFTC also imposed a six-month trading and registration ban on Weinmann and banned Weinmann and Coquest from brokering block trades on behalf of other people for two years.
The details: From 2015-19, Weinmann manipulated brokerage customer block trade orders on more than 2,000 occasions to obtain favorable block trade prices, the CFTC said in its order. Weinmann also allegedly deceived or attempted to deceive Coquest customers into believing he was reporting bids made by third parties when he was making the bids on behalf of the affiliated trading companies he controlled.
The CFTC said Weinmann manipulated the nonpublic, material information from Coquest customers by trading on the customer’s block trade orders in violation of his duties to those customers.
Compliance ramifications: The order found Vassallo, Weinmann, and Coquest failed to diligently supervise the handling of their customers’ commodity interest accounts, failed to have an adequate oversight system to detect or deter the manipulation of block trade orders, and did not have written policies and procedures in place for the duties of a broker.
Vassallo, as compliance officer, was aware of what Weinmann was doing but “did not supervise Weinmann’s brokerage or trading activity or take any other steps to determine whether Weinmann was trading in the Buttonwood and Weva accounts in violation of his duties to Coquest’s customers,” per the order.
Coquest did not respond to a request for comment. The company neither admitted nor denied the CFTC’s findings.