Tullett to pay $13M for supervisory failures and false statements

The CFTC issued two separate orders in its enforcement. The first order requires Tullett to pay an $11 million civil monetary penalty, cease and desist from violating CFTC regulations, and comply with certain undertakings for its failure to supervise voice brokers’ conduct on its U.S. Dollar Medium Term Interest Rate Swaps Desk (the desk).

The second order requires the defendant to pay a $2 million civil monetary penalty for making false or misleading statements. According to the order, during a CFTC investigation at least one Tullett broker made false or misleading statements of material facts or omitted to state material facts to CFTC staff concerning the subject of the investigation. The statements, which violated the Commodity Exchange Act, were made within the scope of the broker’s employment at Tullett and, therefore, Tullett is responsible for the violation.

Tullett is a domestic brokerage service firm providing intermediary services to institutional customers seeking to buy or sell a variety of products. In the first order, the CFTC finds Tullett failed to implement supervisory procedures reasonably designed to prevent brokers on the desk from making false or misleading statements to customers relating to certain trades, bids, and offers in U.S. dollar medium term interest rate swaps.

The order also finds Tullett failed to take sufficient corrective action when the voice-brokering conduct was brought to management’s attention, thereby allowing it to continue.

Compliance requirements

The first order requires Tullett to comply with certain undertakings, including:

• Implementing direct personal supervision of the desk;
• Implementing new software to monitor trades brokered by the desk;
• Enhancing respondent’s review of voice-brokering by such means as increased random review;
• Publishing internal guidelines to its brokers on acceptable and prohibited voice-brokering conduct;
• Seeking to ensure customers understand the practice of voice-brokering and the information disclosed; and
• Implementing annual and new-hire training and certification of brokers on the desk.

“The CFTC is devoted to ensuring price transparency and competition in all markets, whether electronically traded futures contracts or voice-brokered swaps,” said CFTC Director of Enforcement James McDonald. “As important, the CFTC is committed to ensuring that its investigations and fact gathering processes are not obstructed by false or misleading information.”