NFA Complaint with IB

Discussion in 'Retail Brokers' started by jetbird, Jun 12, 2006.

  1. jetbird


  2. There are multiple counts in the complaint that IB will have to address separately.

    Count 1 appears to be a minor record tracking issue; not a big matter. It appears that IB struggled to upgrade their computer systems to meet the requirements of the NFA record keeping in 2004/2005.

    Count 2 appears to be a dispute over assessment fees. A common problem. In this case the NFA claims that IB did not produce paperwork to back their claims.

    Count 3 claims that IB should have provided more oversight in a situation in which an account holder defrauded others. They state that the pattern of deposits & withdrawals from the account should have made it clear it was not an individual account but a CPO on the behalf of third parties & required NFA membership.

    I expect that IB will have scramble to answer the complaints and produce paperwork; in the end they probably will be hit with some small fine. (IMHO).

    I do not see any of this as being any type of issue that would stop me from using IB.

    - Greg
  3. DMB



    This is to respond to the erroneous reports, apparently disseminated by one of our competitors, that the National Futures Association (NFA) has filed an action against Interactive Brokers that somehow calls into question the soundness of the firm. This is nonsense. Here are the facts:

    1. NFA has been conducting an inquiry regarding a former Interactive Brokers customer called Kevin Steele. Mr. Steele opened an ordinary individual IB account and, without IB’s knowledge, used it to operate an unregistered commodity pool. Mr. Steele lost several million dollars and his customers in turn complained to the NFA. Mr. Steele made numerous misrepresentations to IB about his account. Mr. Steele also misled his investors about trading losses that his commodity pool was suffering.

    2. The Commodity Futures Trading Commission sued Mr. Steele in May of 2005. In its Complaint against Steele, the CFTC said that Steele “made false statements to the Futures Commission Merchant [Interactive Brokers] that maintained his commodity trading accounts in an effort to lull the FCM’s suspicions…” Based on an inquiry from one of Mr. Steele’s investors, IB did become suspicious and was the first to notify the CFTC of Mr. Steele’s unlawful activities.

    3. IB had no knowledge of Mr. Steele’s activities prior to the inquiry from one of his investors. IB had no relationship with Mr. Steele. He was not in the IB financial advisor program. He was simply one of many thousands of IB individual account holders. IB has fully cooperated with the CFTC and with the NFA in its inquiry.

    4. On June 2, 2006, NFA filed a complaint against Interactive Brokers. The complaint alleges that IB violated an NFA rule that prevents a futures commission merchant (FCM) from doing business with an unregistered commodity pool operator. The complaint also alleges several violations of NFA books and records rules arising from a routine NFA audit.

    5. IB has cooperated fully with the NFA on this matter and expects to reach an appropriate resolution of this matter pursuant to NFA procedures. The NFA Complaint does not in any way call into question IB’s financial integrity or soundness. IB is and will continue to be a member in good standing of NFA (IB’s General Counsel is a member of NFA’s FCM Advisory Committee and the Futures Industry Association Law and Compliance Committee). The IB Group of companies has over $2.4 billion in capital and an Investment Grade rating from Standard and Poor’s.

    6. In today’s strict regulatory environment, brokerage firms routinely deal with many regulatory inquiries, on topics like Reg SHO, Day Trading rules, etc.

    Firms, such as IB who bring new technology and methods of doing business must observe rules created nearly a century ago that may no longer be meaningful and that sometimes cause difficulties. Our goal is to operate in accordance with regulations while at the same time offering our customers state-of-the-art trading systems at extremely low cost. We will always keep our customers informed of how we are doing.

    David M. Battan
    Vice President and General Counsel
    Interactive Brokers LLC
  4. Xenia


  5. Peterffy has that much laying around under his couch cushions...
  6. rayl


    This risk was disclosed as potentially "material" in the S1 materials.... always perplexed me bec I recall 125k is the maximum fine the NFA is allowed to levy in this type of action (or maybe it was 250k, but it's not more). I guess the size of the restitution was not easily boundable.
  7. Really ? Let's see...IB has now IPO'd. Would they have been able to do this without the proper accounting ?
    The NFA is starting to look like the SEC and CFTC....trying to justify their pathetic existence.
    USA: Too much regulation, too many regulators, too many agencies....time to move to Singapore.
  8. rayl


    I believe the record keeping charge was that at one point, the monthly statements did not include open positions P&L, a break down of exchange & NFA fees and a separate reporting of equity & cash balances. There may have been other points, as it's been a while since I read the complaint & answer at the time of the IPO.

    IB agreed to add a link for the exchange & NFA fees, but tried to argue that bec the system has real time P&L, margin info, that having the info on monthly stmts was unneeded. IB was directed to get a no action letter from the CFTC, which it was unable to do. Ultimately, the info was added to the monthly stmts.

    My personal opinion is, I agree that what IB provided in lieu was/is more useful, but on the other hand, rules are rules and it isn't IB's place to substitute its judgment....
  9. rayl


    As another development in the Kevin Steele aftermath, IB has entered into a settlement with the CFTC in this matter earlier this month:

    The final stipilation is kinda interesting. Though no admission or denial of guilt was made by IB, the stipilation amounts to a gag order against disputing the findings:

    IBL shall comply with its undertaking set forth in the Offer that neither IBL, nor any of its agents or employees under its authority or control, shall take any action or make any public statement denying, directly or indirectly, any finding in this Order, or creating, or tending to create, the impression that this Order is without a factual basis;....
    #10     Jul 29, 2007