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Commodities Futures Trading Commission Filed and Settled Charges Against Cantor Fitzgerald For Failure to Maintain Sufficient Funds In Customer Segregated Accounts

Recently, on November 21, 2012, the United States Commodities Futures Trading Commission (“CFTC”) announced that it simultaneously filed and settled charges with Cantor Fitzgerald (“Cantor”), a registered futures commission merchant (“FCM”) for failure to maintain sufficient funds in its customer segregated accounts from January 24 through 26, 2012 and for failure to timely notify the CFTC of its under-segregation. Pursuant to the Commodity Exchange Act (“Exchange Act”) and various CFTC regulations, Cantor, as a registered FCM, is required to compute the amount of customer funds required to be segregated on a daily basis and segregate that amount of customer funds from proprietary funds. Specifically, the CFTC found that from January 24 through 26, 2012, Cantor under-segregated its customer accounts by inadvertently transferring $3 million from its customer segregated fund accounts, when that $3 million should have been transferred from the Cantor proprietary accounts. Although Cantor ran its daily required computation of the amount required to be segregated in customer accounts, it did not realize that it was under-segregated until January 27th. Indeed, the various Cantor employees who are responsible for notifying the CFTC and Chicago Mercantile Exchange of compliance with the Exchange Act segregation requirements all failed to realize that the customer accounts were under-segregated. Upon recognizing its deficiency, Cantor immediately rectified the under-segregation. The CFTC also held that various supervisory failures regarding internal controls and policies added to Cantor’s failure to recognize that it was under-segregated for three (3) days. As a result, the CFTC imposed a $700,000 monetary penalty on Cantor, and ordered that Cantor undertake internal control improvements to prevent future segregation violations. If you have suffered losses from investments with Cantor or any other future commission merchant, investment adviser firm or brokerage firm, please contact Lax & Neville LLP for a consultation at (212) 696-1999.