The US National Futures Association (NFA) has ordered Coquest Incorporated, an introducing broker (IB) and commodity trading advisor (CTA) based in Dallas, Texas, to pay $275,000 in fines for its compliance and supervisory failures.
Additionally, NFA slammed a $250,000 fine on the UK introducing broker, Marex Spectron International Limited, for a similar offence.
The self-regulatory organization, which said the decision to fine Coquest was reached by its Business Conduct Committee (BCC), announced details of the sanction on Wednesday on its website.
NFA said the decision was based on the complaint issued by the BCC after reviewing an investigative report submitted by the association’s Compliance Department.
The independent body added that the decision was based on a settlement offer submitted by Coquest in which the company neither admitted nor denied the allegations.
Coquest runs several affiliate firms, among them is Woodbine Group LLC, a Texas limited liability corporation, which NFA also disclosed.
Allegations Before Coquest
NFA said it commenced its examination of Coquest in July 2020.
According to the BCC’s complaint file on Coquest seen by Finance Magnates, NFA alleged that Coquest, among other things, violated the NFA Bylaw 1101 by doing futures business with an affiliate, the Woodbine Group, that was not an NFA Member.
In addition, the file disclosed that on August 23, 2010, Woodbine adopted a resolution authorizing John Vassallo and Dennis Weinmann, the President and Vice-President of Coquest, respectively, to trade commodities for present or future delivery and options on futures on its behalf.
The complaint file further read in part: “In or about 2010, Woodbine received capital contributions in the form of Vassallo’s and Weinmann’s personal funds, funds from relatives and funds from outside investors. Woodbine received a total of about $2 million in capital contributions.
“Of this $2 million in capital contributions, more than $400,000 was contributed by outside investors who were not principals, operators or commodity trading advisors of Woodbine, and who were not relatives of any such persons.
“Woodbine pooled these contributions and, in whole or in part, used them to trade commodity interests.”
While Woodbine should have been registered as a Community Pool Operator (CPO) with the US Commodity Futures Trading Commission (CFTC) by Conquest, NFA said the company did not do so.
NFA also alleged that Coquest and Vassallo negligently misrepresented to the futures association that Woodbine was eligible for an exemption from CFTC registration.
Additionally, NFA alleged that Vassallo facilitated a decade-long violation of Bylaw 1101, both while serving as an Associated Person (AP) and principal of a former Member firm, Mega Capital LLC, and as an AP and principal of Coquest.
The BCC charged Vassallo and Weinmann with failing to supervise Coquest’s employees and agents in the conduct of their commodity interest activities for or on behalf of the firm.
NFA’s File of Fines
As a self-regulatory organization and watchdog for the US derivatives industry, including on-exchange traded futures, retail off-exchange foreign currency swaps , the NFA in the last few years has issued a number of fines to its erring members to put the industry in check.
In April 2019, the watchdog fined East West Global, a US-registered asset manager, $750,000 for overcharging investors of its commodity pool. NFA’s filing said the company breached fiduciary duty and failed to adequately disclose the high fees and poor overall performance of the pools, which was material information.
Later in September 2019, NFA barred Fortress Capital, Inc. and its former sole principal, George Ashkar, for five years for helping forex traders get around the futures association’s regulations. Fortress had told its clients to open their accounts from foreign jurisdictions under the names of their friends.
In 2018, the regulator also fined Global Asset Advisors, the futures business arm of GAIN Capital, $235,000 for lack of “adequate supervisory procedures” to monitor a trading manager who traded with his wife’s account even after he was banned from trading.
