A commodity pool operator ("CPO") agreed to pay a fine for failing to supervise the fund administrator's operation of the pool's bank account from which investor assets were fraudulently withdrawn by third parties.
Tillage Commodities, LLC ("Tillage") employed a fund administrator whose responsibilities included operating the pool's bank account. The CFTC Order concluded that during a three-week period, the fund administrator processed several fraudulent requests by third parties to transfer funds from the pool's bank account. These requests were made as part of a scheme in which the perpetrators spoofed the email address of the pool's managing member, and placed transfer requests that were typical of the managing member. As a result of the fraudulent transactions, $5.9 million of investor funds, representing approximately 64 percent of the pool's total capital, were lost.
According to the CFTC, the CPO failed to adequately supervise the fund administrator's operation of the pool's bank account, which contributed to its inability to detect the ongoing fraud. In addition, the CFTC alleged that the CPO did not have any policies or procedures to monitor the operation of the account, no system to alert it when transactions were cleared, and did not check the bank account balance with adequate frequency. As a result of the misconduct, the CFTC charged Tillage with violating CFTC Rule 166.3.
To settle the charges, Tillage agreed to pay a $150,000 penalty.
Commentary / Dorothy Mehta
This disciplinary action puts other commodity trading advisors on notice of their obligation to supervise movements of funds out of client accounts even if they do not exercise custodial control over these accounts.
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