CFTC Obtains Injunction Against Former Floor Broker for Margin Call Avoidance Scheme

The Commodity Futures Trading Commission (CFTC) has obtained an injunction against Kent R.E. Whitney, a former floor broker of Chicago, Ill., to pay a $600,000 civil monetary penalty for making false and misleading statements to Chicago Mercantile Exchange (CME representatives, futures commission merchants, and others as part of a scheme to trade options without posting the required margin.

The order, entered today by Judge Paul A. Engelmayer of the US District Court for the Southern District of New York, also imposes permanent trading and registration bans against Whitney and permanently prohibits him from future violations of the Commodity Exchange Act and CFTC regulations.

The order finds that Mr. Whitney consistently avoided margin requirements by using worthless out-of-the-money options and knowingly provided clearing firms with invalid account numbers. The next business day, Mr. Whitney provided alid account numbers, thereby shifting the overnight margin risk to the clearing firms of the executing floor brokers.

The order concludes that Mr. Whitney avoided posting over $96 million in margin calls, and the accounts Whitney traded then collected the premiums.

Read more about the enforcement action.

Photo credit: eric the fish



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