U.S. Commodity Futures Trading Commission v. eFloorTrade, LLC

Background

The Commodity Futures Trading Commission (CFTC) brought this civil enforcement action against eFloorTrade, LLC and John A. Moore under the Commodity Exchange Act and related regulations. eFloorTrade was registered as an introducing broker and provided trade-execution services for customers using third-party trading systems. Moore owned and operated eFloorTrade and served as its managing member, majority owner, and chief compliance officer.

The CFTC alleged four categories of violations during the period from October 2010 through October 2015: false or misleading statements to the CFTC; failures to keep and produce required books and records; failures to prepare required records; and failures to supervise. The required records included trading signals, customer orders, and other information needed to track customer transactions.

The parties stipulated to eFloorTrade’s recordkeeping violations and to supervisory violations by eFloorTrade and Moore. Moore also testified to the CFTC in September 2015 that eFloorTrade maintained a spreadsheet tracking trading instructions and actual trades. The court previously found that no such spreadsheet existed at that time and that Moore knew, or reasonably should have known, that his testimony was false or misleading.

Prior Liability Ruling

In September 2018, the court granted the CFTC summary judgment on liability on all four counts. Summary judgment is a ruling that resolves a claim when the undisputed evidence shows that one side is entitled to judgment as a matter of law. The court rejected the defendants’ argument that the recordkeeping violations were minor and found that the evidence established Moore’s false-statement violation as well.

The defendants later sought reconsideration of that ruling. The court denied reconsideration because the defendants did not identify a change in controlling law, newly available evidence, clear error, or a manifest injustice. The court also rejected Moore’s attempt to disavow the stipulation concerning the recordkeeping and supervisory violations.

Injunctive Relief

The CFTC requested a permanent injunction against the conduct for which the defendants were found liable, permanent restrictions on the defendants’ CFTC registration and employment activities, and related restrictions on eFloorTrade unless it had a qualifying guarantee agreement with a registered futures commission merchant. The defendants argued that permanent registration and principal bans were unwarranted because they had not previously faced a CFTC enforcement action, their conduct had not caused customer losses, and they had not profited from the misconduct.

The court granted the CFTC’s request for injunctive relief to the extent stated in the order. It permanently barred eFloorTrade and Moore from failing to keep and produce required records, failing to prepare required written customer-order records, and failing to diligently supervise relevant activities. It permanently barred Moore from making false or misleading material statements to the CFTC.

The court did not impose permanent registration or principal bans. Instead, it imposed those restrictions for five years. Moore and eFloorTrade were restricted from applying for CFTC registration or claiming an exemption and from acting as a principal, agent, officer, or employee of a person subject to CFTC registration requirements, subject to the exceptions stated in the order. The same five-year restrictions applied to eFloorTrade unless it was continuously covered by a qualifying guarantee agreement with a registered futures commission merchant.

Civil Monetary Penalties

The CFTC sought $1,120,000 against both defendants for eight recordkeeping and supervisory violations and an additional $420,000 against Moore for three false statements. The court found the misconduct serious but concluded that the requested $1.54 million was excessive. In setting the penalties, the court considered, among other things, the absence of evidence that customers were defrauded or injured, the absence of evidence that the defendants profited from the misconduct, and the defendants’ asserted ability to pay.

The court imposed $10,000 for each of five recordkeeping violations and three supervisory violations, for a total of $80,000. Moore and eFloorTrade were ordered to pay that amount jointly and severally, meaning the CFTC may seek the total from either or both defendants, subject to the rules governing that obligation. The court also imposed an additional $140,000 penalty on Moore for the three false statements, treating them as concerning one subject—the nonexistent spreadsheet—that could reasonably be viewed as a single violation.

Disposition

The court granted the CFTC’s request for injunctive relief to the stated extent, imposed the five-year restrictions and monetary penalties, directed the Clerk to enter judgment, and closed the case. The order required payment of the $80,000 joint-and-several penalty and Moore’s additional $140,000 penalty, with post-judgment interest if the obligation was not paid immediately.