On August 12, 2024, the Commodity Futures Trading Commission (CFTC) imposed a $100,000 fine on Cost Management Solutions, LLC (CMS), a Texas-based corporation, for operating as an unregistered Introducing Broker (IB). The order, which simultaneously files and settles charges, not only mandates the monetary penalty but also directs CMS to cease any further violations of the Commodity Exchange Act (CEA).
The CFTC’s investigation, covering activities from May 2018 to the present, uncovered that CMS had been actively engaging in IB functions without the necessary registration. CMS’s business primarily involved brokering swap and options transactions in energy commodities such as propane, heating oil, and crude oil. The firm’s activities included identifying potential counterparties, conducting price discovery, negotiating trade terms, and executing transactions on behalf of its clients—mainly propane retailers looking to hedge against market risks. Despite the extensive brokerage services provided, CMS had not registered as an IB, a clear breach of the CEA.
In its operations, CMS would often solicit quotes from multiple counterparties at the request of its clients. Upon securing an acceptable quote, CMS would execute the swap or option transaction on behalf of the client, all while charging a fee for its services. Crucially, CMS did not handle any client funds or securities to guarantee these transactions. This lapse in regulatory compliance highlights a significant oversight in CMS’s business practices, which the CFTC has now addressed through this enforcement action.
The CFTC’s order serves as a stern warning to other entities that may be operating without proper registration. The $100,000 fine underscores the importance of compliance with the CEA and the potential consequences of failing to adhere to regulatory requirements. By imposing such penalties, the CFTC reinforces its commitment to maintaining the integrity of the markets and protecting investors from unregistered and potentially unscrupulous actors. This action sends a clear message that any firm engaging in brokerage activities without appropriate registration will be held accountable.
The enforcement effort was carried out by members of the CFTC’s Division of Enforcement, including Michael Amakor, Karen Kenmotsu, A. Daniel Ullman II, and Paul G. Hayeck. Their work ensures that entities like CMS are brought to justice, safeguarding the interests of market participants and upholding the standards of the financial system.
The CFTC strongly advises the public to verify the registration status of any individual or company with the CFTC before engaging in financial transactions. This can be done through the National Futures Association’s Background Affiliation Status Information Center (NFA BASIC). By doing so, customers can protect themselves from potential fraud or misconduct.
Furthermore, the CFTC encourages individuals to report any suspicious activities or potential violations of commodity trading laws. Reports can be made through the CFTC’s toll-free hotline at 866-FON-CFTC (866-366-2382), via their online complaint filing system, or by contacting the Whistleblower Office. Notably, whistleblowers are eligible for rewards ranging from 10 to 30 percent of the monetary sanctions collected, paid from the Customer Protection Fund, which is financed by sanctions imposed on violators of the CEA.
(Source: https://www.cftc.gov/PressRoom/PressReleases/8941-24)
