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Refco to pay $8M settlement
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May 24, 1999: 7:40 p.m. ET
Futures market broker inks deal with CFTC for improper trade execution
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NEW YORK (CNNfn) - Futures broker Refco Inc. agreed to pay $8 million to settle allegations it improperly executed orders of customers, the nation's commodity market regulator said Monday.
Without admitting wrongdoing, Refco will pay the U.S. Commodity Futures Trading Commission a $6 million civil fine, one of the largest ever assessed by the agency, and $1 million to fund a study of how brokers receive and record customer orders. It will also pay a $1 million fine to the Chicago Board of Trade.
A person close to the matter said the settlement is connected to the investigation of the 1995 collapse of Capital Insight Brokerage and its boss, Beverly Hills financial adviser Jay Goldinger.
Refco handled many of Goldinger's trades, which centered on Treasury-bond futures and options and led to losses of some $100 million for its clients -- including telecom equipment maker PairGain Technologies (PAIR).
A futures contract is an agreement by an investor to buy an item such as a bond or a commodity at a specific price on a specific date. An option, on the other hand, gives the investor the right, but not the obligation, to buy or sell an asset at a later date at a certain price.
Goldinger failed to provide account information to Refco and moved trades between customer accounts even after they were cleared.
Refco, one of the nation's largest futures brokers, allegedly did not monitor Capital Insight's practices -- which involved making trades without giving account numbers. Refco improperly made trades without the numbers, according to the CFTC.
"This settlement culminates a critical aspect of this matter. It demonstrates the Commission's commitment to impose substantial sanctions when confronted with serious record keeping and supervision failures," said Geoffrey Aronow, director of the CFTC's division of enforcement.
As part of the settlement, Refco's general counsel will also conduct an internal review of the firm's compliance and trade handling procedures. At the beginning of this year, the firm named Dennis Klejna, the former director of the CFTC's enforcement division, to the post.
The Securities and Exchange Commission and the U.S. Justice Department have targeted two PairGain executives in a criminal investigation of Capital Insight, according to an SEC filing by PairGain last week. In March, PairGain said the agencies were investigating whether it had properly disclosed trading losses with Capital Insight.
The Refco settlement comes just days after the CFTC filed suit against broker Merrill Lynch & Co. for its alleged role in a 1995 scheme by a copper trader at Japan's Sumitomo Corp. to corner the world copper market. 
-- from staff and wire reports
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