The Wall Street Journal-20080111-CFTC Cites Two Brokers in Fraud Case
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CFTC Cites Two Brokers in Fraud Case
The Commodity Futures Trading Commission said it charged two Chicago Board of Trade floor brokers with defrauding customers out of more than $2 million in connection with the release of a government employment report in 2004.
The brokers, Edward C. Sarvey of Lemont, Ill., and David G. Sklena of Chicago, trade in the five-year Treasury note futures pit.
The CFTC's complaint, filed in the U.S. District Court for the Northern District of Illinois, accuses Mr. Sarvey of taking advantage of volatile trading conditions in the five-year Treasury note futures pit on April 2, 2004, immediately following the federal government's release of the March 2004 employment statistics.
The employment report, released at 7:30 a.m. CST, showed a greater number of new jobs than U.S. financial markets had expected. Within 90 seconds after the statistics became public, prices of five-year Treasury note futures contracts dropped by more than one point in fast trading, the CFTC said.
According to the complaint, Mr. Sarvey held customer orders to sell a total of 2,474 five-year Treasury note futures contracts. The complaint states that the price of five-year Treasury note futures contracts recovered before Mr. Sarvey sold any contracts on behalf of his customers.
According to the complaint, after the market recovered, Mr. Sarvey "noncompetitively" sold 2,274 contracts for his customers to Mr. Sklena at a low price that had traded a few minutes earlier, rather than offering to sell those contracts at the then-higher prevailing market prices. As a result, the complaint alleges, Mr, Sarvey cheated and defrauded his customers by as much as $2.1 million.
The CFTC's complaint also alleges that Mr. Sarvey "indirectly bucketed" his customers' orders by simultaneously buying 485 contracts for himself from Mr. Sklena at a low noncompetitive price. According to the CFTC's complaint, Mr. Sarvey profited by more than $357,000 by immediately selling those contracts at a profit in the prevailing market.
The CFTC's complaint alleges that Mr. Sklena "accommodated and aided and abetted" Mr. Sarvey in defrauding the CBOT customers and indirectly bucketing the customers' orders. According to the CFTC's complaint, Mr. Sklena, who began the day with less than $25,000 in his trading account, reaped a windfall profit of approximately $1.65 million at the expense of Mr. Sarvey's customers.
The CFTC's complaint also names Lawrence-Bonfitto Trading Co., which had been registered as a Futures Commission Merchant from 1994 to 2004, and its principal, Joseph Bonfitto, as relief defendants. According to the CFTC's complaint, Mr. Bonfitto and his company, which cleared Mr. Sklena's trades, took approximately $650,000 of Mr. Sklena's profits from the alleged fraudulent trading, but aren't entitled to these funds.
Mr. Sarvey declined to comment. Efforts to reach the other parties were unsuccessful.
The CFTC said it seeks "preliminary and permanent injunctions, restitution to defrauded customers and civil monetary penalties for each violation of the Commodity Exchange Act from Messrs. Sarvey and Sklena, and disgorgement of ill-gotten gains from Messrs. Sarvey, Sklena, Lawrence-Bonfitto Trading Co., and Joseph Bonfitto."
