(Reuters) - A New York-based futures clearing company has been sued by the Commodity Futures Trading Commission for allegedly failing to properly segregate customer funds.
Tuesday's lawsuit against MBF Clearing Corp came as regulators increase their vigilance about the whereabouts of customer funds following the October 2011 bankruptcy of MF Global Holdings Ltd, where an estimated $1.6 billion has vanished.
MBF's alleged violations predate that collapse, and there is no allegation that customer funds have been lost because of the privately held company's conduct.
"The CFTC's segregated account requirements form a pillar of our regulatory scheme," David Meister, director of the regulator's enforcement division, said in a statement. "We expect strict compliance with these laws and will go after those that fall short of the mark."
According to the lawsuit, MBF violated federal law by "routinely" holding between $30 million and $90 million of customer funds between September 2008 and March 2010 in a non-compliant money-market account at JPMorgan Chase & Co.
The CFTC accused MBF of failing to maintain sufficient segregated funds on roughly 322 business days between October 3, 2008 and March 26, 2010, and lacking adequate supervision and procedures.
It said that in one "egregious" instance, MBF was "under-segregated" by $63.1 million in mid-April 2009, when it had just $13.1 million of segregated funds rather than the required $76.2 million. About $90.4 million of customer funds was then in the JPMorgan account, the CFTC said.
The account had been opened on September 17, 2008, two days after Lehman Brothers Holdings Inc filed for bankruptcy.
In a statement, MBF said it opened the account solely to protect customer funds after this bankruptcy, and upon learning of a possible problem pulled the funds out and reported what happened to CME Group Inc, another of its regulators.
"Not a nickel of customer money was lost," MBF said.
JPMorgan and CME had no immediate comment.
It remains rare for the CFTC to challenge a broker's fund segregation practices.
The lawsuit seeks civil fines, the disgorgement of fees and other revenue from the alleged improper conduct, a permanent injunction against similar violations and other remedies.
According to its website, MBF was founded in 1987 by Mark Fisher, who remains chief executive.
The company said it offers floor trader, fund manager and trading firm clients that operate in futures markets including currencies, energy, equity-related indexes, interest rates, metals and soft commodities.
The case is CFTC v. MBF Clearing Corp, U.S. District Court, Southern District of New York, No. 12-01830.
