Bass, Berry & Sims attorney Chris Lazarini provided comment on the case of CFTC vs. Miklovich in which the court found that a commodities trader violated the Commodity Exchange Act (CEA) by effecting unauthorized trades and falsifying firm documents. Chris provided the analysis for Securities Litigation Commentator (SLC). The full text of the analysis is below and used with permission from the publication. If you would like to receive additional content from the SLC, please visit the SLC website to sign up for the newsletter.
CFTC vs. Miklovich, No. 3:14CV594 (N.D. Ohio, 9/30/15)
A violation of the anti-fraud provisions of the Commodity Exchange Act may be shown by unauthorized trading and by evidence that a trader caused false reports to be generated by his firm.
The Commission alleged that Miklovich violated the anti-fraud provisions of the Commodity Exchange Act ("CEA") by effecting unauthorized trades in the accounts of two customers and falsifying daily reports to conceal his conduct. Miklovich denied the allegations in his answer, but raised his Fifth Amendment privilege during his deposition. Both sides filed motions for summary judgment.
The Court finds no genuine issue of material fact as to Miklovich's unauthorized trading. The sole evidence in the record, the Court notes, is that the customers testified that trades could not be made on their behalf without specific authorization and that they had not authorized the trades. The Court similarly finds no genuine issue as to the falsified reports. The Court rejects Miklovich's argument that he could not be held responsible for the falsified reports because he was not at work when the reports were created.
The Court finds that a showing of deliberate action is not required to establish the CEA violation. Rather, the Commission established its claim by showing that Miklovich's knowing omissions caused the false reports to be generated by his firm. The Court further points to the fact that Miklovich acted during a week when the person responsible for creating the daily reports was on vacation and then attempted to hide his actions after the fact by claiming that his laptop and iPad had been stolen in finding that the facts support only one conclusion – Miklovich acted deliberately, knowing that his acts were unauthorized. The Court grants the Commission's motion, and denies Miklovich's motion.
The Court next turns to the relief to be afforded the Commission. The Court orders Miklovich to make full restitution to his former firm in the amount of $566,360, fines him $100,000, and permanently enjoins him from future violations of the federal commodity laws, applying for registration with the Commission or acting as principal, officer, employee or agent of any person registered with the Commission.
(The Court declines to address the Commission's request that it draw an adverse inference from Miklovich's invocation of his Fifth Amendment rights, finding that the Commission more than carried its burden without the inference. The issue is interesting given that drawing an adverse inference contravenes the summary judgment concept of drawing all reasonable inferences in favor of the non-moving party.)