The NFA has announced that it is taking emergency action against R2 Capital Group LLC. A commodity pool operator (CPO), R2 Capital recently became an NFA Member in September. Following its granting of membership, the NFA has taken the Member Responsibility Action (MRA) and Associate Responsibility Action against R2 Capital and its controlling parties, Randell Vest, Ryan Tomazin and Ryan Madigan as the regulator discovered accounting irregularities when reviewing the firm’s financials in October. With the MRA, “R2 Capital, Vest and any person acting on R2’s behalf are prohibited from soliciting or accepting any funds from customers or investors, soliciting investments for any managed accounts, commodity pools or other investment vehicles, including the Commercial Pool or R2 Global Fund I LP (Global Pool), or placing any trades on behalf of customers, commodity pools or investors except liquidation or risk reducing trades. Additionally, they are prohibited from disbursing or transferring any funds over which they exercise control without prior approval from NFA.”
According to the NFA review, R2 Capital failed to submit records that reveal client funds as well as trading performance of two funds they manage. The NFA also found that despite listing their location in New York, activity is also taking place in Florida and in Colorado. In its findings, customers were estimated to have deposited $2.4 million in a managed pool with R2 Capital between 2010 and 2011. Available records of transfers between R2’s FCM and their banks, the fund was estimated to have lost $1.2 million due to trading losses, with another $1.2 million currently unaccounted for. Based on the findings, as well as the lack of R2 Capital from providing current records, other than a single balance of $800, the NFA believes that the firm’s controlling parties “may have converted pool assets totaling more than $1 million for their own personal use, through numerous payments to themselves or their holding companies.” (read the MRA)
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The MRA follows similar allegations by the CFTC earlier this month against another CPO, Direct Investment Products, as well as the NFA accusing Alphametrix Group of misappropriation in October. While not as industry far-reaching as broker fraud, as custodians of client funds, the misappropriation could lead to greater rules invoked upon CPOs and money managers.