UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF TENNESSEE
AT CHATTANOOGA

I.

INTRODUCTION

1. On April�28, 1999, plaintiff Commodity Futures Trading Commission ("Commission") filed a complaint against defendants Edwin Jay Sheldon ("Sheldon"), Applied Capital Management, LLC. ("ACM"), and others, alleging violations of the Commodity Exchange Act ("Act"), as amended, 7�U.S.C. ���1 et seq. (1994), and the regulations promulgated thereunder, 17�C.F.R. ��1.1 et seq. (1999). On June�8, 1999, this Court entered a Consent Order of Preliminary Injunction And Other Equitable Relief against Sheldon and Applied Capital Management.

2. To effect settlement of this action without a trial on the merits or further judicial proceedings, Sheldon and ACM consent to this Consent Order Of Permanent Injunction And Other Equitable Relief Against Defendants Edwin Jay Sheldon and Applied Capital Management, LLC. ("Order"). Sheldon and ACM also: (1)�acknowledge service upon them of the summons and complaint in this action; (2)�admit this Court's personal and subject matter jurisdiction over them and this action; (3)�admit that venue properly lies with this Court; and (4)�waive the entry of findings of fact and conclusions of law in this action pursuant to Fed.�R. Civ.�P.�52, except as provided in Part�II below.

3. By consenting to the entry of this Order, Sheldon and ACM neither admit nor deny the allegations of the Commission's complaint or the findings of fact made by this Court and contained in Part�II below, except as to jurisdiction and venue. However, Sheldon and ACM agree and the parties to this Order intend that the allegations of the Commission's complaint and all of the findings of fact made by this Court and contained in Part�II of this Order shall be taken as true and correct and be given preclusive effect without further proof only in any subsequent bankruptcy proceeding filed by, on behalf of, or against Sheldon or ACM for the purpose of determining whether their joint and several restitution obligation and/or other payments ordered herein are excepted from discharge. Sheldon and ACM also shall provide immediate notice of any bankruptcy proceeding filed by, on behalf of, or against any of them in the manner required by Part�V, paragraph 1. of this Order.

4. Sheldon and ACM agree that: (1) they will not take any action or make or permit to be made any public statement denying, directly or indirectly, any finding or conclusion contained in this Order or creating, or tending to create, the impression that this Order is without a factual basis; and (2) no agent or employee of Sheldon or ACM acting under their authority or control shall take any action or make or permit to be made any public statement denying, directly or indirectly, any of the findings or conclusions in this Order or creating, or tending to create, the impression that this Order is without factual basis, and Sheldon and ACM shall undertake all steps necessary to assure that all of their agents and employees understand and comply with this agreement. Nothing in this provision affects Sheldon and ACM's: (1) testimonial obligations; or (2) rights to take legal positions in other proceedings to which the Commission is not a party.

5. Sheldon and ACM waive: (1) all claims that they may possess under the Equal Access to Justice Act ("EAJA"), 5 U.S.C. � 504 and 28 U.S.C. � 2412, as amended by Pub. L. No.�104-121, �� 231-32, 110�Stat.�862-63, and Part 148 of the Commission's Regulations, 17�C.F.R. ���148.1 et seq., relating to or arising from this action and any right under EAJA to seek costs, fees, and other expenses relating to or arising from this proceeding; (2) any claim of Double Jeopardy based upon the institution of this proceeding or the entry in this proceeding of any order imposing a civil monetary penalty or any other relief; and (3) all rights of appeal from this Order.

6. Sheldon and ACM consent to the continued jurisdiction of this Court for the purpose of enforcing the terms and conditions of this Order and for any other purposes relevant to this action.

7. Sheldon, individually and on behalf of ACM, agrees to cooperate fully with the Commission in the prosecution of its complaint in this action, in any ongoing investigations related to the subject matter of the complaint in this action, and in all other proceedings arising from such investigations by, among other things: (1)�responding promptly, completely, and truthfully to any inquiries or requests for information and otherwise cooperating fully with discovery; (2)�providing authentication of documents; (3)�testifying completely and truthfully; and (4)�not asserting privileges under the Fifth Amendment of the United States Constitution in connection with any testimony Sheldon is asked to provide.

8. Sheldon, individually and on behalf of ACM, affirms that he has read this Order and agrees to this Order voluntarily, and that no promise or threat of any kind has been made by the Commission or any member, officer, agent, or representative thereof, or by any other person, to induce his consent to this Order, other than as set forth specifically herein.

9. Sheldon and ACM acknowledge that this Court is not ordering payment of a civil monetary penalty pursuant to Section 6c(d) of the Act, 7�U.S.C. ��13a-1(d), or immediate payment of restitution, other than as required by paragraphs�1. and 2. of Part IV below, based upon the accuracy and completeness of Sheldon and ACM's sworn representations to the Commission concerning their financial condition. If at any time following the entry of this Order, the Commission obtains information indicating that any of Sheldon or ACM's representations to the Commission concerning their financial condition were fraudulent, misleading, inaccurate, or incomplete in any material respect as of the time such representations were made, the Commission may, in its sole discretion and without prior notice to Sheldon or ACM, petition this Court for an order requiring Sheldon and ACM immediately to pay full restitution or a civil monetary penalty. In connection with any such petition, the only issues shall be whether the financial information provided by Sheldon or ACM was fraudulent, misleading, inaccurate, or incomplete in any material respect as of the time such representations were made, and the amount of civil monetary penalty to be imposed. In its petition, the Commission may request that this Court consider all available remedies, including, but not limited to, ordering Sheldon and ACM to pay funds or transfer assets, directing the forfeiture of any assets, imposing sanctions for contempt of this Order, and/or the Commission may also request additional discovery. Sheldon and ACM shall not, by way of defense to such petition, challenge the validity of their consents to this Order, contest the allegations of the Commission's complaint or the findings or conclusions contained in this Order, contest the amount of restitution, or assert that payment of restitution or a civil monetary penalty should not be ordered.

10. This Court, being fully advised in the premises, finds that there is good cause for the entry of this Order and that there is no just reason for delay. This Court therefore directs the entry of findings of fact and a permanent injunction and other equitable relief, pursuant to Section 6c of the Act, 7�U.S.C. ��13a-1, as set forth herein.

II.

FINDINGS OF FACT

1. In late 1997 in New York City, Sheldon met with Kenneth Duke ("Duke"), a Tennessee resident, to solicit Duke and others to invest in the Fair Haven Futures Fund, LLC. ("Fund"), a commodity pool managed by Sheldon's completely-controlled company, ACM. Mary Duke (Duke's wife), defendant Charles Edward Powell ("Powell"), and Wanda Duke (Powell's wife and Duke's sister), also attended this meeting.

2. At the meeting, Sheldon told Duke that over the past seven years of his commodity futures trading he had made a profit every month, with the only one exception being a small 0.02% monthly loss. Sheldon also told Duke that investors in the Fund would not lose more than ten�to twelve�percent of their investment capital because he would only invest between ten�and twelve�percent of their money in "world markets," meaning commodity futures contracts or options on commodity futures contracts, and would place the remainder in safe investments such as Treasury bills. Sheldon said that he would never trade more than fifteen percent of investor money in the futures markets without permission from investors. Sheldon also stated that Duke and other investors could expect a twenty percent�monthly return from the Fund.

3. Sheldon's representations to Duke described in paragraph�2. above about his past trading record, the amount of investor funds at risk in the futures markets, and the profit potential of the Fund were false or misleading. Sheldon knew or recklessly disregarded that these statements were false or misleading.

4. Sheldon knew that Powell had solicited Duke and others to invest in the Fund. Sheldon further knew or should have known that Powell was not registered with the Commission as an associated person of a commodity pool operator.

5. During January�1998 and February�1998, Duke, Mary Duke, and other members of a limited partnership called the Alpha Group, L.L.P. ("Alpha Group") invested two hundred sixty-five thousand, four hundred dollars ($265,400) in the Fund.

6. Throughout 1998, Sheldon and ACM sent Duke and the Alpha Group letters and monthly account statements reporting the performance of the Fund. The monthly account statements were not signed and did not disclose the Fund's specific trading activity or fees. The letters and account statements represented that the Fund's net asset value increased from March�1998 through July�1998. However, during this time the Fund trading accounts sustained large losses. The increases in net asset value were a result of Sheldon and ACM's recording an account receivable for management fees from Powell and netting that receivable against the Fund's trading losses.

7. The fact that the Fund's net asset value was increasing as a result of the receivable from Powell instead of profitable trading in the futures markets was a material fact upon which reasonable investors would rely. Accordingly, Sheldon and ACM had a duty to disclose to investors�the Fund's actual trading performance and the fact that the increases in the Fund's net asset value were based on management fees. However, Sheldon and ACM never disclosed these facts to investors during the period March�1998 through July�1998. Sheldon and ACM knew or recklessly disregarded that investors would have relied upon the Fund's actual trading performance and the circumstances surrounding the receivable from Powell in deciding whether to continue to invest in the Fund.

8. From March�1998 through July�1998, Ken and Mary Duke and members of the Alpha Group deposited an additional one hundred sixteen thousand, five hundred ninety-eight dollars ($116,598) into the Fund.

9. Throughout 1998, Ken and Mary Duke and the Alpha Group received total Fund redemptions of forty-seven thousand, eight hundred thirty-one dollars ($47,831).

10. In December 1998, Sheldon and ACM shut down the Fund.

11. Sheldon and ACM filed with the Commission and sent to investors the Fund's December 31, 1998 annual report. The annual report falsely states that the majority of the Fund's trading losses occurred in August 1998 and September 1998, when, in fact, the largest losses occurred from March�1998 through May�1998.

12. Ken and Mary Duke and the Alpha Group lost a total of three hundred thirty-four thousand, one hundred sixty-seven dollars ($334,167) by investing in the Fund. Ken and Mary Duke and the Alpha Group invested in the Fund in reliance upon Sheldon and ACM's false or misleading representations regarding (1)�Sheldon's past trading performance, (2)�the limited amount of money that would be invested in the commodity futures markets, (3)�the profit potential of the Fund, and (4)�the Fund's net asset value, as reflected in Sheldon and ACM's letters and account statements.

III.