Release: 4645-02
For Release: May 22, 2002

CFTC Settles Wash Sales Charges Against Texas Broker Ronald Roesler
and Illinois Broker David Janson Arising Out of USDA Dairy Options
Pilot Program

WASHINGTON, D.C. -- The Commodity Futures Trading Commission (CFTC) announced today the issuance of two orders filing and simultaneously settling administrative enforcement actions, one against Ronald H. Roesler and the other against David H. Janson.

Roesler is a principal and associated person (AP) of Complete Price Management, an introducing broker (IB) doing business in Stephenville, Texas. Janson is a principal and AP of Strategic Farm Marketing, an IB doing business in Champaign, Illinois.

The CFTC orders find that Roesler and Janson -- independent of one another -- took advantage of a dairy options trading program run by the U.S. Department of Agriculture (USDA), and developed a trading strategy for dairy producers that allowed the producers to pocket some or all of the options premiums paid by USDA, as part of the program, in virtually risk-free transactions. As the CFTC orders find, this trading strategy resulted in illegal wash sales transactions.

The USDA runs a Dairy Option Pilot Program, known as DOPP, which is intended to train and subsidize milk producers learning how to hedge their downside price risk by buying milk put options to ensure a minimum price for their milk. When milk prices fall below the option’s strike price, the option increases in value and makes up the difference between the market price of the milk and the cost of the option. To encourage participation in the program, the USDA pays 80 percent of the put option premium. Participating producers open trading accounts with futures commission merchants, through registered IBs, who have signed an agreement with USDA to participate in DOPP. According to the CFTC orders, Roesler and Janson each signed an agreement.

The CFTC orders find that Roesler and Janson -- independent of each other -- recommended to milk producers in Texas and Minnesota, respectively, that they buy a DOPP put option in one account, as required by DOPP, and then sell the same option in a second non-DOPP account. According to the orders, this trading strategy resulted in the producers buying and selling puts with the same expiration month and the same strike price at the same or nearly the same premium, which left them with no actual position in the market and none of the downside price protection that DOPP was established to provide. The orders find that this allowed the milk producers, through a risk-free transaction, to pocket much or all of the 80 percent of the DOPP put option premium that USDA was paying and resulted in no margin being due from them. The orders find that the transactions constituted illegal wash sales.

The CFTC order against Janson also finds that he violated a Commission regulation by representing to prospective customers that margin would not be collected. The order against Roesler finds that he violated a Commission regulation by representing to prospective customers that they were guaranteed against loss.

In consenting to the entry of the orders, Roesler and Janson, respectively, neither admitted nor denied the findings in the orders. The orders require Roesler and Janson to cease and desist from further violations of the Commodity Exchange Act and Commission regulations, as charged, and to pay civil monetary penalties in the amounts of $17,500 and $10,000, respectively.

In November 2001, the USDA issued an Informational Memorandum in order to clarify that transactions involving the simultaneous purchase and sale of put options violate DOPP rules. The Memorandum can be found at the USDA Risk Management Agency website at http://www.rma.usda.gov/news/info/2001/pdf/dopp3-nov1.pdf.

The following Division staff are responsible for these cases: Clifford Histed, Charlotte Ohlmiller, Judith McCorkle, Rosemary Hollinger, and Scott Williamson.

Copies of the CFTC Orders may be found at www.cftc.gov.

Media Case Contact:
Scott Williamson, Acting Regional Counsel
Central Regional Office
CFTC Division of Enforcement
(312) 596-0520

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