Release: 4725-02 (CFTC Docket No. 03-02)
For Release: December 12, 2002

CFTC FINDS COMEX FLOOR BROKERS HENRY CHANDLER AND ERNEST PENNY COMMITTED FRAUD IN EXECUTING GOLD OPTIONS TRADES, AND FIVE OTHER FLOOR BROKERS ENGAGED IN NONCOMPETITIVE TRADING, AMONG OTHER VIOLATIONS OF THE FEDERAL COMMODITIES LAWS

CFTC Accepts Offers of Settlement from Henry Chandler, Robert Ferraioli, Michael Hammer, Ernest Penny, Tacho Sandoval, William Wosnack, and Stephen Seelenfreund

WASHINGTON, D.C. – The Commodity Futures Trading Commission (CFTC) issued an order on December 12, 2002, settling enforcement actions against Henry Chandler of Freehold, New Jersey; Ernest Penny of South Amboy, New Jersey; Robert Ferraioli of Howell, New Jersey; Michael Hammer of Manalapan, New Jersey; Tacho Sandoval of Jersey City, New Jersey; William Wosnack of Amityville, New York; and Stephen Seelenfreund of North Bellmore, New York, all floor brokers on the Commodity Exchange, Inc. (COMEX), a Division of the New York Mercantile Exchange.

Specifically, the CFTC issued an order filing and simultaneously settling an administrative action against the brokers, all of whom, except Sandoval and Wosnack, were dual traders who traded for their own accounts as well as for customers. All of the brokers consented to the entry of the order resolving the administrative action without admitting or denying the findings contained therein.

The CFTC’s order finds that, from September 27, 1999 through October 8, 1999, gold trading volume and volatility increased on the COMEX. On September 28, 1999, gold futures and options contracts traded in record volumes for both number of contracts and trades. Further, gold options brokers received an unprecedented number of mostly small-lot retail customer orders, according to the order.

Fraudulent Gold Options Trading by Chandler and Penny

The CFTC order finds that, from September 27, 1999 through October 5, 1999, Chandler and Penny fraudulently executed customer gold options trades on the COMEX by various means: a) Penny traded ahead of executable customer orders; b) Chandler and Penny fraudulently changed prices on their customers’ executed gold options orders, thereby creating false reports, and aided and abetted each other’s fraudulent price changes; and c) Penny illegally offset his customer orders. By engaging in fraudulently executed gold option transactions, Chandler and Penny also engaged in noncompetitive trading, according to the order. The order further finds that conduct by both men violated antifraud and other provisions of the Commodity Exchange Act (CEA) and CFTC regulations.

Noncompetitive, Post-Close Gold Options Trades Executed by Hammer, Ferraioli, Sandoval, Seelenfreund, and Wosnack

On September 27 and 28, 1999, respondents Hammer, Ferraioli, Sandoval, Wosnack, and Seelenfreund executed trades noncompetitively, according to the order. In a total of 78 trades, Hammer and Ferraioli falsely recorded trade executions as having occurred during the one-minute closing period, when each of those transactions actually occurred after the close of trading, according to the order. Hammer was responsible for 59 of the noncompetitive trades, and Ferraioli for 19. Sandoval and Wosnack, trading for their personal accounts, took the opposite sides of these 78 noncompetitive trades, according to the order.

On September 28, 1999, Seelenfreund noncompetitively executed 25 trades to fill customer orders, according to the order. These 25 trades were entered into COMEX’s On Line Trade Entry System for clearing as if they had been competitively executed on September 27, 1999, although they actually were executed on September 28, 1999, according to the order.

All of the conduct above violated provisions of the Commodity Exchange Act (CEA) and CFTC regulations prohibiting various practices collectively known as noncompetitive trading.

Sandoval’s Failure to Maintain and Produce Trading Records

Sandoval also failed to maintain and/or produce his September 28, 1999, trading records to the Commission, thereby violating the recordkeeping provisions of the CEA and CFTC regulations, according to the order.

CFTC Suspends Chandler’s and Penny’s Floor Broker Registrations; Imposes Cease and Desist Orders, Trading Bans and Dual Trading Prohibitions; and Orders Restitution and Civil Monetary Penalties

The CFTC order finds that Chandler and Penny each violated the CEA and CFTC regulations and:

• Suspends their floor broker registrations and imposes a trading ban for six months provided, however, that they may trade off the COMEX floor for their own accounts after three months;
• Prohibits each from dual trading for one year after the registration suspension period; restricts their registrations for two years after the registration suspension, including requiring them to have a sponsor if they act as floor brokers or floor traders;
• Requires Chandler and Penny to pay restitution of $1,200 and $7,060, respectively;
• Imposes a $20,000 civil monetary penalty on each; and
• Orders them to cease and desist from further violations of the CEA and CFTC Regulations.

CFTC Imposes Cease and Desist Orders and Dual Trading Prohibitions Against Ferraioli, Hammer, Sandoval, Seelenfreund and Wosnack, and Orders Payment of Civil Monetary Penalties By Each

The CFTC Order finds that Ferraioli, Hammer, Sandoval, Seelenfreund and Wosnack each violated the CEA and CFTC Regulations and:

• Prohibits each from dual trading for one year beginning the day after the entry of the Order; restricts their registrations for one year beginning the day after the entry of the Order, including requiring them to have a sponsor if they act as floor brokers or floor traders;
• Imposes a $20,000 civil monetary penalty on Sandoval and a $15,000 civil monetary penalty on Ferraioli, Hammer, Seelenfreund and Wosnack; and
• Orders them to cease and desist from further violations of the CEA and CFTC Regulations.

The CFTC acknowledges the cooperation of the New York Mercantile Exchange in this matter.

Previous CFTC Order Entered In This Matter

On January 10, 2001, the CFTC instituted enforcement actions in this matter against four COMEX floor brokers: Paul Merolla of Ridgewood, New Jersey; Philip Selby of Passaic, New Jersey; Timothy Murphy of New Rochelle, New York; and Vincent Coppola of West Caldwell New Jersey (see CFTC News Release 4487-01, January 10, 2001). Specifically, the CFTC filed and simultaneously settled an administrative action against Merolla and Selby, and filed a separate administrative complaint against Murphy and Coppola. The CFTC settled the administrative actions against Murphy and Coppola on April 30, 2001 and August 16, 2001, respectively (see CFTC Press Releases 4512-01, April 30, 2001, and 4552-01, August 16, 2001). All of the brokers were dual traders who traded for their own accounts and for customers.

Media Case Contact:

Stephen J. Obie, Regional Counsel and Associate Director
CFTC Division of Enforcement
(646) 746-9766

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