CFTC Release #3940-96 ALJ Order Against Z. Guttman

Release: #3940-96 (CFTC Docket No. 93-4)

For Release: September 16, 1996

CFTC ADMINISTRATIVE LAW JUDGE ORDERS CIVIL MONETARY PENALTY OF $500,000, REVOCATION OF REGISTRATION, 5-YEAR TRADING BAN, AND CEASE AND DESIST ORDER AGAINST ZOLTAN (LOU) GUTTMAN OF NEW YORK

Gary Glass Fined $150,000 and Permanently Banned from Trading in 1993 Case Stemming from Sugar Options Trading on the Coffee, Sugar & Cocoa Exchange

WASHINGTON - The Commodity Futures Trading Commission (CFTC) announced today that the Honorable George Painter, CFTC Administrative Law Judge (ALJ), entered an Initial Decision ordering a civil monetary penalty of $500,000, revocation of registration, a 5-year trading ban, and a cease and desist order against Zoltan (Lou) Guttman, a registered floor broker, of New York, New York, and ordering a civil monetary penalty of $150,000, a permanent trading ban, and a cease and desist order against Gary Glass, of Merrick, New York, whose registration as a floor broker was revoked by the CFTC in 1991. The sanctions stem from a seven-count complaint filed on February 17, 1993 (In the Matter of Gerald Inc., Harold Jay Magid, Gary Glass, and Zoltan (Lou) Guttman, CFTC Docket # 93-4).

The ALJ, in the decision filed on September 11, 1996, found that Guttman and Glass were liable for wash sales, accommodation trades and fictitious sales, non- competitive transactions, and causing prices to be reported which were not true or bona fide, in sugar options transactions on the Coffee, Sugar & Cocoa Exchange (CSCE), in violation of the Commodity Exchange Act (CEA) and CFTC regulations. Glass was also found liable for failure to maintain his trading cards. The options transactions at issue in the case were executed by Glass and Guttman's co-account owner, Harold Magid.

In its complaint, the CFTC alleged that Glass, Magid, and Guttman violated the CEA and CFTC regulations by entering into wash sales, accommodation trades and fictitious sales; causing prices to be reported that were not true and bona fide; and executing noncompetitive transactions (CFTC News Release #3625-93, February 17, 1993). It was also alleged that Glass failed to keep or produce records. The two other respondents in this action, Gerald, Inc., a futures commission merchant, and Magid, a registered floor broker, previously settled the Commission's charges against them by agreeing to pay a $65,000 civil penalty and a $25,000 civil penalty, respectively, among other sanctions, including an agreement by Magid to cooperate with the CFTC's Division of Enforcement in its ongoing investigation of the matter (CFTC News Release #3839-95, April 21, 1995).

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The ALJ's Initial Decision found that Glass and Magid entered into transactions on the last trading day at the end of six separate months and reversed those transactions on the first trading day of the following months. By entering into this pattern of transactions, the ALJ found that they generated $19 million in "fictional equity" for Guttman's and Magid's jointly-owned accounts, which were in debit equity status at the end of each of the six months.

Guttman was found to be liable on the ground that Magid was acting for him in executing the violative transactions and thus that Guttman was responsible for Magid's conduct under section 2(a)(1)(A) of the CEA. However, the ALJ rejected the alternative theory of liability alleged in the complaint, finding the evidence insufficient to show that Guttman was the controlling person of Magid.

In assessing these penalties, the ALJ cited the "highest ethical standards" which should have been maintained by Guttman, who at the time of the transactions in question was Chairman of the New York Mercantile Exchange. He also cited the recidivism of Glass.

The AJL, in the decision, noted that while it is not possible to determine Guttman's gain from the violative transactions, "he gained a total of $19 million in fictional equity from the six transactions at issue. Although this amount is fictional, the flagrant violations of the Act and the frequency of such violations are certainly grave."