cmplnt

Michael C. Loughney (ML) 6118

David C. Berry (DB) 8383

Lawrence H. Norton (LN) 2190

Associate Director for Enforcement

U.S Commodity Futures Trading Commission

1155 21st Street, N.W.

Washington, D.C. 20581

(202) 418-5320

Attorneys for Plaintiff

Ernesto Marrero, Jr. (EM) 5609

Eastern Regional Counsel

Eastern Region Headquarters

One World Trade Center, Suite 3747

New York, New York 10048

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

COMMODITY FUTURES TRADING COMMISSION,�

Plaintiff,�

vs.

HANOVER TRADING CORP., DUPONT GROUP, INC., MICHAEL SINGER AND WILLIAM DROGE,�

Defendants,�

and�

The Person known as "Jeffrey Roberts," the Person known as "Jim Hawkins," the Person known as "Jim Powers," the Person known as "Simon Tempelar," the Person known as "Richard Adams," the Person known as "Gary Fredricks," and the Person known as "Paul Aronowitz"�

Relief Defendants.

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�

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CIVIL ACTION NO. 98-CIV-1365

� COMPLAINT FOR PERMANENT INJUNCTIVE AND OTHER EQUITABLE RELIEF I.

INTRODUCTION

1. Beginning in November 1996 or earlier, defendants Hanover Trading Corporation, Inc. ("Hanover"), Dupont Group, Inc. ("Dupont"), Michael Singer ("Singer"), and William Droge ("Droge") have engaged in a fraudulent scheme to telemarket commodity futures contracts and to misappropriate customer funds. Droge and other Hanover telemarketers, acting in concert with Dupont and Singer, use high-pressure tactics and false claims of high profits with little or no risk to solicit investments in commodities such as unleaded gas, heating oil, and gold. Once customers send Hanover investment checks, Hanover does not purchase commodities as its telemarketers have promised; instead, defendants Hanover, Dupont, and Singer siphon off a substantial portion of customer funds as undisclosed fees, commissions, and interest charges, and make substantial payments from those and the remaining funds to the Relief Defendants and other individuals.

2. Defendants' fraudulent misrepresentations and misappropriation violate Section 4b(a)(i)-(iii) of Commodity Exchange Act, as amended ("Act"), 7 U.S.C. � 6b(a)(i-iii). Moreover, because these transactions are not consummated on or subject to the rules of any designated contract market, they also violate Section 4(a) of the Act, 7 U.S.C. � 6a.

3. Accordingly, pursuant to Section 6c of the Act, 7 U.S.C. � 13a-1, Plaintiff Commodity Futures Trading Commission ("Commission" or "Plaintiff") brings this action to enjoin the Defendants' unlawful acts and practices and to compel their compliance with the Act. In addition, the Commission seeks disgorgement of the defendants' and relief defendants' ill-gotten gains, restitution to customers of damages proximately caused by the defendants' violations, and such other relief as this Court may deem necessary or appropriate.

4. Unless restrained and enjoined by this Court, defendants are likely to continue to engage in the acts and practices alleged in this Complaint and in similar acts and practices, as more fully described below. JURISDICTION AND VENUE

5. The Act establishes a comprehensive system for regulating the purchase and sale of commodity futures contracts and options. This Court has jurisdiction over this action pursuant to Section 6c of the Act, 7 U.S.C. � 13a-1, which provides that whenever it shall appear to the Commission that any person has engaged, is engaging, or is about to engage in any act or practice constituting a violation of any provision of the Act or any rule, regulation, or order promulgated thereunder, the Commission may bring an action against such person to enjoin such practice or to enforce compliance with the Act.

6. Venue properly lies with this Court pursuant to Section 6c(e) of the Act, 7 U.S.C. � 13a-1(e), because the Defendants are found in, inhabit, or transact business in this District, and the acts and practices in violation of the Act have occurred, are occurring, or are about to occur within this District, among other places. THE PARTIES

7. Plaintiff Commission is an independent federal regulatory agency which is charged with the administration and enforcement of the Act, 7 U.S.C. �� 1 et seq.

8. Defendant Hanover Trading Corp. is a New York corporation currently located at 545 Eighth Ave., 16th Floor, SW, New York, New York, 10018. Hanover also receives correspondence at 134 West 32 St. Suite 609, New York, New York, 10001. The company was incorporated on November 18, 1996, and since that time Hanover has also operated at various times out of the following locations: 2 Rector St., 10th Floor, New York, New York, 10006 and 292 Fifth Ave, 4th Floor, New York, New York, 10001. At all times relevant to the complaint, Hanover has transacted business in the Southern District of New York.

9. Defendant Dupont Group, Inc. is a New York corporation controlled by defendant Singer. Dupont shares office space with Hanover at 545 Eighth Ave., 16th Floor SW, New York, New York 10018. Dupont is also located at 8 West 38th St., Apt. 823, New York, New York 10018. The company was incorporated on July 1, 1997. At all times relevant to the complaint, Dupont has transacted business in the Southern District of New York.

10. Defendant Michael Singer is the president of Hanover and Dupont. He has residential addresses at 166 East 34th St., Apt 16H, New York, New York 10016 and 2730 East 63rd St., Brooklyn, New York 11234. At all times material to this Complaint, acting alone or in concert with the other Defendants, Singer has formulated, directed, controlled, or participated in the illegal acts or practices described in this Complaint.

11. Defendant William Droge is an employee of Hanover. Droge has a residential address at 8 Welwyn Rd., Great Neck, New York 11021. At all times material to this Complaint, acting alone or in concert with the other Defendants, Droge has formulated, directed, controlled, or participated in the illegal acts or practices as described in this Complaint. On April 9, 1979, the United States District Court for the Southern District of New York issued a permanent injunction against Droge prohibiting him from engaging in acts or practices that are violations of the Act.

12. The Relief Defendants are those persons known as "Jeffrey Roberts," "Jim Hawkins," "Jim Powers," "Simon Tempelar," "Richard Adams," "Gary Fredricks," and, "Paul Aronowitz," all of whom have received funds which can be traced directly to Hanover's fraudulent activity and have been unjustly enriched through Hanover's illegal enterprise.

13. From November 1996 to the present, none of the Defendants has been registered with the Commission in any capacity. FACTUAL BACKGROUND

Nature of Hanover Investment Program

14. Beginning in November 1996 or earlier and continuing to the present (the "relevant period"), Defendants have engaged in a fraudulent scheme to sell by telephone, or "telemarket," an investment program which constitutes off-exchange futures contracts in unleaded gas, heating oil and precious metals. Through high-pressure sales tactics, Hanover telemarketers, including defendant Droge, attempt to convince prospective customers that they will reap substantial profits in a short time, with little or no risk, if they participate in the firm's investment scheme.

15. Hanover telemarketers claim they are offering investments in "physical" commodities, also referred to as investments in the "spot" market, in heating oil, unleaded gasoline, or precious metals. Hanover telemarketers tell customers that they will carefully monitor the market and instruct customers of the best time to liquidate their accounts for a profit.

16. In fact, customers are investing in futures contracts. The instruments they receive from Hanover contain the essential elements of a futures contract-- delivery in the future and ability to offset. Customers do not actually purchase the physical commodity but receive from Hanover a confirmation statement, coupled with a five-page boilerplate agreement, that informs them that their investments represent a deposit, or down-payment, giving them an interest in the commodity. Customers are not required to pay for the storage of any physical commodity, never anticipate taking delivery and do not take delivery. Similarly, Hanover does not purchase, and has neither the ability nor the intention of delivering the actual commodity to the customer. Rather, customers are told and Hanover documents instruct that to profit customers will need to sell, i.e., offset the purchase of, their investment at a future date.

17. Hanover's investment program contains further indicia of futures contracts. The terms of delivery, rules for margin calls, and other terms and conditions of Hanover's commodity purchasing program are standardized and contained in form contracts and account statements that Hanover provides to customers. However, unlike legitimate futures contracts, many, if not all customers learn for the first time about those key attributes of the investment in documents which Hanover furnishes only after customers have made their initial investments.

18. Hanover purports to offer investments in standardized commodity units -- for example, 10,000 gallons of heating oil or 20,000 gallons of unleaded gasoline.

19. Hanover customers have no commercial need for the commodities in which they are purportedly investing. Their sole objective is to profit from fluctuations in the commodity markets.

20. Hanover requires customers to make initial payments which customers later discover constitute a fixed percentage of the contract price (initial margin) and additional payments when the value of the commodity moves against the customers' positions (maintenance margin). According to documents Hanover supplies to customers after they make their investments, a customer's initial investment represents a down-payment of approximately 20 percent on the purchase of the commodity, with the balance of the purchase price purportedly financed by a Bahamian corporation. Hanover customers have been required to pay additional funds to meet a purported "equity call" on their investments with Hanover.

21. Hanover's commodity investment program constitutes futures contracts which are not made on or subject to the rules of a board of trade, exchange, or market located outside the United States, its territories or possessions.

Hanover's Fraudulent Telemarketing

22. Hanover telemarketers urge prospective customers to act quickly to capitalize upon what they depict as brief, but highly profitable investment opportunities. For example, in the spring and summer of 1997, Hanover telemarketers solicited customers to invest in unleaded gasoline by assuring them that the demand always drives the price higher during the summer. Likewise, in the fall and winter of 1997, Hanover telemarketers promoted investments in heating oil, promising customers that increased demand during the winter months routinely drives up the price of heating oil. Hanover telemarketers minimize the potential risk of such investments or do not mention it at all.

23. Hanover telemarketers persuade prospects that proper timing of this investment vehicle is so critical -- and the time of the solicitation is always the proper time for such an investment -- that Hanover will either arrange for couriers to pick up the investment check from customers, usually within hours, or Hanover will assist prospects in wiring funds to Hanover's account.

24. For most customers, it is only after they send money to Hanover that they receive account opening documentation, a document containing cursory descriptions that purport to inform customers of certain risks associated with Hanover's investment program. None of the customers receive the "Confirmation Statement" which discloses commissions, interest, fees and other key attributes of the Hanover investment, until after they send in their money. While Hanover telemarketers tell customers that their accounts will be assessed a fee of 15% of their investments, the "Confirmation Statement" furnished to customers after they invest discloses that the 15% fee is calculated not on the amount of their investment, but rather on the total value of the financed purchase. Moreover, the "Confirmation Statement" identifies other fees that telemarketers fail to disclose, including an "Annual Fee" of $100, a "New Account Fee" of $100, and a "Spread Fee Total" of $225 times the number of standardized units of the commodity which has been purchased by the customer. In total, Hanover takes approximately 45-50% in up-front commissions and fees.

25. The "Confirmation Statement" also states that its contents shall be "presumed correct" if the customer fails to object within 10 days of the date of the statement.

26. Along with the documents referenced above, Hanover sends customers "New Account Opening Forms" that purport to be from a Bahamian financing corporation. These documents include an application, Customer Account Agreement, Appointment of Independent Broker Dealer/Legal Representative, and Risk Disclosure Statement. None of the customers are required to sign and remit these documents either to the Bahamian financing corporation or to Hanover. Nonetheless, Hanover charges all customers monthly interest for the financing of their investments which the Bahamian financing corporation is purportedly providing.

27. In a matter of weeks or months after their initial investment, customers learn that they are losing money. Hanover issues an equity call informing the customer that the value of the investment purportedly has dropped to 10% or 12% of the total contract price. Telemarketers explain that additional money must be paid to maintain the customer's position. Fearing additional losses or equity calls due to a further drop in price, customers either send in the additional funds or liquidate their positions and terminate their investment with Hanover. In at least one instance, Hanover involuntarily liquidated a customer's position because of a purported decrease in equity.

28. When customers attempt to liquidate their accounts, they receive no response from Hanover or are confronted with admonitions such as "wait a couple of months and you will recover your money and a handsome profit" or "I will tell you when it is time to sell your position." Those customers who persist in their attempts to liquidate their accounts or threaten to contact law enforcement receive a liquidation or settlement check from Hanover which typically amounts to 20% to 25% of their initial principal investment.

29. Hanover's claims that its investment scheme will produce substantial profits and expose customers to little or no risk are false. Defendants' scheme has caused substantial injury to numerous customers.

Misappropriation of Customer Funds

30. During the relevant period, Hanover deposited customer funds into accounts at Fleet Bank in New York City. Of the $878,251 deposited into those accounts from January through December 31, 1997, at least $621,362 of those funds were customer checks sent via FedEx or sent by wire transfer. From January through December 31, 1997, Hanover's president, Michael Singer, wrote checks from the Hanover accounts totaling at least $608,950 to Relief Defendants and other individuals. Most of the purported commission checks were endorsed by the payee and countersigned by defendant Singer.

31. From January through December 1997, Hanover has also issued checks from its Fleet Bank account totaling at least $122,159 for operating expenses such as utilities, rent, and the purchase of customer lead lists. Of that amount, $85,559 has been paid directly from Hanover accounts. Another $36,600 was paid indirectly by Hanover by transferring funds to another Fleet Bank account in the name of defendant Dupont and then paying the expenses with checks drawn on the Dupont account. Singer, who is the president and sole shareholder of both firms, is the signer on both accounts, and he has funded Dupont entirely through funds transferred from Hanover accounts.

32. Hanover and Dupont operate a "common enterprise." Dupont is controlled by defendant Singer, shares office space with Hanover at 545 Eighth Ave., 16th Floor, SW, New York, New York 10018 maintains a bank account controlled by Singer that is funded with transfers of money from Hanover, operates a futures account at Jack Carl Futures with money transferred from Hanover, and pays Hanover's operating expenses with funds transferred to Dupont from Hanover's account.

33. Hanover has forwarded to the Bahamian financing corporation minimal amounts of customer funds. Upon information and belief, the Bahamian financing corporation does not in fact purchase and hold commodities on behalf of Hanover customers. Moreover, upon information and belief, Hanover has not made a single payment from the Fleet Bank accounts for the purchase of physical commodities. VIOLATIONS OF THE COMMODITY EXCHANGE ACT Count One VIOLATIONS OF SECTION 4b(a)(i)-(iii) of the Act, U.S.C. � 6b(a)(i)-(iii) Fraud in Connection with Orders to Make Commodity Futures Contracts

34. Paragraphs 1 through 33 are realleged and incorporated herein by reference.

35. Beginning in November 1996 or earlier and continuing to the present, Defendants Hanover, Dupont, Singer, and Droge, in or in connection with orders to make, or the making of, contracts of sale of commodities for future delivery, made, or to be made, for or on behalf of any other persons, where such contracts for future delivery were or could be used for the purposes set forth in Section 4b(a) of the Act, 7 U.S.C. 6b(a), have: (i) cheated or defrauded or attempted to cheat or defraud other persons; (ii) willfully made or caused to be made to other persons false reports or statements thereof, or willfully entered or caused to be entered for other persons false records thereof; or (iii) willfully deceived or attempted to deceive other persons, all in violation of Sections 4b(a)(i)-(iii) of the Act, 7 U.S.C. �� 6b(a)(i)-(iii).

36. Specifically, Hanover, Dupont, and Droge have engaged in a wide range of misrepresentations and omissions concerning facts that are material to the investment decisions of customers and potential customers in violation of Section 4b, including but not limited to:

(a) false representations that Hanover made money for its customers last year;

(b) false representations that Hanover customers will reap substantial profits in a short period of time;

(d) false representations that Hanover's investment program involves little or no risk;

(e) false representations that Hanover will use customer funds for the purchase of commodities; and

37. Defendants Hanover, Dupont, and Singer have misappropriated customer funds in violation of Section 4b(a)(i). Once customers send Hanover investment checks, Hanover does not purchase commodities or establish positions in the futures markets sufficient to cover customers' deposits; instead, defendants Hanover, Dupont, and Singer siphon off a substantial portion of the funds Hanover receives as undisclosed fees, commissions, and interest charges, and make substantial payments to the Relief Defendants and other individuals.

38. Defendants Hanover and Dupont have issued false reports to customers in violation of Section 4b(a)(ii) that serve to hide Hanover's misappropriation of customer funds. According to Hanover confirmation statements, 50-55% of the total amount invested by customers represented the customers' "segregated account balance." These statements are false. There is no customer segregated account, and because Hanover has misappropriated the majority of customer funds, there is only a minimal amount of money in Hanover's bank account.

39. From November 1996 or earlier and continuing to the present, defendant Dupont willfully aided, abetted, counseled, commanded, induced, or procured the commission of, or acted in combination or in concert with defendant Hanover or willfully caused acts to be done or omitted which when directly performed or omitted constituted Hanover's violations described in this Count One. Pursuant to Section 13(a) of the Act, 7 U.S.C. �13c(a), therefore, Dupont aided and abetted Hanover's violations of Section 4b(a)(i)-(iii) of the Act, 7 U.S.C. � 6b(a)(i)-(iii), as described in this Count One.

40. From November 1996 or earlier and continuing to the present, defendant Singer, as principal, officer and shareholder of Hanover and Dupont, directly or indirectly controlled Hanover and Dupont; and he did not act in good faith or he knowingly induced, directly or indirectly, the acts constituting the violations described in this Count One. Pursuant to Section 13(b) of the Act, 7 U.S.C. � 13c(b), therefore, Singer is liable for the violations of Section 4b(a)(i)-(iii) of the Act, 7 U.S.C. � 6b(a)(i)-(iii), as described in this Count One, to the same extent as Hanover and Dupont. Count Two VIOLATIONS OF SECTION 4(a) of the Act, U.S.C. � 6(a) Offer and Sale of Off-Exchange Commodity Futures Contracts

41. Paragraphs 1 through 33 are realleged and incorporated herein by reference.

42. The investment program marketed and sold by Hanover constitutes contracts for the purchase and sale of a commodity for future delivery, commonly known as futures contracts.

43. The physical products which are the subjects of the futures contracts offered by Hanover are commodities as defined by Section 2(a)(1)(A) of the Act, 7 U.S.C. � 2.

44. Since November 1996 or earlier and continuing to the present, Defendants Hanover and Droge have offered to enter into, entered into, executed, confirmed the execution of, and conducted an office and/or business in the United States for the purpose of soliciting and/or accepting orders for, or otherwise dealing in, transactions in, or in connection with, contracts for the purchase or sale of a commodity for future delivery (other than a contract which is made or subject to the rules of a board of trade, exchange, or market located outside the United States, its territories, or possessions) when:

(a). such transactions have not been conducted on or subject to the rules of a board of trade which has been designated by the Commission as a "contract market" for such commodity; and,

(b). such contracts have not been executed or consummated by or through a member of such contract market;

in violation of Section 4(a) of the Act, 7 U.S.C. � 6(a).

45. From November 1996 or earlier and continuing to the present, defendant Dupont willfully aided, abetted, counseled, commanded, induced, or procured the commission of, or acted in combination or in concert with Hanover or willfully caused acts to be done or omitted which when directly performed or omitted constituted defendant Hanover's violations described in this Count Two. Pursuant to Section 13(a) of the Act, 7 U.S.C. �13c(a), therefore, Dupont aided and abetted Hanover's violations of Section 4(a) of the Act, 7 U.S.C. � 6(a) as described in this Count Two

46. From November 1996 or earlier and continuing to the present, defendant Singer, as principal, officer and shareholder of Hanover and Dupont, directly or indirectly controlled Hanover and Dupont; and he did not act in good faith or knowingly induced, directly or indirectly, the acts constituting the violations described in this Count One. Pursuant to Section 13(b) of the Act, 7 U.S.C. � 13c(b), therefore, defendant Singer is liable for the violations of Section 4(a) of the Act, 7 U.S.C. � 6(a), as described in this Count Two, to the same extent as Hanover and Dupont. Count Three DISGORGEMENT OF THE ASSETS OF THE RELIEF DEFENDANTS

47. Paragraphs 1 through 33 are realleged and incorporated herein by reference.

48. Defendants have committed a fraud upon Hanover customers in connection with the purchase and sale of commodity futures contracts as alleged herein.

49. The Relief Defendants have received funds or otherwise benefited from funds which are directly traceable to the funds Defendants obtained from customers through fraud; in the following amounts: Aronowitz at least $58,558 ; Roberts at least $139,112; Hawkins at least $113,763; Powers at least $84,888; Tempelar at least $73,735; Adams at least $39,900; Fredricks at least $30,485.

50. Customers who sent money for the purpose of investing with Hanover were defrauded, and certain of these customer funds are directly traceable to the checks written to the Relief Defendants.

51. The Relief Defendants are not bona fide purchasers with legal and equitable title to the customers' funds and Relief Defendants will be unjustly enriched if they are not required to disgorge the funds or the value of the benefit they received as a result of Defendants' fraud.

52. The Relief Defendants should be required to disgorge the funds or the value of the benefit they received which is traceable to the Defendants' fraud.

53. By reason of the foregoing, Relief Defendants hold the customers' funds in a constructive trust for the benefit of the customers. VI. RELIEF

WHEREFORE, the Commission respectfully requests that this Court, as authorized by Section 6c of the Act, 7 U.S.C. � 13a-1 (1994), and pursuant to its own equitable powers, enter:

a. a permanent injunction prohibiting the defendants and any other person or entity associated with them from engaging in conduct violative of the provisions of the Act they are alleged to have violated, and from engaging in any commodity-related activity, including soliciting new customers or customer funds; and

b. remedial ancillary relief which under the circumstances the Court may deem appropriate.

Respectfully submitted,

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