Division of Enforcement
The Division of Enforcement (Division) investigates and prosecutes alleged violations of the Commodity Exchange Act (CEA or Act) and Commission regulations. The Division takes enforcement action against individuals and firms registered with the Commission, those who are engaged in commodity futures and option trading on designated domestic exchanges, and those who improperly market futures and option contracts.
The Work of the Division of Enforcement
The Division bases investigations on information it develops independently, as well as information referred by other Commission divisions; industry self-regulatory organizations; State, Federal, and international authorities; and members of the public. At the conclusion of an investigation, the Division may recommend that the Commission initiate administrative proceedings or seek injunctive and ancillary relief on behalf of the Commission in Federal court. Administrative sanctions may include orders suspending, denying, revoking, or restricting registration and exchange trading privileges and imposing civil monetary penalties, cease and desist orders, and orders of restitution. The Commission also may obtain temporary restraining orders and preliminary and permanent injunctions in Federal court to halt ongoing violations, as well as civil monetary penalties. Other relief may include appointment of a receiver, the freezing of assets, restitution to customers, and disgorgement of unlawfully acquired benefits. The CEA also provides that the Commission may obtain certain temporary relief on an ex parte basis (that is, without notice to the other party), including restraining orders preserving books and records, freezing assets, and appointing a receiver. When those enjoined violate court orders, the Division may seek to have the offenders held in contempt.
When the Division obtains evidence that criminal violations of the CEA have occurred, it may refer the matter to the Department of Justice for prosecution. Criminal activity involving commodity-related instruments can result in prosecution for criminal violations of the CEA and for violations of other Federal criminal statutes, including mail fraud, wire fraud, and conspiracy. The Division provides expert help and technical assistance with case development and trials to U.S. Attorneys' Offices, other Federal and State law enforcement agencies, and international authorities. The Commission and individual states may join as co-plaintiffs in civil injunctive actions brought to enforce the CEA.
Enforcement Statistical Summary: Fiscal Year 2000
During FY 2000, the Commission instituted 12 civil injunctive actions and 41 administrative proceedings, which included 6 statutory disqualification actions. The following sanctions became final during FY 2000. These include sanctions assessed in settled matters and unappealed decisions of the Commission, U.S. district courts, or U.S. courts of appeals. The results obtained by the Division in civil injunctive proceedings in FY 2000 included: ex parte restraining orders against 33 defendants; preliminary injunctions against 56 defendants; permanent injunctions against 70 defendants; the appointment of 3 equity receivers; the assessment of over $115 million in civil monetary penalties against a total of 18 defendants; and approximately $134 million in restitution and disgorgement ordered against a total of 61 defendants. The results obtained by the Division in administrative proceedings included: cease and desist orders against 73 respondents; trading prohibitions against 25 respondents; the imposition of registration suspensions, denials, or revocations against 25 respondents; the assessment of approximately $7.5 million in civil monetary penalties against 42 respondents; and approximately $22 million in restitution ordered against eight respondents.
Enforcement Highlights: Fiscal Year 2000
Beyond the numbers, much of the Commission's work in fighting fraud this year combined the remedial and deterrent effects of its enforcement actions with a simultaneous public education initiative that included the issuance of new Consumer Advisories warning potential customers of the perils of certain commodity-related activities. The Commission also prosecuted related injunctive and administrative enforcement proceedings to combat a scheme involving fraudulent trade allocation on the Chicago Board of Trade (CBOT). The significant developments in FY 2000 are as follows:
Internet Project. In FY 2000, the Commission demonstrated its continuing commitment to respond when new methods, such as the Internet, are used as the means to cheat or defraud the public. These new methods enable malefactors to solicit business fraudulently from millions of people quickly and cheaply. To combat this threat, the Commission's Enforcement program employed: 1) coordinated filings of enforcement actions to send an enhanced message to both wrongdoers and the public; 2) enhanced consumer education in the publication of a new Consumer Advisory warning the public about potentially deceptive websites; 3) domestic and international cooperative surveillance, or "Internet Surfs;" and 4) training of international enforcement agencies in the investigation and litigation of Internet-related fraud actions.
On May 1, 2000, the Commission announced the initial results of a coordinated enforcement initiative with the Federal Trade Commission (FTC) and the Securities and Exchange Commission (SEC) aimed at cleaning up Internet websites. As part of this Internet Project, the Commission filed and simultaneously settled 10 administrative enforcement actions involving targeted websites that fraudulently promoted commodity trading systems and advisory services to the general public. On September 6, 2000, the Commission filed and simultaneously settled administrative enforcement actions in a second sweep against four additional promoters of commodity trading systems using the Internet, and filed a civil injunctive action against a fifth. In some of these cases, respondents claimed that they personally profited by trading using their systems when in fact they either never traded or lost money trading. Others claimed that customers had exceptional profits when in fact the customers had not made such profits or had lost money using the trading systems. Some respondents did not make adequate risk disclosures. Others presented profitable hypothetical trades as actual trades and did not include the required disclaimer concerning the limitations of hypothetical trading. By filing these cases in a coordinated Internet sweep, the Commission achieved the removal or clean-up of targeted websites. The Commission also sent the message that fraud on the Internet will be prosecuted as vigorously as fraud that is committed through more traditional media.
The Commission's Internet Project also included a parallel and equally important public education initiative. On the same date that the first sweep cases were filed, the Commission issued a Consumer Advisory warning the public about Internet websites selling commodity trading systems that guarantee high profits with minimal risk. The Advisory warns consumers that: commodity futures and options are typically high risk endeavors; no computer trading system can guarantee profits; and the hypothetical results used by many trading system promoters to advertise their systems can be unreliable. This Consumer Advisory is available on the Commission's Internet website along with other Advisories concerning possible fraudulent activity in the commodity futures and option industry (http://www.cftc.gov/cftc/cftccustomer.htm).
In addition, during the week of February 28, 2000, the Commission participated with law enforcement and consumer protection agencies from 27 countries in an interagency Internet Surf. The Commission alone examined approximately 300 Internet websites and identified dozens for follow-up review. On March 28, 2000, the Commission participated in an Internet Surf day organized by the International Organization of Securities Commissions (IOSCO) that included the participation of 21 regulators in 18 countries.
On June 15-16, 2000, the Commission and the SEC jointly hosted a second Internet Surveillance Training Program for relevant enforcement staff from IOSCO's Working Party on Enforcement and Exchange of Information (WP4) members. The program was held at the Commission's Washington, DC, headquarters. The Commission reached out to foreign as well as domestic authorities, such as the Federal Bureau of Investigation (FBI), to share knowledge and experiences at the training program. Twenty-two participants from 19 jurisdictions attended the program.
Fraud in Connection with Illegal Commodity Contracts. During FY 2000, the Commission continued to coordinate enforcement actions with public education efforts with respect to wrongdoers who illegally market futures contracts to the general public. The Commission brought enforcement actions against those who fraudulently solicit customers for what are purported to be financed speculative purchases of precious metals and other commodities, but which are, in fact, illegal futures or option contracts. During FY 2000, the Commission brought two civil injunctive actions charging defendants with this type of misconduct: CFTC v. IBS, Inc., et al., No. 3:00 CV 103-V (W.D.N.C. filed Mar. 13, 2000); and CFTC v. National Bullion and Coin, Inc., et al., No. 00-6885 CIV-ZLOCH (S.D. Fla. filed June 28, 2000).
The Commission also issued a Consumer Advisory addressing this issue on July 5, 2000. This Advisory warns the public of companies that purportedly sell investments in precious metals and other commodities based on sales pitches fraudulently claiming that customers can make a lot of money, with little risk, by purchasing metal through a financing agreement. In the Advisory, the Commission warns that companies making such sales pitches often: overstate profit potential while minimizing the risk involved; falsely claim that they are purchasing and storing the metal; and charge phony "storage" and "interest" fees. This Consumer Advisory is available on the Commission's website.
Fraudulent Trade Allocation. During FY 2000, the Commission successfully concluded related injunctive and administrative enforcement proceedings involving a significant fraudulent trade allocation scheme in U.S. Treasury bond futures and option contracts at the CBOT. In November 1999, the Commission filed a civil injunctive action against an introducing broker (IB), Capital Insight Brokerage, Inc. (Capital Insight), and its president, owner, and associated person (AP), S. Jay Goldinger. The complaint alleged that Goldinger and Capital Insight purposefully failed to provide account numbers when they entered their orders with their futures commission merchant (FCM), Refco, Inc. (Refco). They provided the needed account numbers only after they knew the prices at which the trades had been confirmed, which allowed them to allocate profits and losses among their customers. They also allocated trades by transferring certain trades between customer accounts after the trades were executed. On November 12, 1999, the district court entered a consent order of permanent injunction (to which the defendants consented without admitting or denying liability) that permanently enjoined Capital Insight and Goldinger from further violations of the Act and regulations, as charged, and ordered them to pay $6 million in disgorgement.
Goldinger and Capital Insight entered their orders through Refco's phone desk on the floor of the CBOT that was supervised by Refco salesperson Constantine Mitsopoulos. In September 1999, the Commission filed an administrative complaint against Mitsopoulos, a registered floor broker (FB), and three phone clerks who worked for Mitsopoulos, Margaret Dull, Richard Marisie, and Lisa Budicak, based on their role in the fraudulent trade allocation scheme. In a series of orders issued in April and September 2000, the Commission accepted offers of settlement from Mitsopoulos and the phone clerks who, without admitting or denying liability, consented to the entry of orders finding that they failed to comply with order taking and recordkeeping requirements by not obtaining account identification information at the time they received orders from Capital Insight, and by changing the account identification on trades already assigned to a customer account. These cases, and the sanctions imposed, are discussed in more detail below.
Enforcement Cases Filed and Results Achieved During FY 2000
The cases filed, and the results achieved, by the Commission's Enforcement program during FY 2000 are described below.
Internet Project Cases
On May 1, 2000, the Commission announced the initial results of a coordinated enforcement initiative aimed at cleaning up Internet websites that fraudulently promote commodity trading systems and advisory services to the general public. As part of the initiative, the Commission, together with the FTC and the SEC, coordinated the filing and simultaneous settlement of the following 10 administrative enforcement actions. The respondents, without admitting or denying the findings, consented to the entry of Commission orders that directed them to cease and desist from further violations, as charged, and that further ordered them to comply with their undertakings to: not misrepresent the risks or results associated with any commodity futures or option trading system or advisory notice; not present hypothetical trading performance without a disclaimer; and not make any representation regarding the financial benefits of any trading system or advisory notice without first prominently disclosing that futures trading involves high risks with the potential for substantial losses. Civil monetary penalties of $10,000 were imposed against all respondents except those who demonstrated a financial inability to pay the penalty based upon evidence of their financial condition, including a sworn financial disclosure statement.
- In re Mohamed Najib Taybi, CFTC Docket No. 00-12 (CFTC filed May 1, 2000). From November 1998 to March 2000, fraudulent solicitation of customers for system for trading Japanese yen futures contracts.
- In re Michael P. Calo d/b/a First Financial Trading, CFTC Docket No. 00-17 (CFTC filed May 1, 2000). From early 1996 through December 1999, fraudulent solicitation of customers for newsletter providing futures trading recommendations and the purported results of prior futures trading recommendations.
- In re Ellery Coleman d/b/a Granite Investments, CFTC Docket No. 00-16 (CFTC filed May 1, 2000). From July 1998 until May 2000, fraudulent solicitation of customers for various products and services to assist customers in day trading S & P 500 futures contracts, including computer-run commodity trading systems and on-line training.
- In re Paul B. Judd, CFTC Docket No. 00-13 (CFTC filed May 1, 2000). From 1997 until February 2000, fraudulent solicitation of customers to purchase a commodity option trading course and a fax advisory service.
- In re Oasis Publishing Corporation, et al., CFTC Docket No. 00-09 (CFTC filed May 1, 2000). From at least 1996 until May 2000, fraudulent solicitation of customers for training, "daily educational market updates," and advisory services to assist in the trading of futures contracts.
- In re Eron Demian Read d/b/a New Age Trading Techniques, et al., CFTC Docket No. 00-14 (CFTC filed May 1, 2000). From November 1999 until May 2000, fraudulent solicitation of customers for commodity futures day-trading system and related services.
- In re Christopher Salter d/b/a Christopher Fenwick, CFTC Docket No. 00-18 (CFTC filed May 1, 2000). Fraudulent solicitation of customers for a home-study futures trading course.
- In re Ronald J. Schoemmell, et al., CFTC Docket No. 00-10 (CFTC filed May 1, 2000). From November 1998 until May 2000, fraudulent solicitation of customers for commodity trading course and methodology.
- In re John B. Reily, CFTC Docket No. 00-11 (CFTC filed May 1, 2000). From 1998 until February 2000, fraudulent solicitation of customers for commodity futures and option trading course and system.
- In re Trendy Systems, LLC, et al., CFTC Docket No. 00-15 (CFTC filed May 1, 2000). From 1996 until March 2000, fraudulent solicitation of customers for access to five computer-run commodity futures trading systems.
On September 6, 2000, the Commission filed and simultaneously settled similar enforcement actions against four additional promoters of commodity trading systems using the Internet. In each of these actions, the Commission found that the promoters made fraudulent claims on the Internet concerning the extraordinary profits to be realized by using their systems to trade commodity futures or option contracts. The respondents, without admitting or denying the findings, consented to the entry of Commission orders that directed them to: 1) cease and desist from further violations, as charged; 2) make no unsubstantiated profit or risk claims; 3) pay civil monetary penalties, unless they demonstrated that they did not have the financial ability to pay such a penalty; and 4) as to respondent Moore, suspend his registration with the Commission for a six-month period.
- In re Stanley Edward Moore, CFTC Docket No. 00-31 (CFTC filed Sept. 6, 2000). From March 1999 to June 2000, fraudulent marketing to customers of system for trading S & P 500 futures contracts and other instruments.
- In re International Trading Systems, Ltd., et al., CFTC Docket No. 00-28 (CFTC filed Sept. 6, 2000). From at least November 1998 until July 2000, fraudulent marketing to U.S. customers of software programs that generate recommendations for trading commodity futures contracts on U.S. boards of trade.
- In re Edward Martin d/b/a Black Gold International, CFTC Docket No. 00-30 (CFTC filed Sept. 6, 2000). From late 1999 to August 2000, fraudulent marketing of subscriptions to an advisory service and trading systems that furnish subscribers with recommendations regarding commodity futures and option trading.
- In re George Heffernan d/b/a Accutrader, et al., CFTC Docket No. 00-29 (CFTC filed Sept. 6, 2000). From at least June 1999 to April 2000, fraudulent marketing to customers of a commodity futures day trading system and course of instruction.
Also on September 6, 2000, the Commission a civil injunctive action against the developer of a commodity trading system marketed to the general public, in part, on the Internet. In CFTC v. Alsafari, the Commission filed a civil injunctive action against Abdullah Alsafari, a/k/a Vincent, Vincenta or Vicenta Alsafari. The Commission complaint alleged that Alsafari fraudulently sold his Japanese yen futures trading system via the Internet and through advertisements in newspapers and demonstrations at local hotels. Specifically, the Commission complaint alleged that Alsafari defrauded customers by guaranteeing profits from the use of his system and by guaranteeing but failing to provide refunds to customers who did not make money. According to the complaint, Alsafari's customers, each of whom paid $3,500 for the trading system, all lost money trading with the system and all but one failed to receive the purchase price refund guaranteed by Alsafari. CFTC v. Alsafari, No. C-00-3202 (N.D.Cal. filed Sept. 6, 2000). On the same date the complaint was filed, the court entered a statutory and temporary restraining order that prohibited the destruction of, and ordered that the Commission be given access to, defendant's books and records, and enjoined defendant from violating the Act and Commission regulations, as charged. CFTC v. Alsafari, No. C-00-3202, Statutory and Temporary Restraining Order, Order for Expedited Discovery and Order to Show Cause Re: Preliminary Injunction (N.D.Cal. entered Sept. 6, 2000).
Quick-Strike Cases
The Commission is committed to responding quickly to enforcement investigations that uncover ongoing fraud. Quick-strike cases are civil injunctive actions that generally are filed in Federal district courts within days or weeks of the discovery of the illegal activity, enabling the program to stop fraud at an early stage and to attempt to preserve customer funds.
- CFTC v. Mobley, et al. In February 2000, the Commission filed a civil injunctive action against David Mobley, Sr., and several entities owned or controlled by Mobley. The complaint alleged that the defendants carried out a $59 million fraud on more than 170 investors in funds managed by Mobley and various of his entities. The complaint further alleged that: the defendants, while operating as commodity pool operators (CPOs), failed to disclose to investors that their funds would be traded in commodity futures and options; Mobley caused certain defendants to issue reports to investors that fraudulently overstated the profitability of their investments, while concealing that substantial losses had resulted from trading investor funds in commodity contracts; and Mobley misappropriated investors' funds and converted them for his own use and benefit to support a lavish lifestyle for himself and his family and associates, including an expensive vacation home near Vail, Colorado, sports cars, expensive jewelry, and trips on private jets. CFTC v. Mobley, et al., No. 00 Civ. 1317 (RCC) (S.D.N.Y. filed Feb. 22, 2000). On the same date that the complaint was filed, the district court entered a consent order of preliminary injunction and statutory restraining order freezing the defendants' assets and preserving books and records and making them available to the Commission. CFTC v. Mobley, et al., No. 00 Civ 1317 (RCC), Consent Order of Preliminary Injunction and Statutory Restraining Order (S.D.N.Y. entered Feb. 22, 2000). Two days later, the district court entered a consent order appointing a receiver. CFTC v. Mobley, et al., No. 00 Civ. 1317 (RCC), Order Appointing Receiver on Consent (S.D.N.Y. entered Feb. 24, 2000, amended June 21, 2000).
- CFTC v. Konkel. In May 2000, the Commission filed a civil injunctive action against Michael James Konkel, who was registered as an AP of an IB from October 1996 to approximately February 1999. The complaint alleged that Konkel, from 1996 through the time the complaint was filed, defrauded at least 15 individuals who invested at least $640,000 in a pooled investment vehicle that he purported would be invested in different areas, including commodity futures. Konkel was alleged to have fraudulently solicited prospective customers by falsely claiming that the fund had positive trading results; that "the commodity pool . . . is at the CFTC and National Futures Association (NFA) for regulatory approval;" and that investor funds would be guaranteed. Konkel is further alleged to have: commingled investor monies by depositing them into several personal accounts; provided false and misleading account statements to investors; and failed to deliver the required disclosure documents to his prospective customers. CFTC v. Konkel, No. 00-T-547-S (M.D.Ala. filed May 1, 2000). On the same date that the complaint was filed, the court entered an ex parte restraining order freezing the defendants' assets and preserving (and allowing the Commission access to) books and records. CFTC v. Konkel, No. 00-T-547-S, Ex Parte Statutory Restraining Order Freezing Assets, Preserving Books and Records, and Allowing Commission Staff Access to Books and Records (M.D.Ala. entered May 1, 2000). In July 2000, the court entered a consent order of preliminary injunction in the case. Konkel was enjoined from violating the Act or Commission regulations. The court also ordered that the May 1, 2000 Statutory Restraining Order remain in effect and that Konkel file with the court and serve upon the Commission an accounting or other statement under oath of all assets. CFTC v. Konkel, No. 00-T-547-S, Consent Order of Preliminary Injunction and Other Equitable Relief (M.D.Ala. entered July 10, 2000).
- CFTC v. Ferguson. In July 2000, the Commission filed a civil injunctive action against Phillip Ferguson individually and d/b/a Ferguson Financial, B & F Trading, and First Investor's Group, Inc., charging fraud and registration violations of the Act and Commission regulations in connection with Ferguson's operation of at least two commodity pools. The Commission's complaint alleged that, since at least 1997 and continuing through the filing of the complaint, Ferguson fraudulently solicited and accepted millions of dollars from the general public to participate in at least two commodity pools, and failed to register as a CPO. The complaint also alleged that Ferguson issued false "Trade Logs" to at least one pool investor that showed fictitious daily trading of commodity futures contracts and a false account balance. In addition, the complaint charged that Ferguson refused to provide requested books and records concerning the two commodity pools to the Commission under its inspection powers, in violation of Commission regulations. CFTC v. Ferguson, No. 1:00-CV-0300 (N.D.Ind. filed July 11, 2000).
On the same date that the complaint was filed, the court entered an ex parte preliminary injunction and restraining order enjoining Ferguson from destroying, and refusing to allow the Commission to inspect, books and records, and imposing an asset freeze. CFTC v. Ferguson, No. 1:00-CV-0300, Preliminary Injunction and Restraining Order (N.D.Ind. entered July 11, 2000). The court subsequently entered a preliminary injunction against Ferguson enjoining him from further violations, as charged; soliciting new customers for commodity futures or option trading or soliciting new deposits of funds from existing customers; and destroying, and failing to allow the Commission access to, books and records. Ferguson's assets were frozen, he was ordered to make a full accounting, and a permanent receiver was appointed. CFTC v. Ferguson, No. 1:00-CV-0300, Preliminary Injunction order (N.D.Ind. entered July 20, 2000).
- CFTC v. Brockbank, et al. In August 2000, the Commission filed a civil injunctive action against Stephen W. Brockbank, Carol J. Love, and BIRMA Ltd., charging fraud, commingling, and registration violations of the Act and Commission regulations in connection with the operation of at least one commodity pool. The Commission complaint alleged that, since at least 1997 and continuing through the time the complaint was filed, the defendants misappropriated investor funds by depositing over $1 million in accounts in the names of Love or BIRMA, issued false statements to investors, failed to register as CPOs, and failed to establish the pool as a legal entity separate from the pool operators. CFTC v. Brockbank, et al., No. 2:00CV00622ST (D.Utah filed Aug. 8, 2000). On the same date that the complaint was filed, the court entered an ex parte restraining order freezing the defendants' assets and preserving books and records. CFTC v. Brockbank, et al., No. 2:00CV00622ST, Statutory Ex Parte Restraining Order (D.Utah entered Aug. 8, 2000). In September 2000, the court entered a preliminary injunction against the defendants that: enjoined them from further violations, as charged, and from accepting funds for commodities trading; required them to repatriate all offshore assets in their names or under their control; and continued the asset freeze against the defendants. CFTC v. Brockbank, et al., No. 2:00CV00622ST, Preliminary Injunction and Other Ancillary Relief (D. Utah entered Sept. 25, 2000).
Violations Involving Managed Funds or Marketing of Trading Systems
Recent years have seen increases in both the number of customers participating in the futures and option markets and the amount of customer funds under management. During FY 2000, the Commission prosecuted the following enforcement actions against those acting as CPOs and commodity trading advisors (CTAs) who sought to exploit this growth through fraudulent schemes and other violations involving managed funds and/or the marketing of trading systems.
Pool Fraud
- In re Velissaris. In December 1999, the Commission filed an order instituting administrative proceedings and simultaneously accepting an offer of settlement from George W. Velissaris, the sole managing partner of ACG Partners, LP (ACG). In its order, the Commission found that Velissaris fraudulently operated two successive commodity pools, ACG I and ACG II, from March 1996 through July 1998. The order further found that Velissaris misrepresented the profitability of the commodity pools when soliciting investors, misappropriated investor funds, and issued statements to investors that falsely represented that the pools were profitable. The order found that Velissaris fraudulently solicited at least $323,000 from investors, lost approximately $61,000 trading commodity futures, and misappropriated at least $99,000. Velissaris, without admitting or denying the findings, consented to the entry of the Commission order that: directed him to cease and desist from further violations, as charged; imposed a permanent trading ban; ordered him to pay $114,203.93 in restitution, pursuant to a payment plan based on his future income; and ordered him to comply with his undertaking never to apply for registration or engage in any activity requiring such registration. In re Velissaris, CFTC Docket No. 00-02 (CFTC filed Dec. 16, 1999).
- In re Kim, et al. In June 2000, the Commission filed an order instituting administrative proceedings and simultaneously accepting offers of settlement from Houston System Trading, LLC (HST), which operated three commodity pools and several managed accounts; Seungho Kim, who was the president and sole owner of HST; and John Ki Park, who was a registered AP of an IB at the relevant time. The order found that HST and Kim fraudulently solicited pool participants and client accounts by representing that investors' losses would be limited to 20 percent of their initial investment; misrepresenting the trading track record of HST and Kim; and misrepresenting hypothetical trading results as actual trading results. The order further found that Park aided and abetted HST and Kim by repeating to certain HST investors the loss limit and trading record misrepresentations. Finally, the order found that Kim and HST failed to register with the Commission, and that HST failed to make required reports to pool participants and failed to make and keep required books and records. The respondents, without admitting or denying the findings, consented to the entry of the Commission order that: directed them to cease and desist from further violations, as charged; imposed a six-month trading ban; suspended Park's AP registration for six months; ordered Kim and Park to pay restitution of $100,498 and $41,200, respectively, pursuant to a payment plan based on their future income; ordered Kim and Park to pay civil monetary penalties of $50,000 and $35,000, respectively, pursuant to a payment plan contingent upon their fulfillment of their restitution obligations; ordered Park to comply with his undertaking to, for a period of five years, neither act as a principal, partner, officer, or branch manager of an entity registered or required to be registered with the Commission, nor act in any supervisory capacity over any person registered or required to be registered. In re Kim, et al., CFTC Docket No. 00-24 (CFTC filed June 29, 2000).
- CFTC v. Dormagen, et al. In July 2000, the Commission filed a civil injunctive action against Robert L. Dormagen and Delta Financial Corporation (Delta Financial), charging them with fraud and registration violations of the Act and Commission regulations. Dormagen was the sole principal of Delta Financial, and neither Dormagen nor Delta Financial has ever been registered with the Commission in any capacity. The Commission's complaint alleged that Dormagen fraudulently operated a commodity pool and defrauded 11 pool participants of approximately $175,300 by misappropriating and converting pool funds, distributing false account statements, and making material misrepresentations to pool investors. Dormagen also was charged with acting as an unregistered FCM by soliciting and accepting at least $165,000 from five individuals to trade commodity futures and option contracts on their behalf. Delta Financial was charged with acting as an unregistered FCM and, based on Dormagen's actions as its agent, allegedly using at least $125,000 of one customer's funds in unauthorized commodity futures and option trading without the customer's knowledge. CFTC v. Dormagen, et al., No. 6:00-0567 (S.D.W.Va. filed July 3, 2000). In August 2000, without admitting or denying the allegations in the complaint, the defendants consented to the entry of a consent order of preliminary injunction that prohibited them, among other things, from violating the anti-fraud and registration provisions of the Act and the Commission's regulations. CFTC v. Dormagen, et al., No. 6:00-0567 Consent Order of Preliminary Injunction and Other Equitable Relief (S.D.W.Va. entered August 18, 2000).
- In re Billings, et al. In July 2000, the Commission filed an order instituting administrative proceedings and simultaneously accepting offers of settlement from William G. Billings and his company, Billfund, Inc. The Commission order found that respondents fraudulently operated three commodity pools at various times from 1988 through 1997, during which time Billings and Billfund, Inc. were registered with the Commission as CPOs. The order found that the three commodity pools collectively took in approximately $1.64 million from more than 40 pool participants and that Billings misappropriated approximately $409,000 for his personal use. Respondents consented to the entry of the Commission order that permanently prohibited them from trading on any contract market and required them to: pay a civil monetary penalty of up to $400,000 pursuant to a payment plan based on future income; cease and desist from further violations, as charged; never apply for registration, seek exemption from registration, or engage in any activity requiring registration or exemption from registration. In re Billings, et al., CFTC Docket No. 00-25 (CFTC filed July 17, 2000).
- In re Pension America, Inc., et al. In September 2000, the Commission filed a civil injunctive action against Leonard G. Nauman d/b/a Nauman Advisory Services, Edward Stevenson Kirris III, William J. Relf, several corporate defendants, and relief defendant, Kidz First International, Inc. (KFI). None of the defendants are currently registered with the Commission in any capacity. The complaint alleged that, since at least April 1997, Nauman, Kirris, and Relf solicited, accepted, and pooled at least $600,000 from approximately 36 members of the public for the purported purpose of trading commodity futures. The complaint charged Nauman, Kirris, and Relf with: 1) misappropriating funds received from investors and using the funds for personal expenses; 2) misrepresenting their past trading success to potential investors, promising them profitable trading while claiming to be able to limit risks; 3) issuing false monthly statements to investors; and 4) failing to register as CPOs (and for Nauman and Kirris also failing to register as CTAs). The complaint further alleged that since Nauman, Kirris, and Relf were acting within the scope of their employment, the corporate defendants were liable for their actions or omissions. CFTC v. Pension America, Inc., et al., No. 00-2071 RHK/SRN (D.Minn. filed Sept. 6, 2000).
The next day, the court issued an ex parte restraining order freezing the defendants' assets and prohibiting the destruction of documents. CFTC v. Pension America, Inc., et al., No. 00-2071 RHK/SRN, Statutory Restraining Order (D.Minn. entered Sept. 7, 2000). On September 15, 2000, the court entered orders of preliminary injunction against each defendant and the relief defendant. CFTC v. Pension America, Inc., et al., No. 00-2071 RHK/SRN, Order of Preliminary Injunction and Other Ancillary Relief Against Defendants William J. Relf, Specialized Commodity Timing, LLC, and Commodity Timing Specialists, LLC (D.Minn. entered Sept. 15, 2000); CFTC v. Pension America, Inc., et al., No. 00-2071 RHK/SRN, Consent Order of Preliminary Injunction and Other Equitable Relief Against Kidz First International, Inc. (D.Minn. entered Sept. 15, 2000); CFTC v. Pension America, Inc., et al., No. 00-2071 RHK/SRN, Consent Order of Preliminary Injunction and Other Equitable Relief Against Edward Stevenson Kirris, III, Selective Futures Management, LLC (D.Minn. entered Sept. 15, 2000); and CFTC v. Pension America, Inc., et al., No. 00-2071 RHK/SRN, Consent Order of Preliminary Injunction and Other Equitable Relief Against Leonard G. Nauman, Pension America, Inc. and Futures Profit Making, LLC (D.Minn. entered Sept. 15, 2000).
Pool Fraud Case Results
During FY 2000, the Enforcement program obtained results in the following cases previously filed in the area of pool fraud:
- CFTC v. Bonney, No. 98 C0087C, Supplemental Consent Order (W.D.Wisc. entered Oct. 22, 1999). Ordered payment of $345,343 in restitution pursuant to a payment plan based on future income.
- CFTC v. EuroPacific Equity and Capital Management, Ltd., et al., No. 99-6506, Order of Default, Permanent Injunction, Ancillary Equitable Relief, and Civil Monetary Penalties Against Defendants Richard Tichy, Europacific Equity and Capital Management, Ltd., Tortola Corporation Company Ltd., and International Investment Group, Ltd. (S.D.Fla. entered Oct. 29, 1999). Default order of permanent injunction ordering a $7,785,841 civil monetary penalty and $2,595,280 in restitution.
- CFTC v. Hudkins, et al., No. 3:98 CV 0281AS, Memorandum and Order (N.D.Ind. entered Dec. 8, 1999). Carmen J. Field, Mona L. Smith, and Market Capital Growth, Inc. (MCG), permanently enjoined from further violations, as charged, and from either seeking registration with the Commission in any capacity or engaging in any activity requiring such registration; further ordered to disgorge $880,811 (Field and Smith), and $146,154 (Smith), and to pay restitution of $1,026,965 (Field, Smith, and MCG) and $234,562 (Field). Field and Smith have appealed this decision to the U.S. Court of Appeals for the Seventh Circuit.
- CFTC v. Hudkins, et al., No. 3:98 CV 0281AS, Consent Orders Of Permanent Injunction And Other Equitable Relief Against Bart BeMiller, Steven D. Hudkins, and Robert J. Riethman (N.D.Ind. entered Jan. 12, 2000). BeMiller and Hudkins admitted to the allegations of the complaint and the findings of the orders. Riethman neither admitted nor denied the allegations or findings. Defendants consented to orders finding that they fraudulently solicited customers for two commodity pools and misappropriated $467,559 in investors' funds. The district court: ordered them permanently enjoined from further violations, as charged, and from seeking registration; ordered restitution of $660,157 (BeMiller and Hudkins, jointly and severally), $255,175 (Hudkins), and $33,330 (Riethman); ordered disgorgement of $592,395 (Hudkins), $69,722 (BeMiller), and $3,000 (Riethman), provided that the payment of the restitution amount by a particular defendant would satisfy that defendant's obligation to pay disgorgement; and ordered Riethman to pay a $10,000 civil monetary penalty.
- CFTC v. Berzins, No. 3:99cv592 (E.D.Va. entered Jan. 18, 2000). Without admitting or denying the allegations of the complaint, Berzins consented to the entry of the order that: permanently enjoined him from further violations, as charged; imposed a permanent trading ban (but allows him to apply to the court for permission to trade after 10 years); and ordered him to pay restitution of $1,223,634, plus pre-judgment and post-judgment interest, to pool participants pursuant to a payment plan based on his future income.
- CFTC v. Sigma, Inc., et al., No. 95-1598 (AET), Final Judgment (D.N.J. entered Feb. 29, 2000). Default judgment against Sigma, Inc. (Sigma), and final judgment against Sigma, Chuck Kohli, and N.S. Ramchandran. The district court: permanently enjoined defendants from further violations, as charged; ordered Sigma to pay restitution of $30 million and a $90 million civil monetary penalty; and ordered Kohli to pay disgorgement of $30 million.
- CFTC v. FTI Financial Group, et al., No. 97 C 7061, Consent Order of Permanent Injunction and Other Equitable Relief Against FTI Financial Group, Samuel H. Foreman, Mark G. Stevens, and Carolyn F. Munn (N.D.Ill. entered March 24, 2000). Settling defendants, without admitting or denying the allegations of the complaint, consented to the entry of the order that ordered them permanently enjoined from further violations, as charged and ordered them to pay, jointly and severally, $860,444.70 in restitution pursuant to a payment plan based on their future income.
- CFTC v. Schenk, et al., No. 2:98 CV 00216J, Consent Order of Permanent Injunction and Other Equitable Relief Against Brian Tobler (D.Utah entered April 7, 2000). Consent order with respect to defendant Tobler that: enjoined him from further violations, as charged; prohibited him from seeking registration with the Commission or acting in any capacity requiring registration; imposed a 10-year trading ban; and ordered Tobler to disgorge profits in the amount of $5,850.
- CFTC v. James, et al., No. 1:99-CV-967A JEC, Order of Permanent Injunction and Other Equitable Relief (N.D.Ga. entered May 8, 2000). Consent order that: enjoined defendants from further violations, as charged; ordered James to pay $3,331,538 in restitution; and prohibited defendants from soliciting funds, controlling or directing the trading of commodity accounts on behalf of any other person or entity, or claiming exemption from registration with the Commission.
- CFTC v. Schenk, et al., No. 2:98 CV 00216J, Order of Permanent Injunction and Other Equitable Relief (D.Utah entered May 22, 2000). Ordered defendants John Larry Schenk, Sam Gray, and Fidelity Traders Group Inc. to cease and desist from further violations, as charged; prohibited them from soliciting or accepting new clients or participants for commodity futures and option trading; prohibited them from controlling or directing the trading of any commodity interest account for any other person; ordered Schenk and Gray to pay, jointly and severally, $449,878.85 in restitution, disgorge $175,687 and $29,465, respectively, and pay civil monetary penalties of $175,687 and $29,465, respectively);
- CFTC v. EuroPacific Equity and Capital Management Ltd., et al., No. 99-6506, Consent Order of Permanent Injunction and Other Equitable Relief Against Defendant David Michael Loyd (S.D.Fla. entered July 13, 2000). Without admitting or denying the findings of the order or the allegations of the complaint, defendant Lloyd consented to the entry of the order that: ordered him to pay restitution of up to $2.5 million to investors pursuant to a payment plan based on his future income; enjoined him from committing fraud in connection with any futures trading activity, acting as an unregistered CPO or an unregistered AP of a CPO, and violating Commission recordkeeping and disclosure provisions applicable to CPOs; and barred him from any activity in connection with the commodity futures industry.
- CFTC v. McGivney, et al., No. 99 C 2357, Consent Order of Permanent Injunction and Other Equitable Relief Against Joseph P. McGivney, Sr. (N.D.Ill. entered July 17, 2000); CFTC v. McGivney, et al., No. 99 C 2357, Consent Order of Permanent Injunction and Other Equitable Relief Against Edwin A. Koziol, Jr. (N.D.Ill. entered July 17, 2000); CFTC v. McGivney, et al., No. 99 C 2357, Consent Order of Permanent Injunction and Other Equitable Relief Against JPM, Inc. (N.D.Ill. entered July 17, 2000); CFTC v. McGivney, et al., No. 99 C 2357, Consent Order of Equitable Relief Against Leslie Wnukowski (N.D.Ill. entered July 17, 2000); CFTC v. McGivney, et al., No. 99 C 2357, Consent Order of Equitable Relief Against Marita McGivney (N.D.Ill. entered July 17, 2000). Without admitting or denying the allegations in the complaint, defendants Joseph McGivney, Koziol, and JPM, Inc., consented to the entry of orders that required payment of restitution totaling more than $800,000 and permanently enjoined them from: further violations, as charged; soliciting funds; controlling or directing the trading of commodity accounts on behalf of any other persons or entities; and seeking registration, or claiming exemption from registration. Relief defendants Marita McGivney and Leslie Wnukowski were ordered to pay $100,000 and $168,920, respectively, to recover sums directly traceable to the fraud.
- CFTC v. The ChateauForte Consortium, Inc., et al., No. 98-CV-N-1755-S, Order (N.D.Ala. entered Aug. 8, 2000). Final judgment entered against Dr. Richard E. Busch requiring him to pay restitution and a civil monetary penalty of over $45 million. Busch has appealed this decision to the U.S. Court of Appeals for the Eleventh Circuit.
- CFTC v. FTI Financial Group, et al., 97 C 7061, Consent Order of Permanent Injunction and Other Equitable Relief Against Randall Williams (N.D.Ill. entered Sept. 12, 2000); CFTC v. FTI Financial Group, et al., 97 C 7061, Consent Order of Permanent Injunction and Other Equitable Relief Against Terry G. Wigton (N.D.Ill. entered Sept. 12, 2000). Under the consent orders, the court made findings of fact that defendants defrauded investors, as charged in the amended complaint, and: required payment of restitution (including disgorgement) by Williams totaling more than $800,000 pursuant to a payment plan based on his future income and payment of restitution (including disgorgement) by Wigton totaling more than $700,000 (with immediate payment of $22,400, the remainder to be sought by investors as third-party beneficiaries of the order); permanently enjoined Williams and Wigton from engaging in activities related to the commodity industry on behalf of others or themselves (including controlling or directing the trading of commodity accounts), from seeking registration with the Commission or claiming exemption from registration, and from further violations, as charged.
- CFTC v. Sheldon, et al., No. 1:99-CV-138-EDGAR, Consent Order of Permanent Injunction and Other Equitable Relief Against Defendants Edwin Jay Sheldon and Applied Capital Management, LLC (E.D.Tenn. entered Sept. 15, 2000). Without admitting or denying the findings of the order or the allegations of the complaint, Edwin Jay Sheldon and Applied Capital Management, LLC (ACM), consented to the entry of the order that: required Sheldon and ACM to pay, jointly and severally, restitution to investors, of up to approximately $334,000, pursuant to a payment plan based on future income; enjoined Sheldon and ACM from further violations, as charged; and permanently barred Sheldon from trading for himself or others, registering with the Commission, or otherwise being involved in the commodity futures industry.
- CFTC v. The ChateauForte Consortium, Inc., et al., No. 98-CV-N-1755-S, Consent Order of Permanent Injunction and Other Equitable Relief Against Defendants James Michael Hanks and Financial Planning Alliance International (N.D.Ala. entered Sept. 28, 2000). Without admitting or denying the allegations of the complaint or the findings in the order, defendants Michael Hanks and Financial Planning Alliance International consented to the entry of the order that: permanently enjoined them from further violations, as charged, trading on or subject to the rules of any contract market, controlling or directing the trading for any commodity interest account for or on behalf of any other person or entity, and applying for registration or seeking exemption from registration in any capacity; and ordered them to pay, jointly and severally, restitution to investors of $10,849,000 plus prejudgment interest pursuant to a payment plan based on future income.
Trading Systems
- In re Dixon. In December 1999, the Commission filed an administrative complaint against Carl Dean Dixon alleging that Dixon committed solicitation fraud while acting as an unregistered CTA. Specifically, the complaint alleged that, between at least January and December 1998, Dixon offered a Treasury bond futures trading course to the public. The complaint further alleged that Dixon fraudulently solicited clients for this course by falsely stating that: the trading methodology to be taught would quickly yield high returns; he was an experienced and successful futures trader whose successes resulted in an opulent lifestyle; and he guaranteed to pay back students double their money if he could not teach them successful day trading. Finally, the complaint alleged that Dixon also fraudulently solicited clients by using sham account statements reflecting phony trading profits to reinforce his assertions that he was a profitable, high-volume trader. In re Dixon, CFTC Docket No. 00-03 (CFTC filed Dec. 16, 1999). In April 2000, an ALJ issued a default order making findings of fact and conclusions of law, and ordering Dixon to cease and desist from further violations, as charged, and to pay a civil monetary penalty of $28,500. Dixon failed to appeal the ruling, and it became a Final Order of the Commission in May 2000. In re Dixon, CFTC Docket No. 00-03 (CFTC entered May 12, 2000).
- In re Currency Trading Systems, et al. In February 2000, the Commission filed an administrative complaint against Currency Trading Systems (CTS), its principal Joyce Roeder, and two of its employees, Glenn Cybulski and Michael Stewart. The complaint alleged that between February 1997 and July 1998, Roeder, through her company CTS, conducted seminars teaching individuals how to trade exchange-traded foreign currency futures contracts, and that Cybulski and Stewart were seminar teachers for CTS. The complaint further alleged that the respondents fraudulently solicited customers to attend their trading seminars and purchase trading software through correspondence, newspaper advertisements, CTS' Internet website, and pre-recorded telephone messages that made numerous misrepresentations, including: overstatement of the performance record of the trading system; their backgrounds and trading records; and the risks involved. The complaint also alleged that, in addition to her seminar-related activities, Roeder also managed at least four trading accounts pursuant to signed powers of attorney and acted as a CTA without the necessary registration. In re Currency Trading Systems, et al., CFTC Docket No. 00-06 (CFTC filed Feb. 28, 2000).
- In re Systems of Success-Window to Profit d/b/a Systems of Success, et al. In September 2000, the Commission filed an administrative complaint against Richard A. Viele, Bernadette Flavell, Systems of Success-Window to Profit d/b/a/ Systems of Success (Systems of Success), and Kevin Kates. Systems of Success and Viele have never been registered with the Commission in any capacity. Flavell has been registered as a CTA since June 1998, and Kates was registered as a CTA from May 1996 to December 1998. The Commission's complaint alleged that, from approximately September 1996 through January 1999, respondents fraudulently solicited members of the public to purchase signals generated by various trading systems developed by respondents and to attend workshops run by Viele, Flavell, and Systems of Success in trading exchange-traded commodity futures contracts. As alleged, respondents misrepresented the performance, profitability, and risks involved in trading pursuant to their systems and they fraudulently presented hypothetical trading results as actual trading results. For instance, the Commission's complaint alleged that respondents claimed that their systems earned monthly profits ranging from $3,650 to $16,650, when in fact, Viele had either suffered a monthly net loss or had not traded at all, and various clients had suffered losses. In re Systems of Success-Window to Profit d/b/a Systems of Success, et al., CFTC Docket No. 00-27 (CFTC filed Sept. 6, 2000).
- CFTC v. Sabin, et al. In September 2000, the Commission filed a civil injunctive complaint against Rabb Sabin and Art Smith. The Commission's complaint alleged that Sabin and Smith fraudulently advertised their commodity option trading methodology on their Internet website, The Cash Nursery (TCN). Specifically, the Commission's complaint alleged that from 1996 up to the date the complaint was filed, the defendants' website misrepresented the performance and profitability of their trading methodology, misrepresented their backgrounds and trading histories, and fraudulently presented hypothetical trading results as actual trading results. For example, the Commission's complaint alleged that the defendants informed customers that TCN had placed "successful" trades for commodity options through certain brokers, despite knowing that TCN never had a commodity trading account. CFTC v. Sabin, et al., No. SACV-00-940 (C.D.Cal. filed Sept. 26, 2000).
- In re CTS Financial Publishing, Inc., formerly Commodity Trend Service, Inc., et al. In September 2000, the Commission filed an administrative complaint against CTS Financial Publishing, Inc., formerly Commodity Trend Service, Inc. (CTS), Dearborn Financial Publishing, Inc. (Dearborn), Dennis Blitz, and Nick Van Nice, alleging that they fraudulently marketed commodity futures and option trading-related products. Specifically, the Commission complaint alleged that from 1994 through 1996, respondents fraudulently advertised numerous CTS products, including Futures Charts, The Million Dollar No-Risk Trading Course, Futures Options Weekly and The Million Dollar Trading Adventure, by: misrepresenting the potential for profit through commodity futures and option trading, with little or no risk disclosure; omitting to disclose that the seasonal tendencies of underlying commodities typically are already factored into commodity option prices; using testimonials for one product to promote other products; falsely representing that CTS and Dearborn personnel were actively and successfully trading; and presenting profitable trading results without disclosing that those results were hypothetical. Additionally, the complaint alleged that during 2000, in operating and maintaining an Internet website promoting a product called SwingTrader, which subscribers could use to trade commodity futures and option contracts, respondents falsely presented hypothetical trading results as actual results and failed to provide a hypothetical disclosure that conformed to Commission regulations. In re CTS Financial Publishing, Inc., formerly Commodity Trend Service, Inc., et al., CFTC Docket No. 00-34 (CFTC filed Sept. 28, 2000).
Trading Systems Case Results
During FY 2000, the Enforcement program obtained results in the following cases previously filed in the area of trading systems:
- CFTC v. Pelton Street Publishing, Inc., et al., No. 99-CV-1184, Order of Permanent Injunction and Other Equitable Relief, by Consent, Against Pelton Street Publishing, Inc. and Roger Martin Hoy a/k/a Roger Martin (D.Minn. entered Feb. 8, 2000). Fraudulent solicitation of customers to purchase a commodity trading course; without admitting or denying the allegations of the complaint, defendants consented to the entry of the order that ordered them to pay, jointly and severally, $120,000 in restitution and a $65,000 civil monetary penalty, and permanently enjoined them from: further violations, as charged; seeking registration in any capacity or engaging in any activity that would require registration; and soliciting or accepting funds in connection with the trading of commodity futures or options.
- CFTC v. Calhoun, No. SA99CA0684, Consent Order of Permanent Injunction and Other Equitable Relief Against Kent C. Calhoun, Individually, as an Agent of or Doing Business As KCI (W.D.Tex. entered July 27, 2000). Deceptive and misleading use of the Commission's name in advertising of commodity trading advice services and products; without admitting or denying the findings, Calhoun consented to the entry of the order that: permanently enjoined him from further violations, as charged; ordered him to publish retractions for the advertisements; and ordered him to pay a $25,000 civil monetary penalty.
- In re Arnold, et al., CFTC Docket No. 97-12, Order Making Findings And Imposing Remedial Sanctions (CFTC entered August 14, 2000). Fraudulent solicitation of clients to purchase a commodity futures trading system and other advisory services; without admitting or denying the findings, respondents Curtis McNair Arnold and London Financial, Inc., consented to the entry of a Commission order that: required Arnold to pay a $100,000 civil monetary penalty; directed respondents to cease and desist from further violations, as charged; prohibited them from trading on or subject to the rules of any contract market for a period of three years; and required them to comply with certain undertakings, including never applying for registration or claiming exemption from registration in any capacity.
Managed Accounts
- In re Harley. In May 2000, the Commission filed an order instituting administrative proceedings and simultaneously accepting an offer of settlement from Stanley C. Harley. The order found that between November 1998 and March 2000, Harley acted as an unregistered CTA by directing the trading in numerous commodity futures trading accounts pursuant to powers of attorney. The order further found that Harley violated the Commission's regulations by failing to deliver the required disclosure documents to his prospective customers. Without admitting or denying the findings, Harley consented to the entry of the Commission order that ordered him: to cease and desist from further violations, as charged; to pay a $10,000 civil monetary penalty; to comply with his undertakings to not falsely represent to the public that he is registered with the SEC as an investment advisor, or that he is qualified for exemption from registration with the Commission as a CTA; and not to engage in any activity requiring registration with the Commission, other than directing his current customers' commodity interest accounts "for liquidation only," until he is registered with the Commission and has distributed the required disclosure documents. In re Harley, CFTC Docket No. 00-20 (CFTC filed May 31, 2000).
- In re Lavender. In June 2000, the Commission filed an order instituting administrative proceedings and simultaneously accepting an offer of settlement from Ira M. Lavender. The order found that Lavender, from February to September 1999, directed the trading in ten commodity futures trading accounts and generally held himself out to the public as a CTA. According to the order, Lavender had agreements with at least three of his clients that he would receive a percentage of any trading profits in the accounts. The order found that Lavender fraudulently solicited customers by misrepresenting the likelihood of generating profits from trading commodity futures, and that Lavender's failure to register with the Commission was a violation of the Act. Lavender, without admitting or denying the findings, consented to the entry of the Commission order that: directed him to cease and desist from further violations, as charged; permanently prohibited him from trading; and ordered him to comply with his undertakings never to apply for registration with the Commission or engage in any activity that requires such registration, and never to act as a principal, agent, or officer of any person registered, exempted from registration, or required to be registered with the Commission. In re Lavender, CFTC Docket No. 00-23 (CFTC filed June 29, 2000).
Violations by IBs, FCMs, and Their APs
During FY 2000, as in past years, the Commission devoted significant time and attention to matters involving violations by IBs, FCMs, and their APs. Such cases often involve fraudulent misrepresentations, usually to small retail customers, to induce them to invest.
Unlawful Commission Kickbacks
- In re Sogemin Metals, Inc. In February 2000, the Commission issued an order simultaneously instituting administrative proceedings and accepting an offer of settlement from Sogemin Metals, Inc. (SMI), a registered IB, based on an unlawful and undisclosed commission arrangement involving SMI's brokering of futures and option transactions in metals for two Chilean clients, Corporacion Nacional del Cobre de Chile (Codelco), the world's largest producer of copper, and Empresa Nacional de Mineria (Enami), another large producer. These transactions were executed by Sogemin Metals Limited (SML), SMI's parent company, a United Kingdom-based FCM. The order found that SMI failed to disclose to Codelco and Enami that SML paid return commissions to a Cayman Islands company controlled by SML's Chilean agent, whose principals included individuals with close family connections to the head futures traders at Codelco and Enami. The order further found that this illegal scheme also involved kickbacks from these commissions to certain SMI senior employees and to the head futures traders at Codelco and Enami without the knowledge of the management of those companies. Without admitting or denying the findings, SMI consented to the entry of the Commission order that: directed SMI to cease and desist from further violations, as charged; imposed a $500,000 civil monetary penalty; and required SMI to comply with a series of undertakings, including adopting a strict monitoring procedure for commission rebates, revising SMI's internal procedures manual, and creating a compliance manual. In re Sogemin Metals, Inc., CFTC Docket No. 00-4 (CFTC filed Feb. 7, 2000).
Unauthorized Trading
- In re Den Hartog, et al. In March 2000, the Commission issued an order simultaneously instituting administrative proceedings and accepting offers of settlement from James Den Hartog and James Baumgard. The Commission's order found that between December 1995 and June 1996, Den Hartog, as general manager of Cooperative Elevator Association (Cooperative), engaged in unauthorized speculative trading that resulted in trading losses of approximately $1 million to the elevator and made false written statements to conceal the trading losses from the elevator's board of directors. The order further found that Baumgard, a registered AP of an FCM, Farmers Commodities Corporation (FCC), and the account executive for Cooperative's hedge account at FCC, knew that Den Hartog was engaged in unauthorized speculative trading but failed to disclose this fact to his customer (Cooperative) or to his supervisors at FCC, and that Baumgard assisted Den Hartog in an option trading strategy attempting to reduce or limit his trading losses. Without admitting or denying the findings, Den Hartog and Baumgard consented to the entry of the Commission order that: directed them to cease and desist from further violations, as charged; ordered Den Hartog and Baumgard to pay civil monetary penalties of $10,000 and $25,000, respectively; suspended Baumgard's AP registration for 60 days followed by two years of conditional registration; imposed a permanent trading ban on Den Hartog (except for hedge trading solely on behalf of his hog breeding company); ordered Den Hartog to comply with his undertaking never to seek registration in any capacity or to engage in any activity that would require registration; and ordered Baumgard to comply with his undertaking to pay FCC $75,000 in connection with his conduct in this matter. In re Den Hartog, et al., CFTC Docket No. 00-07 (CFTC filed Mar. 7, 2000).
- In re Mock. In June 2000, the Commission filed an administrative complaint against Dale Luther Mock, who was a registered AP of an IB from June 1997 to September 1998. The complaint alleged that Mock engaged in unauthorized trading and transferred trades into customer accounts without their authorization. Specifically, the complaint alleged that, in July and August 1998, Mock executed a total of nine trades, in six customer accounts, without the customers' authorization. The complaint further alleged that, when two customers complained about two of the unauthorized trades, Mock willfully directed the FCMs who maintained those two accounts to transfer the trades into the accounts of two other customers, without the authorization of the latter two customers. In re Mock, CFTC Docket No. 00-22 (CFTC filed June 27, 2000).
IB Solicitation Fraud
- In re Osler. In February 2000, the Commission filed an administrative complaint against Darryl M. Osler, a registered AP and former branch manager for Ceres Trading Group, Inc. (Ceres), a registered IB. The complaint alleged that between January 1996 and May 1999, Osler worked directly with Ceres' APs and instructed them to make false and misleading statements to customers regarding the profitability of trading options on commodity futures contracts and to impart a sense of urgency to trade that was false and unwarranted. The complaint further alleged that Osler instructed APs to use one sales script that misrepresented to customers that seasonal price changes in heating oil offered a profit opportunity on options on heating oil futures contracts, and another sales script that misrepresented corn option prices as moving cent for cent with changes in the price of the underlying futures contract. Osler also was charged with failing to diligently supervise the APs working for him. In re Osler, CFTC Docket No. 00-05 (CFTC filed Feb. 18, 2000).
- CFTC v. Matrix Trading Group, Inc., et al. In September 2000, the Commission filed a civil injunctive complaint against Matrix Trading Group, Inc. (Matrix), a registered IB, as well as David Wedeen and Christopher Smithers, who were principals and registered APs of Matrix. The Commission's complaint alleged that in the solicitation of commodity options transactions since at least July 1998, Matrix, through its APs (including Wedeen and Smithers) misrepresented or failed to disclose material facts concerning the likelihood of profiting from, and the risk inherent in, the purchase of commodity options, as well as the defendants' performance record for customers. For instance, the complaint alleged that the defendants claimed that Matrix had success rates varying from "more than 50 percent" to "100 percent," even though approximately 92 percent of Matrix customers suffered net losses. The complaint further alleged that Matrix, Wedeen, and Smithers failed to diligently supervise Matrix APs. CFTC v. Matrix Trading Group, Inc., et al., No.Civ-00-08880-ZLOCH (S.D.Fla. filed Sept. 26, 2000).
- In re First Financial Trading, Inc., et al. In September 2000, the Commission filed an administrative complaint against First Financial Trading, Inc. (First Financial), a registered IB, as well as Corey Johnson (a former principal), Scott DeWitte (a current principal and AP), and Thomas Glover, II (a former AP), charging them with fraudulent solicitation of customers to trade commodity options. The complaint alleged that since at least July 1999, First Financial, Glover, and DeWitte defrauded customers by making false and misleading statements concerning the likelihood of profiting from, and the risk inherent in, the purchase of commodity options, as well as their customers' performance record. For example, the complaint alleged that Glover and DeWitte claimed their customers were making money or had an excellent success rate even though over 98 percent of First Financial's customers suffered net losses. The complaint alleged that Johnson was liable for the fraud as a controlling person of First Financial. As further alleged, First Financial and Johnson also failed to diligently supervise the sales and trading practices of First Financial APs. In re First Financial Trading, Inc., et al., CFTC Docket No. 00-35 (CFTC filed Sept. 28, 2000).
IB Solicitation Fraud Case Results
During FY 2000, the Enforcement program obtained results in the following cases previously filed in the area of customer solicitation fraud:
- In re Thomas, and In re Wellington Financial Group, Inc., CFTC Docket Nos. 98-13 and 99-10, Order Making Findings And Imposing Remedial Sanctions As To Respondents Todd Alan Thomas And Wellington Financial Group, Inc. (CFTC entered Nov. 2, 1999). Without admitting or denying the findings, registered AP and IB in fraudulent options solicitation case consented to the entry of the Commission order that: imposed cease and desist orders, registration revocations, and permanent trading bans, and ordered compliance with undertaking never to seek registration with the Commission in any capacity; Thomas also was ordered to pay $1.9 million in restitution pursuant to a payment plan based on his future income.
- CFTC v. Trinity Financial Group, Inc., No. 92-6832-CIV-UNGARO-BENAGES, Omnibus Order on Revised Disgorgement Motions (S.D.Fla. entered Dec. 7, 1999). The court found IB and AP solicitation fraud and ordered Mark Stephen Wuench to disgorge $2,290,208.
- In re Dunhill Financial Group, Inc., et al., CFTC Docket No. 99-7, Order Making Findings And Imposing Remedial Sanctions As To Respondents Dunhill Financial Group, Inc., and Mark Hutcherson (CFTC entered Feb. 4, 2000). Fraudulent solicitation by IB and APs via bulk e-mail; without admitting or denying the findings, Hutcherson and Dunhill consented to the entry of the Commission order that: directed them to cease and desist from further violations, as charged; revoked their registrations; imposed permanent trading prohibitions; and ordered Hutcherson to pay a $10,000 civil monetary penalty and $8,308,621 in restitution, the latter pursuant to a payment plan based on his future income; and ordered Dunhill and Hutcherson to comply with their undertakings never to seek registration in any capacity.
- In re Lexus Financial Group, Inc., et al., CFTC Docket No. 97-4, Order Making Findings And Imposing Remedial Sanctions As To Respondents Lexus Financial Group, Inc., David Alan Luger, And Mark Lee Singer (CFTC entered Feb. 17, 2000). IB and AP fraudulent options solicitation case; respondents consented to the entry of the Commission order that: directed them to cease and desist from further violations, as charged; imposed permanent trading bans; revoked Lexus' IB registration and Luger's and Singer's AP registrations; ordered Luger and Singer to pay, jointly and severally, $8,613,570.44 in restitution pursuant to a payment plan based on their future income; and ordered Luger and Singer to comply with their undertakings never to seek registration or to engage in any activity that would require registration.
Illegal Instruments
The Commission also investigates and prosecutes the sale of illegal futures and option contracts to the public. During FY 2000, the Commission filed enforcement actions, and achieved results in previously filed actions, involving illegal instruments relating to previous metals, foreign currency, and hedge-to-arrive agricultural contracts.
Precious Metals
- CFTC v. IBS, Inc., et al. In March 2000, the Commission filed a civil injunctive action charging three individuals and six commonly controlled corporations (collectively referred to as the IMC Common Enterprise) with fraudulently telemarketing illegal futures contracts in precious metals and other commodities in an $18 million scheme. The complaint also alleged that Joseph Finateri and Michael Temple were telemarketers for the IMC Common Enterprise, and that Finateri and Alan Stein were controlling persons. Finally, the complaint named seven parties as relief defendants, charging that they received customer funds from defendants and that those funds should be returned to customers. Specifically, the complaint alleged that, from 1992 through the date the complaint was filed, the defendants purported to buy and sell physical commodities on behalf of customers, but in fact, fraudulently marketed illegal futures contracts to the general public by misrepresenting the profitability associated with their futures contracts and failing to disclose the risk of near-certain losses. CFTC v. IBS, Inc., et al., No. 3:00 CV 103-V (W.D.N.C. filed Mar. 13, 2000). On June 21, 2000, the court entered an order of preliminary injunction that: appointed a receiver; required defendants to make an accounting of all customer funds, documents, and assets held outside the U.S.; and required defendants to deliver to the receiver their assets, documents, precious metals and information identifying their accounts, employees, properties, or other obligations. Further, the order froze the defendants' assets and enjoined them from: further violations of the Act, as charged; soliciting or accepting new customers or new deposits from existing customers; and destroying books and records. CFTC v. IBS, Inc., et al., No. 3:00CV103-V, Preliminary Injunction (W.D.N.C. filed June 21, 2000). Certain relief defendants have appealed this decision to the U.S. Court of Appeals for the Fourth Circuit.
- CFTC v. Nat'l Bullion and Coin, Inc., et al. In June 2000, the Commission filed a civil injunctive action against National Bullion and Coin, Inc., d/b/a National Bullion & Coin Services, Inc. (NBC) (a telemarketing firm that solicited customers to enter into precious metals transactions), Capital Credit Management & Finance, Inc. (CCMF) (which purported to finance and store precious metals for NBC customers), Lawrence Colman (president of NBC and CCMF), and Joseph B. Flanigan (owner of NBC and CCMF). None of the defendants is registered with the Commission in any capacity. The complaint alleged that since approximately September 1998, defendants fraudulently telemarketed illegal futures contracts in precious metals by falsely representing that NBC would purchase and store metals for customers and that customers could choose to have CCMF finance their metals purchases and store the metals. In reality, the complaint alleged, CCMF did not lend customers money; delivery only occurred in a few instances; and neither NBC nor CCMF actually purchased and stored metals as claimed. NBC, Colman, and Flanigan also were alleged to have issued phony "letters of confirmation" to customers and to have misrepresented the risks, profits and the existence of the precious metals involved in the purported financed precious metals transactions. CFTC v. Nat'l Bullion and Coin, Inc., et al., No. 00-6885 CIV-ZLOCH (S.D.Fla. filed June 28, 2000). On the day after the complaint was filed, the court entered a statutory restraining order that: appointed a receiver; froze the defendants' assets, and ordered them to make an accounting of their assets to the Commission and the receiver; restrained defendants from destroying their business and/or personal finance records; and ordered defendants to allow the Commission to inspect their books, records, and other documents. CFTC v. Nat'l Bullion and Coin, Inc., et al., No. 00-6885 CIV-ZLOCH, Statutory Restraining Order and Order Setting Evidentiary Hearing (S.D.Fla. entered June 29, 2000).
In July 2000, the court entered a preliminary injunction against defendants imposing an asset freeze and enjoining defendants from further violations, as charged, as well as soliciting new customers or new deposits from existing customers. CFTC v. Nat'l Bullion and Coin, Inc., et al., No. 00-6885 CIV-ZLOCH, Preliminary Injunction (S.D.Fla. entered July 25, 2000). In September 2000, the court issued orders of permanent injunction by default against the defendants that: enjoined them from further violations, as charged, soliciting customers or accepting funds for commodity futures or option trading, and seeking registration in any capacity or acting in any capacity (including an exempt capacity) as a registrant; and continued the asset freeze against the defendants and receivership over the corporate defendants. The court entered judgment in favor of the Commission as to civil monetary penalties, restitution, and disgorgement, and ordered the Commission to submit evidence and arguments supporting final amounts of the proposed monetary relief. CFTC v. Nat'l Bullion and Coin, Inc., et al., No. 00-6885 CIV-ZLOCH, Permanent Injunction and Entry of Final Judgment by Default Against Defendant Joseph B. Flanigan (S.D.Fla. entered Sept. 11, 2000); CFTC v. Nat'l Bullion and Coin, Inc., et al., No. 00-6885 CIV-ZLOCH, Permanent Injunction and Entry of Final Judgment by Default Against Defendant Lawrence Colman (S.D.Fla. entered Sept. 11, 2000); CFTC v. Nat'l Bullion and Coin, Inc., et al., No. 00-6885 CIV-ZLOCH, Permanent Injunction and Entry of Final Judgment by Default Against Defendants National Bullion and Coin, Inc. and Capital Credit Management & Finance, Inc. (S.D.Fla. entered Sept. 11, 2000).
Case Results in the Area of Illegal Instruments
During FY 2000, the Enforcement program obtained results in the following cases previously filed in the area of illegal instruments:
Precious Metals Case Results
- CFTC v. C.O.M. Consultants, Inc., d/b/a Golden State Bullion, et al., No. 97-4443 WMB, Order for Payment of Restitution by Linton Samaru (C.D.Cal. entered Oct. 1, 1999). Telemarketing of illegal futures contracts purportedly involving platinum, gold, silver and palladium; court ordered payment by Linton Samaru of $882,006 in restitution; Samaru has appealed this decision to the U.S. Court of Appeals for the Ninth Circuit.
- CFTC v. Midland Rare Coin Exchange, et al., Docket No. 97-7422-CIV-DIMITROULEAS, Permanent Injunction and Final Judgment (S.D.Fla. entered Oct. 20, 1999). Fraud in connection with illegal precious metals futures contracts; default order: permanently enjoined defendants from further violations, as charged, and from either seeking registration with the Commission in any capacity or engaging in any activity requiring such registration; and ordered restitution and disgorgement of $9,499,950 (Midland Rare Coin Exchange, Inc., Robert J. Mitchell, and Terry A. Sands, jointly and severally), $3,753,383 (Edward N. Tabb), $9,545,137 (Southwest Research Associates, Inc., Southern Advertising and Marketing, Inc., Quantum Advertising and Marketing, Inc. and North American Asset Management, Inc., jointly and severally), and $2,947,360 (Globex Bullion And Financial Services Corp., Eurex Marketing Corp., and Globalmark Corp., jointly and severally).
Foreign Currency Case Results
- CFTC and Az. Corp. Comm'n v. AYM Financial Corp., et al., No. 96-CV-2640, Consent Orders (E.D.Pa. entered Oct. 4 and Oct. 20, 1999). Fraud involving offer and sale of illegal foreign currency futures contracts to retail customers; order permanently enjoined defendants from further violations, as charged, and ordered them to pay, jointly and severally, $3 million in restitution.
- CFTC v. Noble Wealth Data Information Services, Inc., et al., No. PJM 98-3316, Default Order of Permanent Injunction and Final Judgment (D.Md. entered Oct. 27, 1999). Fraudulent offer and sale of illegal foreign currency futures contracts to retail customers; default order: permanently enjoined defendants Noble Wealth Data Information Services, Inc., International Advanced Investment, Inc. and Currex International Corporation from further violations, as charged, and from either seeking registration with the Commission in any capacity or engaging in any activity requiring such registration; and ordered defaulting defendants to pay $5,264,251 in restitution and a $15,792,753 civil monetary penalty.
- CFTC v. Noble Wealth Data Information Services, Inc., et al., No. PJM 98-3316, Opinion and Order (D.Md. entered March 20, 2000). Fraudulent offer and sale of illegal foreign currency futures contracts to retail customers; the court entered summary judgment against principal Esfand Baragosh and issued an order that: permanently barred Baragosh from the commodities industry; and ordered him to pay $5,264,251 in restitution and $1,211,058 as a civil monetary penalty; Baragosh has appealed this decision to the U.S. Court of Appeals for the Fourth Circuit.
- In re Global Currencies, et al., CFTC Docket No. 97-13, Order Making Findings And Imposing Remedial Sanctions Against Leon Levitis, Ilya Levitis, And Paul Manfre (CFTC entered Feb. 4, 2000) Fraudulent offer and sale of illegal foreign currency futures contracts to retail customers; without admitting or denying the findings, settling respondents consented to the entry of the Commission order that: directed them to cease and desist from further violations, as charged; imposed permanent trading bans on Leon and Ilya Levitis; and ordered Leon and Ilya Levitis to neither apply for registration with the Commission nor act in a capacity that would require registration.
- In re Global Currencies, et al., CFTC Docket No. 97-13, Order Of Default Against Global Currencies, Ltd. And Alex Efrosman (ALJ entered Feb. 8, 2000, respondents did not appeal the ALJ's order to the Commission, and it became the Final Order of the Commission on March 9, 2000). Fraudulent offer and sale of illegal foreign currency futures contracts; default order: directed defaulting respondents to cease and desist from further violations, as charged; and ordered Global Currencies, Ltd. and Alex Efrosman to pay civil monetary penalties of $3,729,638.79 and $500,000.00, respectively.
Hedge-to-Arrive (HTA) Contracts Case Results
- In re Southern Thumb Co-Op, Inc., CFTC Docket No. 97-3, Order Making Findings and Imposing Remedial Sanctions (CFTC entered Oct. 7, 1999). Offer and sale of HTA contracts that were illegal futures contracts; without admitting or denying the findings, Southern Thumb consented to the entry of the Commission order that: ordered it to cease and desist from further violations, as charged, and to comply with its undertaking to retain a compliance consultant should it resume business as a grain elevator or grain marketer.
- In re Farmers Cooperative Co., et al., CFTC Docket No. 99-6, Order Making Findings And Imposing Remedial Sanctions (CFTC entered March 9, 2000). Offer and sale of HTA contracts that were illegal futures contracts; without admitting or denying the findings, Farmers Cooperative Company, Richard Houge, John McPherson and Larry Peterson consented to the entry of the Commission order that: directed them to cease and desist from further violations, as charged; imposed a $100,000 civil monetary penalty, jointly and severally; ordered Farmers Cooperative to comply with its undertaking that its general manager and the head of its Grain Division will have the responsibility to review all new types of HTA contracts, and any type of contract involving option features, that it plans to offer to producers to ensure the legality of such contracts; ordered Houge and McPherson to comply with their undertakings never to seek registration with the Commission in any capacity or to engage in any activity that would require registration; ordered Peterson not to seek registration an AP for six months and, if he seeks AP registration thereafter, to have his registration subject to conditions and sponsorship for two years.
Trade Practice Violations
During FY 2000, the Commission's Enforcement program continued to pursue actions that address specific types of trade practice violations affecting the interests of customers and the integrity of futures markets.
Fraudulent Trade Allocation
- CFTC v. Goldinger. In November 1999, the Commission filed a civil injunctive action against registered IB, Capital Insight Brokerage, Inc. (Capital Insight) and its president, owner, and AP, S. Jay Goldinger. The complaint alleged that from at least January 1994 through December 1995, Goldinger and Capital Insight purposefully failed to provide account numbers when they entered orders for customer trades in U.S. Treasury bond futures and option contracts at the CBOT. Instead, they waited until after they knew the prices at which the trades had been confirmed before providing account numbers, which allowed them to allocate profits and losses among their customers. They also allegedly allocated trades by transferring certain trades between customer accounts after the trades were executed. The complaint further alleged that Goldinger and Capital Insight also misrepresented trading risks to customers and sent false trading statements to their customers in order to conceal their fraudulent trading scheme. Finally, the complaint alleged that Capital Insight failed to register as a CTA and failed to prepare written records, including account identification of customer orders, immediately on receipt of such orders. CFTC v. Goldinger, No. 99-11543 WMB (C.D.Cal. filed Nov. 9, 1999). The court entered a consent order of permanent injunction on November 12, 1999 in which Goldinger and Capital Insight, without admitting or denying the allegations of the complaint, were permanently enjoined from further violations as charged and were ordered to pay $6 million in disgorgement. CFTC v. Goldinger, No. 99-11543 WMB (C.D.Cal. filed Nov. 12, 1999).
- In re Mitsopoulos, et al. Goldinger and Capital Insight entered their orders through Constantine Mitsopoulos' floor desk at Refco, Inc. (Refco) on the CBOT. In September 1999, the Commission had filed an administrative complaint against Mitsopoulos, a registered FB, and in August 2000, the Commission issued an order accepting Mitsopoulos' offer of settlement. The Commission order found that Mitsopoulos facilitated the trade allocation fraud carried out by Capital Insight and Goldinger by allowing Goldinger to enter orders through the Refco floor desk without providing account identification at the time the orders were entered, and allowing the phone clerks working under his supervision to routinely accept orders from Goldinger without immediately recording account identification on the floor order tickets. In addition, Mitsopoulos allowed the phone clerks working under his supervision to help Goldinger change account numbers for trades already executed and for which Goldinger already had provided account numbers. Without admitting or denying the findings, Mitsopoulos consented to the entry of the Commission order finding that he failed to comply with order taking and recordkeeping requirements, aided and abetted Refco's recordkeeping violations, and failed to supervise diligently the Refco phone clerks handling orders for Treasury bond futures and option contracts traded on the CBOT. The Commission order required Mitsopoulos to pay a $1 million civil monetary penalty; directed him to cease and desist from violations, as charged; and required him to comply with his undertakings, including not to seek registration or claim exemption from registration, and not to act in any capacity involving the execution, allocation, writing, receipt, or transmission of orders or completion or processing of order tickets other than for his own account. In re Mitsopoulos, et al., CFTC Docket No. 99-17, Order Making Findings and Imposing Remedial Sanctions as to Respondent Constantine Mitsopoulos (CFTC entered Aug. 31, 2000).
In two separate orders issued in April and September 2000, the Commission also accepted offers of settlement from the three Refco phone clerks who worked for Mitsopoulos, Margaret Dull, Richard Marisie, and Lisa Budicak. Without admitting or denying the findings, Dull, Marisie, and Budicak consented to the entry of orders finding that they had violated the Act and Commission regulations, and aided and abetted Refco's recordkeeping violations, by not obtaining account identification information at the time they received orders from Capital Insight and by changing the account identification on trades already assigned to a customer account. As sanctions, the Commission: directed Dull, Marisie, and Budicak to cease and desist from further violations, as charged; ordered Dull and Marisie to comply with their undertaking to restrict for two years their order-taking activities with respect to orders placed for others; ordered Marisie to comply with his undertaking to restrict his FB registration for a period of two years, and ordered Dull to similarly restrict her registration should she register with the Commission within the next two years; prohibited Budicak from certain futures and option-related activities for three years and provided that for four years from the date of the order, if Budicak registers with the Commission, it will be conditioned and her trading activity will be supervised; and ordered Dull and Marisie each to pay $15,000, and Budicak to pay $20,000, in civil monetary penalties. In re Mitsopoulos, et al., CFTC Docket No. 99-17, Order Making Findings and Imposing Remedial Sanctions As To Respondents Margaret Dull And Richard Marisie (CFTC entered April 10, 2000); In re Mitsopoulos, et al., CFTC Docket No. 99-17, Order Making Findings And Imposing Remedial Sanctions As To Respondent Lisa Budicak (CFTC entered Sept. 26, 2000).
- In re Bengson. In June 2000, the Commission filed an administrative complaint against Timothy M. Bengson, a registered AP of an FCM. The complaint alleged that from June 1995 to February 1997, Bengson fraudulently allocated trades and deceived customers by failing to disclose that he misappropriated and/or allocated trades from their accounts. Specifically, the complaint alleged that Bengson fraudulently allocated at least 21 profitable trades from customer accounts, which he handled as an AP, to his girlfriend's account and his error account. In re Bengson, CFTC Docket No. 00-21 (CFTC filed June 27, 2000).
- In re Fraites, et al. In August 2000, the Commission filed an order instituting administrative proceedings and simultaneously accepting an offer of settlement from Joseph Fraites, Michael Martin, Mark Mueller, and Alfred Zamojcin. The order found that, while working as APs of an FCM from at least June 1995 through February 1997, while handling institutional clients who traded coffee futures and option contracts, respondents aided and abetted the FCM's recordkeeping violations by: 1) failing to obtain and record account identification on office order tickets at the time the orders were received; and 2) recording account identification on office order tickets after they had been received and executed without such identification. Without admitting or denying the findings, respondents consented to the entry of the Commission order that: directed them to cease and desist from further violations, as charged; imposed civil monetary penalties of $15,000 against Fraites, $10,000 against Martin, and $5,000 each against Mueller and Zamojcin; and restricted the registrations and activities of Fraites for a two-year period, and the remaining respondents for a one-year period each. In re Fraites, et al., CFTC Docket No. 00-26 (CFTC filed Aug. 7, 2000).
Misappropriation of Trades
- In re DeMarco. In December 1999, the Commission filed an order instituting administrative proceedings and simultaneously accepting an offer of settlement from Thomas F. DeMarco, who was a telephone order clerk on the floor of the New York Mercantile Exchange. In its order, the Commission found that DeMarco committed fraud by participating in a scheme in which he and others misappropriated a customer's profitable futures trades in heating oil, crude oil, and unleaded gasoline and wrongfully allocated them to accounts controlled by other participants in the scheme. The order found that DeMarco and other participants received payments for their parts in the scheme from the proceeds of the misappropriated profitable trades. DeMarco, without admitting or denying the findings, consented to the entry of the Commission order that: directed him to cease and desist from further violations, as charged; imposed a 10-year trading prohibition, with the further condition that he may trade for himself after 10 years only if he no longer has a job involving the handling of customer orders; and ordered him to comply with his undertaking not to seek registration with the Commission in any capacity for a period of 10 years or act in any capacity that would require registration. In re DeMarco, CFTC Docket No. 00-01 (CFTC filed Dec. 13, 1999).
Exceeding Speculative Position Limits
- In re Thompson. In May 2000, the Commission filed an order instituting administrative proceedings and simultaneously accepting an offer of settlement from Howard E. Thompson, who has never been registered with the Commission. The order found that Thompson, beginning in approximately July 1995, controlled two accounts at a registered FCM: his personal account and the account of his sister-in-law and her husband. The order further found that, when aggregated, futures positions in the accounts Thompson controlled exceeded the position limits for frozen pork bellies at the Chicago Mercantile Exchange (CME) on six trading days in August 1996. Finally, the order found that Thompson filed a Form 40 reportable position report with the Commission on September 18, 1995, that falsely stated that he did not control the futures trading of any other person, and he failed to update his inaccurate Form 40 from September 19, 1995, through January 31, 1997, even though he held or controlled a reportable position in frozen pork bellies in his account and/or the account of his sister-in-law and her husband on at least 300 trading days. Thompson, without admitting or denying the findings, consented to the entry of the Commission order that: directed him to cease and desist from further violations, as charged; ordered him to pay a $50,000 civil monetary penalty; and imposed a 60-day trading ban. In re Thompson, CFTC Docket No. 00-19 (CFTC filed May 31, 2000).
Trade Practice Case Results
During FY 2000, the Enforcement program obtained results in the following case previously filed in the trade practice area:
- In re Whealan, CFTC Docket No. 96-4, Order Making Findings And Imposing Remedial Sanctions As To Respondent Emmett J. Whealan (CFTC entered Nov. 18, 1999). Without admitting or denying the findings, Emmett J. Whealan, a registered FB, consented to the entry of a Commission order finding that he engaged in non-competitive trading on the floor of the CME and aided and abetted a broker in defrauding his customers. As sanctions, the Commission directed Whealan to cease and desist from further violations, as charged; imposed a five-year trading ban and revoked his FB registration; imposed a $125,000 civil monetary penalty; and ordered Whealan to comply with his undertaking never to seek registration with the Commission in any capacity or engage in an activity requiring such registration.
Financial, Supervision, Compliance and Recordkeeping
In its efforts to promote sound practices of firms handling customer funds, the Commission investigates and prosecutes registrants' failures to supervise diligently the handling of customer accounts and to establish adequate compliance systems to prevent fraud or market abuse, as well as other financial violations.
- In re Peregrine Financial Group, Inc. In September 2000, the Commission filed an order instituting administrative proceedings and simultaneously accepting an offer of settlement from Peregrine Financial Group, Inc. (Peregrine). This action resulted from an audit of Peregrine's financial statements as of March 26, 1999, by the Commission's Division of Trading and Markets. The order found that Peregrine, a registered FCM, was undercapitalized at the time of the audit, and that Peregrine violated Commission regulations by: 1) failing to file timely notice with the Commission that its adjusted net capital was less than the minimum required; 2) failing to file notice that its adjusted net capital was below the "early warning" threshold; 3) failing to keep accurate books and records; and 4) filing with the Commission an inaccurate capital computation and statement of financial condition as of the audit date. Without admitting or denying the findings, Peregrine consented to the entry of the Commission order that: directed Peregrine to cease and desist from further violations, as charged; pay a civil monetary penalty of $90,000; comply with undertakings that implement changes to Peregrine's accounting practices and regulatory financial reporting; for a period of two years, maintain its adjusted net capital at a level that is at least $800,000 above Peregrine's early warning level; and retain a certified public accountant to perform three reviews of Peregrine's financial statements and to submit a report thereon to Peregrine and the Commission. In re Peregrine Financial Group, Inc., CFTC Docket No. 00-32 (CFTC entered Sept. 7, 2000).
Financial, Supervision, Compliance and Recordkeeping Case Results
During FY 2000, the Enforcement program obtained results in the following cases previously filed in this area:
- In re First Options of Chicago, Inc. In January 2000, the Commission issued two orders accepting offers of settlement from First Options of Chicago, Inc. (First Options), a registered FCM, in connection with two administrative actions that were filed in August and December 1998, respectively. In the first order, the Commission found that First Options: 1) was liable for the regulatory violation committed by its guaranteed IB in radio advertisements and a promotional document which contained hypothetical performance results that were not accompanied by the cautionary statement required by Commission regulations; and 2) failed to diligently supervise its guaranteed IB in reviewing the IB's advertisements and promotional material, and also failed to determine whether the IB or its APs needed to register as CTAs. Without admitting or denying the findings, First Options consented to the entry of the Commission order that: directed it to cease and desist from further violations, as charged; and ordered it to pay restitution to customers in the amount of $138,000, as well as a civil monetary penalty of $25,000. In re International Futures Corp., et al., CFTC Docket No. 98-16, Order Making Findings And Imposing Remedial Sanctions As To Respondent LIT Division Of First Options Of Chicago, Inc. (CFTC entered Jan. 27, 2000).
In the second order, the Commission found that First Options violated recordkeeping requirements by making delayed and incomplete responses to requests for floor order tickets in a Commission enforcement investigation. Without admitting or denying the findings, First Options consented to the entry of the Commission order that: directed it to cease and desist from further violations, as charged; ordered it to pay a civil monetary penalty of $40,000; and required the firm to comply with its undertaking to maintain its recently implemented compliance procedures, or other procedures reasonably designed to ensure timely responses to regulatory requests for required records. In re First Options of Chicago, Inc., CFTC Docket No. 99-3, Order Making Findings And Imposing Remedial Sanctions (CFTC entered Jan. 27, 2000).
Violations of Commission Orders
During FY 2000, the Commission also filed enforcement actions alleging violations of prior Commission orders.
- In re Brenner, et al. In March 2000, the Commission filed an administrative complaint against Steven C. Brenner and his wife, Jami Weisner Brenner. The complaint alleged that Steven Brenner violated the Act by trading commodity futures contracts between January 1995 and October 1999 in violation of a ten-year trading prohibition imposed by the Commission in August 1990. See In re Brenner, CFTC Docket No. 90-7 (ALJ entered Aug. 27, 1990); see also CFTC v. Brenner, No. 92C4350, Consent Order of Permanent Injunction (N.D.Ill. entered July 7, 1992) (prohibiting Brenner from trading in violation of the Commission's 1990 order). The complaint further alleged that Jami Weisner Brenner aided and abetted her husband's violations by opening trading accounts in her name and allowing her husband to trade through them. In re Brenner, et al., CFTC Docket No. 00-08 (CFTC filed Mar. 30, 2000).
- In re Rogers. In September 2000, the Commission issued an order instituting administrative proceedings and simultaneously accepting an offer of settlement from Martin K. Rogers for trading for approximately eight months without supervision by a qualified sponsor, as required by an order of the National Futures Association (NFA). The order found that on November 23, 1998, the NFA issued an order granting Rogers conditional registration for a two-year period and required Rogers, among other conditions, to have his trading activities reviewed on a weekly basis by a qualified sponsor. The order further found that Rogers traded at the CBOT without a sponsor from approximately August 1999 through April 3, 2000. The order found that pursuant to the Act, the NFA order is considered to be an order issued by the Commission, and therefore, by trading without a sponsor, Rogers violated a specific term of a Commission order and violated the Act. Without admitting or denying the findings, Rogers consented to the entry of the Commission order that: directed him to cease and desist from further violations, as charged; suspended Rogers' registration as a FB for 30 days; and thereafter restricted his registration for one year by, among other restrictions, requiring that his activities be subject to sponsorship by a qualified sponsor. In re Rogers, CFTC Docket No. 00-33 (CFTC filed Sept. 25, 2000).
Violation of Commission Orders Case Results
During FY 2000, the Enforcement program obtained results in the following case previously filed in this area:
- CFTC v. Marchiano, et al., No. 98-6564-CIV-SEITZ, Judgment and Order Granting Final Judgment by Default (S.D. Fla. entered Nov. 24, 1999) and Consent Order of Permanent Injunction (S.D. Fla. Entered Jan. 20, 2000). Defendants acted as a principal and AP of a registered IB without registering with the Commission and in violation of a prior Commission settlement order. The court permanently enjoined defendants Hartford Financial Group, Inc., Keri L. Stewart and Joseph J. Marchiano from further violations, as charged, and ordered them to pay civil monetary penalties of $330,000 each, and permanently enjoined defendant Glenn R. Taubman from further violations, as charged, and from acting in a registered capacity for two years. The action remains pending against defendant Gary Valletta.
Statutory Disqualification
The Commission investigates and prosecutes administrative registration cases based on statutory disqualification (SD). While most SD actions are commenced by the NFA as part of its delegated authority to handle registration functions for the Commission, the Commission has retained authority to act directly in appropriate cases.
- In re Capital Insight Brokerage, Inc. In February 2000, the Commission filed a Notice of Intent to Suspend, Revoke or Restrict Registration against Capital Insight Brokerage, Inc. (Capital Insight), a registered IB, and simultaneously accepted an offer of settlement from Capital Insight. The Commission's notice alleged, and its order found, that Capital Insight was subject to disqualification from registration based on a consent order of permanent injunction entered against it on November 12, 1999, finding that Capital Insight participated in a fraudulent trade allocation scheme. See CFTC v. Goldinger, et al., No. 99-11543 WMB, Consent Order (C.D.Cal. entered Nov. 12, 1999). Without admitting or denying the charges in the notice, Capital Insight consented to the entry of a Commission order that revoked its registration as an IB. In re Capital Insight Brokerage, Inc., CFTC Docket No. SD 00-01 (CFTC filed Feb. 16, 2000).
- In re Chulik. In February 2000, the Commission filed a Notice of Intent to Suspend, Revoke or Restrict Registration against Mark E. Chulik, a registered CTA, and simultaneously accepted an offer of settlement from Chulik. The Commission's notice alleged, and its order found, that Chulik was subject to disqualification from registration based on a consent order of permanent injunction entered against him on February 15, 2000 finding that Chulik committed fraud and acted as an unregistered CPO. See CFTC v. Chulik, et al., No. 99-02412 GAF, Consent Order of Permanent Injunction and Restitution (C.D.Cal., Feb. 15, 2000). Without admitting or denying the charges in the notice, Chulik consented to the entry of a Commission order that revoked his registration as a CTA. In re Chulik, CFTC Docket No. SD 00-02 (CFTC filed Feb. 17, 2000).
- In re Itzkowitz. In March 2000, the Commission filed a Notice of Intent to Suspend, Revoke, or Restrict Registration against David Itzkowitz, a registered FB and member of the Coffee Sugar & Cocoa Exchange (CSCE). The Commission's notice alleged that Itzkowitz was subject to disqualification from registration based on: 1) a previous July 1995 Commission order finding that he was statutorily disqualified based on his prior disciplinary history and granting Itzkowitz conditioned registration as a FB for two years, In re Itzkowitz, CFTC Docket No. SD 95-20 (CFTC July 25, 1995); and 2) a July 1998 CSCE disciplinary hearing finding, in part, that Itzkowitz violated exchange rules by engaging in 11 instances of accommodation trading in August 1995, one month after the Commission had granted Itzkowitz conditioned registration. The Commission's notice alleged that these facts constituted "other good cause" to suspend, revoke, or restrict Itzkowitz' FB registration. In re Itzkowitz, CFTC Docket No. SD 00-03 (CFTC filed March 31, 2000). The ALJ found Itzkowitz in default and in June 2000, the ALJ revoked Itzowitz registration as a FB. In re Itzkowitz, CFTC Docket No. SD 00-03, Initial Decision on Default (ALJ June 9, 2000). Itzkowitz did not appeal the ALJ's order to the Commission, and it became the Final Order of the Commission on July 10, 2000.
- In re Stephens. In June 2000, the Commission issued a Notice of Intent to Suspend or Modify Registration against William M. Stephens, a registered AP of a CTA. The Commission's notice alleged that Stephens' registration was subject to suspension or modification pending the resolution of an eight-count indictment in the Southern District of New York charging Stephens with various felonies, including conspiracy to commit fraud by an investment advisor, illegal pension kickbacks, racketeering, and wire fraud. In re Stephens, CFTC Docket No. SD 00-04 (CFTC filed June 19, 2000). In September 2000, without admitting or denying the charges in the notice, Stephens consented to the suspension of his registration as an AP pending resolution of the criminal indictment.
- In re Laken. In June 2000, the Commission issued a Notice of Intent to Suspend or Modify Registration against Glenn B. Laken, a registered FB. The Commission's notice alleged that Laken's registration was subject to suspension or modification pending the resolution of two multiple-count indictments in the Southern District of New York charging Laken with various felonies, including illegal pension kickbacks, racketeering, wire fraud, securities fraud, and conspiracy to commit stock promotion fraud. In re Laken, CFTC Docket No. SD 00-05 (CFTC filed June 19, 2000).
- In re Pelton Street Publishing, Inc. In July 2000, the Commission filed a Notice of Intent to Suspend, Revoke or Restrict Registration against Pelton Street Publishing, Inc. (Pelton), a registered CTA, and simultaneously accepted an offer of settlement from Pelton. The Commission's notice alleged, and its order found, that Pelton was subject to disqualification from registration based on a consent order of permanent injunction entered against Pelton and its principal on February 8, 2000 finding that Pelton and its principal fraudulently solicited customers to purchase a commodity trading course. See CFTC v. Pelton Street Publishing, et al., No. 99-CV-1184, Order of Permanent Injunction and Other Equitable Relief, by Consent, Against Pelton Street Publishing, Inc. and Roger Martin Hoy a/k/a Roger Martin (D.Minn. entered Feb. 8, 2000). Without admitting or denying the charges in the notice, Pelton consented to the entry of a Commission order that revoked its registration as a CTA. In re Pelton Street Publishing, Inc., CFTC Docket No. SD 00-06 (CFTC filed July 24, 2000).
Cooperative Enforcement
Domestic Cooperative Actions
Cooperative enforcement efforts enhance the ability of the Commission's Division of Enforcement to promote compliance with, and to deter violations of, Federal commodities laws. During FY 2000, the Division coordinated enforcement efforts with numerous local, State, and Federal law enforcement and regulatory authorities and agencies, which resulted in the filing of several administrative and injunctive actions. The Division's cooperation with law enforcement agencies also resulted in the filing of criminal charges by those agencies.
- United States v. S. Jay Goldinger. On November 8, 1999, the U.S. Attorney's Office for the Central District of California filed a criminal information against S. Jay Goldinger. The information alleged that Goldinger defrauded customers of Capital Insight via a fraudulent trade allocation scheme. On December 13, 1999, Goldinger pled guilty to wire fraud in connection with the fraudulent scheme. This criminal case is related to CFTC v. Goldinger, No. 99-11543 WMB (C.D.Cal. entered Nov. 12, 1999), where the U.S. District Court for the Central District of California entered a consent order of permanent injunction and other equitable relief against Goldinger and Capital Insight regarding the fraudulent trade allocation scheme.
- CFTC v. C.O.M. Consultants, Inc., et al. In January 2000, the U.S. Attorney's Office for the Central District of California entered into a plea agreement with Richard David Otto in connection with a telemarketing and mail fraud scheme to sell investments in platinum and other precious metals. Otto was the president of C.O.M. Consultants, Inc., a California corporation that operated under the name, Golden State Bullion. Under the plea agreement, Otto pled guilty to four counts of mail fraud, two counts of wire fraud, and one count of conspiracy. The investigation by federal prosecutors grew out of a civil injunctive action that the Commission filed against Golden State Bullion, Otto, and three other telemarketers on June 18, 1997. See CFTC v. C.O.M. Consultants, Inc., et al., Civ. No. 97-4443 (C.D.Cal. filed Feb. 22, 2000). A consent order of permanent injunction and other equitable relief was entered against Otto on February 11, 1998.
- CFTC v. Mobley, et al. In February 2000, the Commission filed a civil injunctive action against David Mobley, Sr. and several entities that he owned or controlled. The complaint alleged that the defendants carried out a $59 million fraud on more than 170 investors in funds managed by Mobley and several of his entities. This civil injunctive action was filed with the substantial assistance of the FBI and coordinated with the filing of a related fraud action by the SEC. CFTC v. Mobley, et al., No. 00 Civ. 1317 (RCC) (S.D.N.Y. filed Feb. 22, 2000).
- United States v. Ronald J. Swartz. On March 10, 2000, Ronald J. Swartz pled guilty to mail fraud charges; his plea carried a mandated 18 to 24-month sentence. United States v. Ronald J. Swartz, No. 99-CR-0958 (N.D.Ill.). In November 1998, the Commission had filed a related civil injunctive action against Swartz and Vertrix, Inc. (Vertrix), a dissolved corporation of which Swartz was president, alleging that the defendants defrauded investors in a fictitious commodity pool and defrauded other investors in connection with discretionary commodity trading accounts in which Swartz was a joint owner. See CFTC v. Swartz, et al., No. 98C 7505 (N.D.Ill. filed Nov. 23, 1998). A default judgment for permanent injunction was entered against Swartz and Vertrix in the civil action on May 27, 1999.
- CFTC v. IBS, Inc., et al. In March 2000, the Commission filed a civil injunctive action charging three individuals and six commonly controlled corporations with fraudulently telemarketing illegal futures contracts in precious metals and other commodities in an $18 million scheme. The Commission coordinated its investigation with the FBI, which executed search warrants on the same day that the Commission served the ex parte restraining order freezing assets and appointing a receiver. CFTC v. IBS, Inc., et al., No. 3:00cv103-V (W.D.N.C. filed March 13, 2000).
- United States v. Donald E. James. On March 16, 2000, Donald E. James was sentenced to 51 months in a Federal penitentiary and three years of supervised release, and ordered to pay restitution of $3.3 million. United States v. Donald E. James (N.D.Ga. Mar. 16, 2000). On April 15, 1999, the Commission had filed a related civil injunctive action alleging that James and Donald James, Inc. defrauded investors in two commodity pools. A consent order of permanent injunction was entered against the defendants in the civil action on May 8, 2000. CFTC v. James, et al., No. 99-Civ-0967 (N.D.Ga. entered May 8, 2000).
- United States v. Edward M. Collins. On March 20, 2000, the Edward M. Collins was found guilty, after a jury trial, of 11 counts of mail fraud and six counts of money laundering for his role in a fraudulent scheme involving the solicitation of investor funds and commodity trading by Mr. Collins and his brother, Thomas Collins. United States v. Edward M. Collins, No. 99 CR 311 (N.D.Ill.). This conduct was the subject of two Commission enforcement actions. In re Collins, et al., CFTC Docket NO. 94-13 (CFTC filed May 19, 1994) (alleging fictitious trading and illegal transfer trading; action pending, on remand before the ALJ); and CFTC v. Collins, et al., No. 94 C 4375 (N.D. Ill. field July 19, 1994) (summary judgment against Collins granted on February 6, 1997).
- United States v. Robert C. Rossi, Steven G. Soule, and Kyler F. Lunman, II. In April 2000, Robert C. Rossi, Steven G. Soule, and Kyler F. Lunman, II pled guilty to one count of wire fraud each in a scheme to divert profitable energy futures trades from Soule's employer, Coastal Corporation, to other accounts. United States v. Robert C. Rossi, Steven G. Soule, and Kyler F. Lunman, II, Crim. No. H-99-00, Plea Agreements (S.D. Tex.). The Commission coordinated the filing of its related administrative complaint with the Department of Justice. See In re Soule, et al., CFTC Docket No. 99-4 (CFTC filed Dec. 22, 1998, amended Feb. 4, 1999).
- United States v. Fred Eric DeJong and Alexis Carles. On April 14, 2000, Fred Eric DeJong, principal of AC Trading Group, Inc. (AC Trading) pled guilty to one count each of mail fraud and money laundering. Alexis Carles, a co-defendant, previously had pled guilty to one count of mail fraud arising from the same charges. United States v. Fred Eric DeJong and Alexis Carles, No. CR-99-0517 (N.D.Cal.). These criminal cases grew out of a civil injunctive action that the Commission filed against DeJong, Carles and AC Trading in the U.S. District Court for the Northern District of California on April 17, 1997. See CFTC v. AC Trading Group, Inc. et al., l. Civ. No. 97-1360 (N.D.Cal. filed April 17, 1997). The criminal prosecution of DeJong and Carles was a direct result of the evidence developed in the Commission's injunctive case against the defendants. During the two-year criminal investigation by the Federal Bureau of Investigation (FBI), the Division of Enforcement assisted the case agents and the Assistant U.S. Attorney assigned to the investigation and prosecution of DeJong and Carles by analyzing trading patterns in the commodity accounts and interpreting the false account statements created by the defendants.
- In re Coleman, d/b/a Granite Investments. In this Internet fraud case, the Commission coordinated its investigation with the FTC, and both agencies filed administrative actions and simultaneous settlements in May 2000. In re Coleman, d/b/a Granite Investments, CFTC Docket No. 00-16 (CFTC filed May 1, 2000).
- In re Lavender. In June 2000, the Commission filed and simultaneously settled an administrative enforcement action charging that Ira M. Lavender committed fraud while acting as an unregistered CTA. In re Lavender, CFTC Docket No. 00-23 (CFTC filed June 29, 2000). In April 2000, Lavender had consented to the imposition of a cease and desist order in an enforcement action brought by the Arizona Corporation Commission (ACC). Az. Corp. Comm'n v. Lavender, Docket No. S-03381A-00-0000, Order of Relief and Consent to Same (April 28, 2000). The ACC provided valuable assistance to the Commission during its investigation of this matter.
- United States v. Max E. Walters. On June 1, 2000, Max E. Walters was sentenced to 27 months imprisonment and ordered to pay restitution of $1,415,000. United States v. Max E. Walters, No. 00-00026-01-CR-W-S (W.D.Mo. June 1, 2000). In August 1999, the Commission had filed a related administrative action against Walters alleging that, as general partner in a limited partnership, he defrauded both the partnership and the limited partner out of more than $1 million in connection with commodity futures and option trading. In re Walters, CFTC Docket No. 99-15 (CFTC filed Aug. 9, 1999). Summary disposition as to liability and non-monetary sanctions was entered against Walters in the administrative action on April 4, 2000; the remainder of the administrative proceeding remains pending.
- United States v. Daniel O'Shaughnessey. On June 9, 2000, Daniel O'Shaughnessey was sentenced to 18 months imprisonment (followed by a three-year period of supervised release) and to pay criminal restitution based on his having pled guilty to one count of commodity fraud and one count of mail fraud. United States v. Daniel O'Shaughnessey, Criminal No. 99-CR-20062-BC (E.D.Mich.). On November 20, 1996, the Commission had filed a related civil injunctive action alleging that O'Shaughnessey defrauded investors in connection with a commodity pool in 1996. A consent order of permanent injunction was entered against O'Shaughnessey in the civil action on December 5, 1997.
- CFTC v. Ferguson. In July 2000, the Commission filed a civil injunctive action against Phillip Ferguson charging fraud and registration violations of the Act and Commission regulations in connection with Ferguson's operation of at least two commodity pools. CFTC v. Ferguson, No. 1:00-CV-0300 (N.D.Ind. filed July 11, 2000). The NFA provided valuable assistance to the Commission during the investigation of this matter.
- CFTC v. Sheldon, et al. In September 2000, Edwin Jay Sheldon, on behalf of himself and Applied Capital Management, LLC (ACM), without admitting or denying the findings, consented to the entry of an order finding that Sheldon violated the anti-fraud and registration provisions of the Act and Commission regulations by misrepresenting his commodity pool's profitability, the amount of investor funds at risk, and his past trading record. The New Jersey Passaic County Prosecutor's Office provided valuable assistance to the Commission in this case. CFTC v. Sheldon, et al., 1:99-CV-138-EDGAR, Consent Order of Permanent Injunction and Other Equitable Relief Against Defendants Edwin Jay Sheldon and Applied Capital Management, LLC (E.D.Tenn. entered Sept. 15, 2000).
Other Domestic Cooperative Initiatives
During FY 2000, the Division of Enforcement also participated in other domestic initiatives designed to promote cooperation among U.S. authorities.
- Internet Surf. The Division maintains an Internet surveillance program to monitor commodity options and futures-related websites as well as messages posted on Internet bulletin boards and newsgroups. Internet monitoring has generated dozens of enforcement inquiries concerning possible violations of the Act and Commission regulations, including misrepresentations of the success of trading programs and offers of potentially illegal futures and option products. In addition to its usual surveillance program, during the week of February 28, 2000, the Commission participated in an "Internet Surf "with law enforcement and consumer protection agencies from 27 countries. The Commission alone examined approximately 300 Internet websites, and identified dozens for follow-up review.
- Telemarketing and Internet Fraud Working Group. The Telemarketing and Internet Fraud Working Group consists of representatives from State and Federal regulatory and criminal authorities. At the working group's quarterly meetings, members discuss all aspects of telemarketing and Internet fraud, including issues such as new scams, new uses of technology, geographical hotspots for certain types of fraudulent activity, effective enforcement techniques, and recent cases that establish relevant precedent in the area. In the past, the working group has served as a vehicle to introduce authorities to the Consumer Sentinel Database, a clearinghouse for consumer complaints relating to, among other things, telemarketing and Internet fraud.
- Securities and Commodities Fraud Working Group. The Securities and Commodities Fraud Working Group is a vehicle for public and private sector participants to discuss current trends in financial crime in the securities, futures, and option industries and to exchange ideas about enforcement techniques. The group, organized by the Fraud section of the Criminal Division of the Department of Justice, meets on a quarterly basis and its members include criminal and regulatory authorities from State and Federal agencies and representatives from various exchanges and other self-regulatory organizations.
- Money Laundering. The Commission participates in domestic and international anti-money laundering cooperative enforcement efforts. On the domestic front, the Commission is a member of the Money Laundering Strategy Working Group, the U.S. Treasury Department's Bank Secrecy Act Advisory Group, and is assisting the U.S. Treasury in its Magnitude of Money Laundering Project. Internationally, the Commission has aided the U.S. delegation to the Financial Action Task Force.
- Consumer Protection Initiatives Committee. The Consumer Protection Initiatives Committee (CPIC) is a Federal and State interagency initiative whose mission is to share information to minimize duplication of efforts and to develop interagency consumer protection initiatives focusing on enforcement, deterrence, and public awareness. The CPIC also seeks to facilitate referrals of cases with strong criminal implications. The CPIC, which is an arm of the United States Attorney General's Council on White Collar Crime, meets on a monthly basis.
International Cooperation
As the number of financial transactions that cross national borders has continued to grow, the Division of Enforcement and its foreign counterparts have found it increasingly necessary to share documents and testimony, and to conduct joint investigations. In FY 2000, the Division made 18 requests for assistance to foreign authorities, and it received 23 requests from authorities in foreign jurisdictions. The information exchanged between the Commission and foreign authorities has included registration and disciplinary histories of U.S. and foreign firms and individuals, as well as evidence (including testimony and bank and brokerage account records) for use in investigations and enforcement actions.
During FY 2000, the Division also participated in international initiatives designed to promote cooperation among authorities.
- International Cooperative Arrangements. On May 16, 2000, the Commission and the SEC signed a Memorandum of Understanding (MOU) with the Monetary Authority of Singapore ("MAS") concerning consultation, cooperation, and the exchange of information. Recent Singapore legislation (issued in March 2000) has granted the MAS authority to cooperate with foreign securities and futures authorities. The MOU provides a framework for information sharing, thereby facilitating cooperation in cross-border investigations of potential violations of securities and futures laws.
- Working Party on Enforcement and Information-Sharing. During FY 2000 the Division continued to participate in the Working Party on Enforcement and Information-Sharing (WP4) of the International Organisation of Securities Commissions' (IOSCO's) Technical Committee. WP4 considers issues and formulates recommendations relating to international assistance in the detection, investigation, and prosecution of securities and futures violations. During FY 2000, the Division contributed substantially to the WP4 report on manipulation that was published at IOSCO's annual meeting in May 2000.
On March 28, 2000, WP4 held an "International Internet Surf Day" that included the participation of 21 regulators in 18 countries. The Division contributed to the organization of the event and prepared the instructional materials and reporting forms. WP4 members surveyed the Internet in order to detect fraudulent or otherwise illegal schemes involving investment and trading opportunities in securities and derivatives. IOSCO members visited approximately 10,000 websites and identified approximately 1,000 sites for further review, including approximately 250 sites that involved cross-border activity. Commission staff surveyed 1,060 websites and identified 88 for follow up review, including 72 involving cross-border activity. The sites identified for follow-up review by the Commission and NFA involve commodity futures and options in a variety of ways, such as: computerized trading systems promising highly successful buy and sell signals; trade recommendations based on seasonal trends in the prices of commodities such as heating oil and gasoline; and purported profit opportunities on commodities such as foreign currencies, precious metals, and stock indices.
On June 15-16, 2000, the Commission and the SEC jointly hosted an Internet Surveillance Training Program for relevant enforcement staff from WP4 members. The program was held at the Commission's Washington, DC headquarters. This training program brought together experts from regulators with Internet enforcement programs to provide instruction on areas such as the use of search engines for detecting securities offenses, Internet resources that identify authors of anonymous newsgroup postings and e-mail messages, and methods of preserving and authenticating electronic evidence. There also was a panel discussion concerning the organization of Internet surveillance and Internet enforcement programs. The Commission reached out to foreign authorities as well as domestic, such as the FBI, to share their knowledge and experiences at the training program. Twenty-two participants from 19 different jurisdictions attended the program.
Table 1ENFORCEMENT CASES FILED DURING FY 2000
LISTED BY PROGRAM AREA
Name of Case | Press Release No. | Date Filed |
Internet Project Cases | ||
In re Taybi | 4397-00 | 05/01/00 |
In re Calo | 4397-00 | 05/01/00 |
In re Coleman | 4397-00 | 05/01/00 |
In re Judd | 4397-00 | 05/01/00 |
In re Oasis Publishing Corp., et al. | 4397-00 | 05/01/00 |
In re Read, et al. | 4397-00 | 05/01/00 |
In re Salter | 4397-00 | 05/01/00 |
In re Schoemmell, et al. | 4397-00 | 05/01/00 |
In re Reily | 4397-00 | 05/01/00 |
In re Trendy Systems, LLC, et al. | 4397-00 | 05/01/00 |
In re Moore | 4442-00 | 09/06/00 |
In re Int'l Trading Systems, Ltd., et al. | 4442-00 | 09/06/00 |
In re Martin | 4442-00 | 09/06/00 |
In re Heffernan, et al. | 4442-00 | 09/06/00 |
CFTC v. Alsafari | 4442-00 | 09/06/00 |
� | ||
Quick-Strike Cases | ||
CFTC v. Mobley, et al. | 4368-00 | 02/22/00 |
CFTC v. Konkel | 4401-00 | 05/01/00 |
CFTC v. Ferguson | 4420-00 | 07/11/00 |
CFTC v. Brockbank, et al. | 4437-00 | 08/08/00 |
� | ||
Violations Involving Managed Funds or Marketing of Trading Systems | ||
In re Velissaris | 4349-00 | 12/16/99 |
In re Dixon | 4350-99 | 12/16/99 |
In re Currency Trading Systems, et al. | 4369-00 | 02/28/00 |
In re Harley | 4403-00 | 05/31/00 |
In re Lavender | 4413-00 | 06/29/00 |
In re Kim, et al | 4412-00 | 06/29/00 |
CFTC v. Dormagen, et al. | 4438-00 | 07/03/00 |
In re Billings, et al. | 4422-00 | 07/17/00 |
CFTC v. Pension America, Inc., et al. | 4445-00 | 09/06/00 |
In re Systems of Success-Window to Profit, et al. | 4444-00 | 09/06/00 |
CFTC v. Sabin, et al. | 4451-00 | 09/26/00 |
In re CTS Financial Publishing, Inc., et al. | 4455-00 | 09/28/00 |
� | ||
Name of Case | Press Release No. | Date Filed |
Violations by IBs, FCMs, and Their APs | ||
In re Sogemin Metals, Inc. | 4360-00 | 02/07/00 |
In re Osler | 4366-00 | 02/18/00 |
In re Den Hartog, et al. | 4375-00 | 03/07/00 |
In re Mock | 4411-00 | 06/27/00 |
CFTC v. Matrix Trading Group, Inc., et al. | 4454-00 | 09/26/00 |
In re First Financial Trading, Inc., et al. | 4454-00 | 09/28/00 |
� | ||
Illegal Instruments | ||
CFTC v. IBS, Inc., et al. | 4417-00 | 03/13/00 |
CFTC v. Nat'l Bullion and Coin, Inc., et al. | 4415-00 | 06/28/00 |
� | ||
Trade Practice Violations | ||
In re DeMarco | None | 12/13/99 |
In re Thompson | 4404-00 | 05/31/00 |
In re Bengson | 4410-00 | 06/27/00 |
In re Fraites, et al. | 4433-00 | 08/07/00 |
� | ||
Financial, Supervision, Compliance and Recordkeeping | ||
In re Peregrine Financial Group, Inc. | 4443-00 | 09/07/00 |
� | ||
Violations of Commission Orders | ||
In re Brenner, et al. | 4387-00 | 03/30/00 |
In re Rogers | 4450-00 | 09/25/00 |
� | ||
Statutory Disqualification | ||
In re Capital Insight Brokerage, Inc. | 4363-00 | 02/16/00 |
In re Chulik | 4364-00 | 02/17/00 |
In re Itzkowitz | 4388-00 | 03/31/00 |
In re Stephens | 4408-00 | 06/19/00 |
In re Laken | 4408-00 | 06/19/00 |
In re Pelton Street Publishing, Inc. | 4361-00 | 07/24/00 |
INJUNCTIVE ACTIONS
Fiscal Year | Actions Initiated | Defendants Named |
1991 | 11 | 18 |
1992 | 18 | 50 |
1993 | 11 | 60 |
1994 | 10 | 34 |
1995 | 11 | 27 |
1996 | 17 | 45 |
1997 | 17 | 43 |
1998 | 18 | 96 |
1999 | 20 | 61 |
2000 | 12 | 57 |
ADMINISTRATIVE ACTIONS
Fiscal Year | Actions Initiated | Respondents Named |
1991 | 31 | 51 |
1992 | 36 | 79 |
1993 | 45 | 72 |
1994 | 33 | 60 |
1995 | 41 | 72 |
1996 | 21 | 32 |
1997 | 23 | 48 |
1998 | 23 | 47 |
1999 | 25 | 47 |
2000 | 41 | 68 |
PERFORMANCE STATISTICS - FY 2000
CASES
Opened | 53 |
Closed | 81 |
Pending | 80 |
� | Administrative Cases | ||
� | � | Persons Subject to Cease and Desist Orders: | 73 |
� | � | Persons Subject to Trading Prohibitions: | 25 |
� | � | Persons Subject to Registration Suspensions, Denials or Revocations: | 25 |
� | � | Amount of Civil Monetary Penalties [$000]2: | 7,423 |
� | � | ���Number of Persons Assessed: | 42 |
� | � | Amount of Restitution or Disgorgement Ordered [$000]:3 | 22,005 |
� | � | ���Number of persons assessed: | 8 |
� | Civil Cases | ||
� | � | Persons Enjoined: | |
� | � | ���Ex parte Restraining Orders | 33 |
� | � | ���Preliminary Injunctions | 56 |
� | � | ���Permanent Injunctions | 70 |
� | � | Equity Receivers Appointed: | 3 |
� | � | Assets Placed Under Receiver's Protection [$000]: | 0 |
� | � | Amount of Civil Monetary Penalties [$000]: | 115,204 |
� | � | ���Number of persons assessed: | 18 |
� | � | Amount of Restitution or Disgorgement Ordered [$000]4: | 136,639 |
� | � | ���Number of persons assessed): | 61 |
1 This report includes only those sanctions that became final during FY 2000. This includes sanctions assessed in settled matters and unappealed decisions of the Commission, U.S. district courts, or U.S. courts of appeals.
2 Of this amount, $400,000 was ordered paid pursuant to a ten-year payment plan in which the actual amount paid by the respondent depends upon the level of his income during the time period of the payment plan.
3 Of this amount, $13,391,695 was ordered paid pursuant to multi-year payment plans in which the actual amount paid by the defendant/respondent depends upon the level of her/his income during the time period of the payment plan.
4 Of this amount, $21,710,599 was ordered paid pursuant to multi-year payment plans in which the actual amount paid by the defendant/respondent depends upon the level of her/his income during the time period of the payment plan.