IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF INDIANA
FORT WAYNE DIVISION

�

COMPLAINT FOR INJUNCTIVE AND OTHER EQUITABLE RELIEF AND
FOR CIVIL PENALTIES UNDER THE COMMODITY EXCHANGE ACT

I. SUMMARY

1. Since at least 1997 and continuing through the present, Phillip Ferguson ("Ferguson"), individually and d/b/a Ferguson Financial, B&F Trading ("B&F") and First Investors Group, Inc. ("FIG"), has violated the Commodity Exchange Act, as amended ("the Act"), 7�U.S.C. ���1 et seq. (1994), and associated regulations by soliciting and accepting millions of dollars from members of the public to participate in at least two consecutive commodity pools ("the pools") he operates without required registration with the Commodity Futures Trading Commission ("CFTC" or "Commission") as a commodity pool operator ("CPO"). In addition, Ferguson has refused, despite repeated requests, to provide required books and records to representatives of the CFTC, pursuant to the CFTC's inspection powers, concerning the pool investors, commodity trading account statements for the pools, and bank account records.

2. Transactions involving the purchase and sale of commodities for future delivery are affected with a national public interest, and proper registration with the CFTC is imperative for the protection of that national public interest. The regulatory scheme enacted by Congress enables the CFTC to obtain information about commodity professionals and participants in the commodity futures and options markets so that it can carry out its responsibility to enforce the Act and the Commission's regulations.

3. The CFTC's interest is especially strong in situations such as here, where someone entrusted with large sums of investor funds has failed to submit himself to the regulatory oversight of the CFTC by registering as required by law. The circumstances are further aggravated by the presence of indicia of a potentially massive fraud being perpetrated on the public. Accordingly, the CFTC needs immediate access to the Defendant's books and records to determine the extent of the fraud that has been committed against members of the public under the Act and if that fraud is ongoing.

4. Specifically, Ferguson, a former Commission registrant, has issued false "Trade Logs" to at least one investor showing a $129 million balance in one of the pools as of March 31, 2000. The "Trade Logs" also purport to show actual daily trading for the pool. However, the CFTC has not discovered any FIG commodity trading account that engages in the daily trading activity shown on the "Trade Logs" or that contains the account balance as shown on the "Trade Logs". Ferguson has admitted to NFA that the $129 million figure is "inaccurate." Finally, the commodity futures trading accounts that Ferguson currently controls or has controlled have lost money trading commodity futures over the years, and the current account value of known commodity accounts that Ferguson controls totals only $550,000. Absent intervention by this Court, Ferguson is free to solicit and accept additional funds from new investors outside of any regulatory oversight, and to provide more false statements to investors, placing additional members of the public at risk.

5. Thus, Ferguson has engaged, is engaging, and is about to engage in acts and practices which violate Sections 4b(a)(ii) and 4m(1) of the Act, 7�U.S.C. ���6b(a)(ii) and 6m(1), and Commission Regulations 1.31 and 4.23, 17�C.F.R. ���1.31 and 4.23 (1999).

6. Accordingly, pursuant to Section 6c of the Act, 7�U.S.C. ��13a-1 (1994), the Commission brings this action to enjoin such acts and practices, and to compel compliance with the provisions of the Act. In addition, the Commission seeks civil penalties, an accounting and such other equitable relief as the Court may deem necessary or appropriate.

II. JURISDICTION AND VENUE

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

8. Venue properly lies with this Court pursuant to Section 6c of the Act, 7�U.S.C. ��13a-1(e) (1994), in that the defendant is found in, inhabits, or transacts business in this district, and the acts and practices in violation of the Act have occurred, are occurring, or are about to occur within this district.

III. THE PARTIES

9. Plaintiff CFTC is an independent federal regulatory agency that is charged with responsibility for administering and enforcing the provisions of the Act, 7�U.S.C. ���1 et seq. (1994), and the Regulations promulgated thereunder, 17 C.F.R. �� 1 et seq. (1999).

10. Phillip Ferguson, who currently resides at 17641 N. 450 E, Summitville Indiana 46070, is not currently registered with the Commission in any capacity. Ferguson was registered as an associated person ("AP") with two futures commission merchants ("FCMs") and an Introducing Broker ("IB") at various times between November 1981 and August 1988, when his last AP registration was terminated. He is the sole proprietor and principal of Ferguson Financial, B&F and FIG, which are not incorporated in any state and have never been registered with the Commission in any capacity. FIG is located at 241 West Third Street, Marion, Indiana 46952, which is the same address as Ferguson Financial.

IV. FACTS

A. Statutory Background

11. A futures commission merchant ("FCM") is defined in Section 1a(12) of the Act, 7�U.S.C. ��1a(12), as an individual, association, partnership, corporation, or trust that: (i)�is engaged in soliciting or in accepting orders for the purchase or sale of any commodity for future delivery or on or subject to the rules of any contract market; and (ii)�in or in connection with such solicitation or acceptance of orders, accepts any money, securities, or property (or extends credit in lieu thereof) to margin, guarantee, or secure any trades or contracts.

12. An introducing broker ("IB") is defined in Section 1a(14) as any person engaged in soliciting or in accepting orders for the purchase or sale of any commodity for future delivery on or subject to the rules of any contract market who does not accept any money, securities, or property to margin, guarantee, or secure any trades or contracts that result or may result therefrom.

13. A commodity pool is defined in Commission Regulation 4.10(d)(1), 17�C.F.R. ��4.10(d)(1), as any investment trust, syndicate or similar form of enterprise engaged in the business of investing its pooled funds in trading commodity futures and/or commodity options.

14. A commodity pool operator ("CPO") is defined in Section 1a(4) of the Act, 7�U.S.C. ��1(a)(4), as any person engaged in a business that is of the nature of an investment trust, syndicate, or similar form of enterprise, and who, in connection therewith, solicits, accepts or receives from others, funds, securities, or property, either directly or through capital contributions, the sale of stock or other forms of securities or otherwise, for the purpose of trading in any commodity for future delivery on or subject to the rules of any contract market.

15. An associated person ("AP") is a person associated with any FCM, IB, commodity trading advisor ("CTA"), CPO or leverage transaction merchant as a partner, officer, employee, consultant or agent (or any person occupying a similar status or performing similar functions), in any capacity that involves: (i)�the solicitation or acceptance of customers' orders, discretionary accounts, or participation in a commodity pool (other than in a clerical capacity); or (ii)�the supervision of any person or persons so engaged.

16. The National Futures Association ("NFA") is a futures association registered with the Commission pursuant to Section 17 of the Act, 7�U.S.C. ��21 (1994). The NFA is a not-for-profit membership corporation that serves as an industry self-regulatory organization. The NFA is responsible, under Commission oversight, for certain aspects of the regulation of futures related entities, such as CPOs. It focuses primarily on the qualifications and proficiency, financial condition, retail sales practices, and business conduct of its members.

B. Record Keeping Requirements

17. Regulation 4.23, 17 C.F.R. ��4.23, requires that every CPO registered or required to be registered under the Act make and keep certain books and records in an accurate, current and orderly manner at its business office and that those records be available for inspection and copying by representatives of the CFTC during normal business hours.

18. Records required to be kept under Regulation 4.23 include, among other things:

19. Regulation 1.31, 17�C.F.R. ��1.31, requires that these books and records be kept for a period of five (5) years, be readily accessible during the first two (2) years of the five-year period, and that the books and records be open to inspection and copying by any representative of the Commission.

C. The Pools

• 1. B&F Trading and First Investor's Group

20. Between at least 1997 and the present, Ferguson has operated at least two successive commodity pools through accounts opened at two separate FCMs in the names of Phil Ferguson d/b/a B&F Trading and Phil Ferguson d/b/a First Investor's Group. These pools have or have had a total of at least 15 pool investors.

21. Ferguson represents that he has collected $56 million for the FIG pool. On information and belief, a large portion of these funds came from members of the public that invested with B&F and FIG through Ferguson.

22. The FIG and B&F pools use and have used some of these funds to trade in the commodities markets. Between 1997 and January 1999, Ferguson deposited over $3.3 million into the B&F trading account. During this same time period, the account suffered over $1.6 million in trading losses and Ferguson withdrew the rest of the funds. Ferguson closed the B &F account in February 1999. In March 2000, he opened another account in the name of FIG at a different FCM, with a deposit of $500,000. The account currently has a balance of approximately $550,000.

23. Ferguson managed the B&F account and manages the FIG account. He has directed all of the trading in the pool accounts and receives management fees for doing so.

24. Ferguson is not registered with the Commission as a CPO or in any other capacity.

• 2. FIG Account Statements and "Trade Logs"

25. On information and belief, Ferguson, or someone working on his behalf, prepares and mails quarterly account statements and "Trade Logs" to the FIG investors. The account statements reflect the status of each individual investor's investment. The "Trade Logs" purportedly show the net quarterly balance for the FIG pool and specific buys and sells of futures contracts in the commodity futures markets for the pool.

26. The latest quarterly statement, which represents the January through March, 2000 time period, shows a net balance of $129 million for the FIG pool.

27. The $129 million balance for the FIG pool is inaccurate and the January through March 2000 "Trade Logs" represent hypothetical, rather than actual, daily trades for the pool.

28. On information and belief, neither Ferguson, nor anyone working on his behalf, has informed the FIG investors that the net pool balance was inaccurate or that the trades represented in the "Trade Logs" were hypothetical.

29. To date, the Commission has not discovered any FIG commodity trading account that shows the same daily trading activity for the pool or the account balance as that included in the FIG "Trade Logs".

D. Ferguson's Refusal to Provide Documents

30. On June 21, 2000, NFA interviewed Ferguson and two individuals working on behalf of FIG. During that interview, Ferguson made inconsistent statements regarding the balance of the funds in the FIG pool and the source of the funds.

31. During the NFA interview, Ferguson also agreed to provide NFA with all books and records for FIG on June 23, 2000.

32. Ferguson failed to provide these records at that time.

33. On June 23, 2000, representatives of the Commission made a request for specific FIG books and records pursuant to its inspection powers under Regulation 1.31, including among other things, a customer list, information on the amount of investor funds collected and disbursed by FIG, and bank account information for the pool.

34. On June 26, 2000, representatives of the Commission sent additional correspondence to Ferguson's attorney restating the Commission's request for books and records.

35. As of the filing of this complaint, the Commission has not received the materials and information requested from Ferguson.

V. VIOLATIONS OF THE COMMODITY EXCHANGE ACT

COUNT I

VIOLATIONS OF SECTION 4b(a)(ii) OF THE ACT:
PROVIDING FALSE STATEMENTS TO INVESTORS

36. Paragraphs 1 through 35 are re-alleged and incorporated herein.

37. Since at least March 2000, and continuing through the present, Ferguson violated Section 4b(a)(ii) of the Act, 7�U.S.C. ��6b(a)(ii), in that he, or someone working on his behalf, prepared and mailed false "Trade Logs" to FIG investors. The "Trade Logs" include false statements regarding the value of the FIG pool and the daily trading activity for the pool.

38. Ferguson, or someone working on his behalf, engaged in this conduct in or in connection with orders to make, or the making of, contracts of sale of commodities for future delivery, made, or to be made, for or on behalf of other persons where such contracts for future delivery were or may have been used for (a)�hedging any transaction in interstate commerce in such commodity, or the products or byproducts thereof, or (b)�determining the price basis of any transaction in interstate commerce in such commodity, or (c)�delivering any such commodity sold, shipped, or received in interstate commerce for the fulfillment thereof.

39. Each false report or statement, and each willful deception made during the relevant time period, including but not limited to those specifically alleged herein, is alleged as a separate and distinct violation of Section 4b(a)(ii) of the Act, 7 U.S.C. � 6b(a)(ii).

COUNT II

VIOLATIONS OF SECTION 4m(1) OF THE ACT:
FAILURE TO REGISTER AS A COMMODITY POOL OPERATOR

40. Paragraphs 1 through 39 are re-alleged and incorporated herein.

41. Since at least 1997 and continuing through the present, Ferguson has acted as a CPO in that he has engaged in a business that is of the nature of an investment trust, syndicate, or similar form of enterprise and in connection therewith, has solicited, accepted or received funds, securities or property from others for the purpose of trading in any commodity for future delivery on or subject to the rules of any contract market.

42. Since at least 1997, Ferguson, Ferguson Financial and /or FIG have received compensation or other payment, directly or indirectly, for operating the pools.

43. Specifically, since 1997, Ferguson has solicited and accepted in excess of $200,000 in the aggregate from at least 15, members of the public to invest in the B&F and FIG commodity pools.

44. In connection with such conduct, Ferguson used or is using the mails and other means or instrumentalities of interstate commerce, directly or indirect-ly, to engage in business as a CPO.

45. Ferguson engaged and continues to engage in these activities without the benefit of registration, in violation of Section 4m(1) of the Act, 7 U.S.C. � 6m(1) (1994).

46. Each use of the mails or any means or instrumentality of interstate commerce in connection with his business as a CPO without proper registration during the relevant time period, including but not limited to those specifically alleged herein, is alleged as a separate and distinct violation of Section 4m(1) of the Act, 7 U.S.C. � 6m(1).

COUNT III

VIOLATION OF REGULATIONS 1.31 AND 4.23:
FAILURE TO PRODUCE REQUESTED DOCUMENTS

47. Paragraphs 1 through 46 are re-alleged and incorporated herein.

48. Ferguson violated Regulations 4.23 and 1.31, 17 C.F.R. ���4.23 and 1.31, in that he failed to promptly make available required books and records to the Commission for inspection and copying despite multiple requests by the Commission for access to those required books and records.

49. Each failure to provide requested documents pursuant to the Commission's inspection powers under Regulations 4.23 and 1.31 during the relevant time period, including but not limited to those specifically alleged herein, is alleged as a separate and distinct violation of Regulations 1.31 and 4.23, 17 C.F.R. �� 1.31 and 4/23.

VI. RELIEF REQUESTED

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

A. Find Ferguson liable for violating Sections 4b(a)(ii) and 4m(1) of the Act, 7 U.S.C. �� 6b(a)(ii) and�6m(1); and Regulations 4.23 and 1.31, 17 C.F.R. ���4.23 and 1.31;

B. Enter orders of preliminary and permanent injunction restraining and enjoining Ferguson and all persons insofar as they are acting in the capacity of his agents, servants, successors, assigns, and attorneys, and all persons insofar as they are acting in active concert or participation with him who receive actual notice of such order by personal service or otherwise, from directly or indirectly:

C. Enter orders of preliminary injunction restraining and enjoining Ferguson and all persons insofar as they are acting in the capacity of his agents, servants, successors, assigns, and attorneys, and all persons insofar as they are acting in active concert or participation with him who receive actual notice of such order by personal service or otherwise, from directly or indirectly:

D. Enter an order requiring Ferguson to pay civil penalties under the Act in amounts of not more than the higher of $100,000 for each violation of the Act and Regulations committed prior to November�27, 1996, or $110,000 for each violation of the Act and Regulations committed after that date, or triple the monetary gain to Defendants, for each violation of the Act and Regulations committed after that date;

E. An order directing that Ferguson provide the Plaintiff immediate and continuing access to his, Ferguson Financial's, B&F's and FIG's books and records, make an accounting to the Court of all of his, Ferguson Financial's B&F's and FIG's assets and liabilities, together with all funds they received from and paid to investors and other persons in connection with commodity futures transactions or purported commodity futures transactions, including the names, addresses and telephone numbers of any such persons from whom they received such funds from January 1997 to the date of such accounting, and all disbursements for any purpose whatsoever of funds received from commodity investors, including salaries, commissions, fees, loans and other disbursements of money and property of any kind, from January 1997 to and including the date of such accounting;

F. Enter an order requiring Ferguson to pay costs and fees as permitted by 28�U.S.C. �� 1920 and 2412(a)(2) (1994); and

G. Order such other and further relief as this Court may deem necessary and appropriate under the circumstances.

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