Release: #4179-98 (CFTC Docket Nos. 98-15 and 98-16)
For Release: August 17, 1998

CFTC FILES ENFORCEMENT ACTION ALLEGING FRAUD, REGISTRATION AND REGULATORY VIOLATIONS BY INTERNATIONAL FUTURES CORPORATION, AN INTRODUCING BROKER IN WASHINGTON, D.C., AS WELL AS FAILURE TO SUPERVISE DILIGENTLY BY ITS FUTURES COMMISSION MERCHANT, LIT DIVISION OF FIRST OPTIONS OF CHICAGO

Complaint Charges that Introducing Broker Committed Fraud in Soliciting Managed Account Trading Program and Acted as Unregistered Commodity Trading Advisor, and That Futures Commission Merchant Failed to Supervise Diligently the Activities of its Guaranteed Introducing Broker

WASHINGTON -- The Commodity Futures Trading Commission (CFTC) announced today the filing of a five-count administrative complaint alleging that International Futures Corporation (IFC), a registered introducing broker (IB) located in Washington, D.C., violated the anti-fraud provisions of the Commodity Exchange Act (CEA) and CFTC Regulations by fraudulently soliciting clients to trade its "Hermes" managed account program, a computerized S&P 500 day trading program. The complaint further alleges that in soliciting and trading the Hermes program, IFC acted as an unregistered commodity trading advisor (CTA) in violation of the CEA and also violated several CFTC Regulations governing the conduct of CTAs. In addition, the complaint alleges that LIT Division of First Options of Chicago (LIT), a registered futures commission merchant located in Chicago, Illinois, which guaranteed IFC, is liable for IFC's statutory and regulatory violations and that LIT also failed to supervise diligently its guaranteed IB, IFC, as required by CFTC Regulation 166.3. The CFTC also announced today that it issued an order instituting administrative proceedings against Robert J. Rubel, IFC's former Chief Executive Officer and President, and that simultaneous with the filing of this administrative proceeding, it accepted Rubel's offer of settlement. Rubel is registered with the CFTC as an AP of IFC and also as a CTA under the name of Robert J. Rubel, C.T.A. d/b/a Mt. Olympus Trading.

More specifically, the CFTC complaint alleges that IFC fraudulently portrayed the Hermes trading program as an established, time-tested trading program that had achieved phenomenal results for customers over a period of years. According to the CFTC complaint, IFC misrepresented in its radio advertisements, written promotional material, and oral representations to prospective clients that the Hermes program had between three and eight years of actual performance results when, in fact, all the performance results provided were hypothetical. The complaint further alleges that IFC falsely asserted that all or a substantial number of IFC brokers had invested in the Hermes program.

The CFTC charges that IFC acted as a CTA in soliciting clients to trade, and in trading, its Hermes managed account program, but that IFC failed to register as a CTA as required by the CEA. The complaint further charges IFC with violating CFTC Regulations that require a CTA to deliver a Disclosure Document for its trading program to prospective clients, file a Disclosure Document for its trading program with the CFTC, and keep the originals or copies of promotional materials (including advertisements) for a period of five years. The nearly 40 IFC clients that traded the Hermes program lost approximately $400,000.

According to the CFTC complaint, LIT guaranteed IFC from December 1993 until July 1997. The complaint alleges that LIT is liable for the fraud, registration and regulatory violations committed by its agent, IFC. The complaint further alleges that LIT approved certain of IFC's fraudulent radio advertisements and written promotional material regarding the Hermes program. The complaint charges that LIT failed to supervise diligently the activities of its guaranteed IB, IFC, in violation of CFTC Regulation 166.3.

The CFTC order as to Rubel, based on the settlement, finds that he violated the anti-fraud provisions of the CEA and CFTC Regulations by fraudulently soliciting clients to trade IFC's Hermes program in radio advertisements, written promotional literature, and oral representations. The order further finds that Rubel aided and abetted the IB's fraud, registration, and regulatory violations, and that Rubel also is liable for those violations as a controlling person of the company.

Rubel, without admitting or denying the findings, consented to the entry of the order:

-- directing him to cease and desist from further violations;

-- revoking his registrations;

-- imposing a five-year trading ban; and

-- directing him to pay a $15,000 civil monetary penalty.

According to the order, the CFTC believes that a more substantial monetary sanction would have been appropriate but for Rubel's showing of his financial condition.

The CFTC's complaint against IFC and LIT institutes a public administrative proceeding to determine if the allegations in the complaint are true and, if so, whether sanctions should be imposed.