For Release: August 10, 2006
Washington, D.C.— The U.S. Commodity Futures Trading Commission (CFTC) announced today that on July 27, 2006, the Honorable Ewing Werlein Jr., U.S. District Court Judge for the Southern District of Texas, ordered John Novak of The Woodlands, Texas, and his now-dissolved company, Nexgen Software Systems, Inc. (Nexgen) to pay a $20,000 civil monetary penalty for failing to register with the CFTC as a commodity trading advisor (CTA).
The order stems from a CFTC complaint filed in 2004 that charged that the defendants used fraudulent and misleading representations to solicit members of the general public to direct the trading in their commodity interest accounts, while failing to register with the CFTC as a CTA (see CFTC News Release 4977-04, August 18, 2004).
The order finds that from early 2002 to February 2003, Nexgen offered customers (or subscribers) a subscription service, commonly called Nexgen Live, which generated purchase and sale signals. The signals were transmitted directly to a futures commission merchant (FCM) where the Nexgen Live subscriber had a commodity interest account. In each case, the subscriber entered into a “Letter of Direction” agreement with an FCM instructing the FCM to trade the customer’s account without prior approval according to the purchase and sell signals generated by Novak, on behalf of Nexgen.
Specifically, the order finds that the defendants were aware that the Nexgen Live signals sent to the subscribers’ FCMs were being used to direct the trading in the subscribers’ accounts through an agreement that gave no discretion to the FCM to deviate from the Nexgen Live signals sent by Nexgen.
The court concluded that by causing transactions to be effected for subscribers’ commodity interest accounts through Nexgen’s generation and transmission of purchase and sell signals to the subscribers’ FCMs -- with the knowledge that those signals would be used to place trades in subscribers’ accounts without the subscribers’ specific authorization of each trade -- Nexgen operated as a CTA as defined by the Commodity Exchange Act (CEA) and violated the CEA by not registering with the Commission as a CTA.
The order also finds that the defendants failed to provide customers with mandatory disclosure documents, as required by the CEA.
The following CFTC Division of Enforcement staff members are responsible for this case: Lael Campbell, John Dunfee, and Joan Manley.
Last Updated: April 22, 2010