Division of Enforcement

The Division of Enforcement investigates and prosecutes alleged violations of the Commodity Exchange Act ("CEA" or "Act") and Commission regulations. Violations may involve commodity futures or options trading on domestic commodity exchanges, or the improper marketing of commodity investments. The Division takes enforcement actions against individuals and firms registered with the Commission, others who are engaged in commodity futures and option trading on designated exchanges, and those engaged in the unlawful offer and sale of futures and option contracts that are not traded on exchanges.

Division investigations are based on information the Division develops independently, as well as information referred to it by other Commission divisions, industry self-regulatory associations, federal, state and international authorities, and public customers. At the conclusion of an investigation, the Division, among other things, 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 registrations and exchange trading privileges, imposing civil monetary penalties, cease and desist orders and orders of restitution. The Division also may obtain temporary restraining orders and preliminary and permanent injunctions in federal court to halt ongoing violations, as well as civil monetary penalties. Ancillary relief may include appointment of a receiver, a freeze of assets, restitution, and disgorgement of unlawfully acquired benefits. When injunctive orders are violated, the Division may seek to have the offenders held in contempt.

When the Division obtains evidence during an investigation indicating that criminal violations of the CEA have occurred, the matter may be referred 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.

During FY 1996, the Commission instituted 17 injunctive actions, 10 administrative proceedings, and 11 statutory disqualification actions. Permanent injunctions were entered against 17 individuals or firms, preliminary injunctions were entered against 22 individuals or firms, and 10 ex parte temporary restraining orders were obtained. Approximately $6,390,000 of customer funds and other assets were placed under the protection of 6 equity receivers appointed this fiscal year.

Administrative litigation resulted in the entry of cease and desist orders against 21 individuals or firms. Thirteen individuals or firms were prohibited from trading on or subject to the rules of any exchange; 24 registrations with the Commission were denied, suspended, revoked or restricted; and civil monetary penalties totaling $5,530,000 were imposed on 17 individuals or firms.

During this fiscal year, the Commission concentrated on cases which would provide the greatest impact and on actions to halt ongoing illegal activity. In a number of cases, the Commission instituted actions within weeks or even days of discovering the suspected illegal activity. Many of these cases involve CTAs and/or CPOs who are not registered with the Commission, but who are acting in a capacity which requires registration and who were suspected of fraud in connection with their CTA/CPO activities.

Commodity Pool Operator (CPO) and Commodity Trading Advisor (CTA) Cases

On October 16, 1995, the Commission filed an injunctive complaint against Richard Maseri and Ronald Romberg and three firms controlled by them. According to the complaint, the defendants cheated and defrauded customers in connection with the solicitation and receipt of funds for the purchase of computer- generated trading systems and the solicitation of funds to trade commodity futures contracts. The complaint alleges that the defendants misrepresented that they were trading an account using the trading system and that all trading had been profitable. According to the complaint, no such trading account existed and the representations made concerning the purported success of the system were exclusively based upon hypothetical trading, which was not disclosed to potential customers. The day the complaint was filed, the federal district court entered an ex parte order freezing the defendants' assets, protecting and granting Commission access to books and records, and appointing a receiver. The court subsequently entered a consent order of preliminary injunction against Maseri and his company enjoining future violations of the nature alleged and continuing the previously ordered relief. After a hearing, the court entered similar preliminary injunctions against the remaining defendants. CFTC v. Maseri, Civ. No. 95-6970 (S.D. Fla. filed Oct. 16, 1995).

The Commission filed a five-count injunctive complaint against New Forest Capital Management, a registered CTA and its owner Robert Besner, a registered AP. According to the complaint, the defendants defrauded investors by misappropriating and converting customer funds, and by making misrepresentations and issuing false reports and statements to investors. The complaint alleges that the defendants accepted at least $2.7 million from investors, of which $2.2 million is unaccounted-for. Defendants allegedly represented that accounts would be opened for customers at an FCM and that defendants would direct the trading. According to the complaint, defendants sent letters confirming the establishment of such accounts when in fact the accounts were never opened. Defendants also allegedly sent statements purportedly issued by the FCM indicating that trading was profitable when in fact no trades were placed. The defendants are alleged to have converted the funds to their own use. The day the complaint was filed, the federal district court entered an ex parte order freezing assets and protecting and granting Commission access to books and records. The court subsequently entered a consent order of preliminary injunction continuing the previously-ordered relief and enjoining future violations of the nature alleged. CFTC v. Besner, Civ. No. 96- 0076 (N.D. Ill. filed January 4, 1996).

On January 4, 1996, the Commission filed a four-count injunctive complaint against Mark Shaner and his firm alleging fraud in connection with the operation of a commodity pool. In particular, the complaint alleges that the defendants, a registered CPO and AP respectively, misappropriated and converted pool funds for business and personal use and as security for personal obligations of Shaner, that they violated their duty to investors, and misrepresented to investors that their money would be used for the benefit of the commodity pool.

The complaint also names the Iowa State Bank and Trust Company as a relief defendant, seeking a constructive trust on assets of the bank traceable to the defendants' alleged fraud. According to the complaint, the defendants misappropriated $675,000 of the pool's funds to secure a personal loan at Iowa State Bank. Those funds allegedly were placed with the bank in a certificate of deposit in the pool's name. When defendants thereafter defaulted on the bank loan, pool assets on deposit with the bank are alleged to have been used to satisfy the debt and other obligations to the bank.

On the day the complaint was filed, the court entered an ex parte order freezing the defendants' assets, and protecting and requiring access to books and records. Subsequently, the court denied the Commission's motion for a TRO, stating that there was no likelihood of future violations of the nature alleged. CFTC v. Shaner, Civ. No. 96-70005 (S.D. Iowa filed Jan. 4, 1996).

On January 11, 1996, the Commission filed an injunctive action jointly with the Securities and Exchange Commission alleging fraud, conversion, and registration violations in connection with the operation of a commodity pool. The complaint alleges that Michael Tropiano, acting as an unregistered CPO, solicited $2.9 million from 118 investors for the purpose of investing in commodity pools, and, after conducting some futures trading, ceased trading and converted customers' funds to his personal benefit. Simultaneously with the filing of the complaint, the defendant agreed to the entry of a preliminary injunction enjoining future violations of the nature alleged, freezing his assets, and ordering an accounting. CFTC and SEC v. Tropiano, Civ. No. 96-228 (D.N.J. filed January 11, 1996).

The Commission instituted an injunctive action against a firm registered as a CPO and CTA, two individuals and an affiliated firm, alleging that the defendants made false, deceptive or misleading representations in soliciting investors to invest in a commodity pool. The complaint alleges that the defendants received approximately $1 million from at least 34 customers. The defendants allegedly told the customers that their funds would be deposited into two accounts: 60 percent into an S&P 500 futures trading program and the remainder in mutual funds to protect against losses in the trading program. According to the complaint, the defendants never used the trading program and deposited less than $4,000 of funds into a money market fund. The day the complaint was filed, the federal district court issued an ex parte order freezing the defendants' assets and protecting and granting access to books and records. NFA has been appointed by the court to conduct an accounting of the defendants' assets. Subsequently, the court entered preliminary injunctions against the two individual defendants enjoining future violations of the nature alleged and continuing the previously ordered relief. CFTC v. Prism Financial Corp., Civ. No. 96-D-389 (D. Colo. filed Feb. 20, 1996).

The Commission filed an administrative complaint alleging that R&W Technical Services, Ltd., which sold computer software containing commodity futures trading programs that provide signals on "when to buy, when to sell and where to place stops," among other things, acted as a CTA in violation of the registration requirements of the Act. The complaint also charged the respondents with fraud in connection with their activity. R&W sued the Commission in the United States District Court for the Southern District of Texas seeking to enjoin the Commission's administrative action on grounds, inter alia, that the Commission's registration requirement violates the First Amendment, as applied to that respondent. On July 2, 1996, the district court denied the request for a preliminary injunction, holding that R&W failed to show a substantial threat of irreparable injury or that a preliminary injunction would serve the public interest. The court did not address the First Amendment argument. The district court now has before it the Commission's unopposed motion to dismiss the complaint. R&W Technical Services v. CFTC, Civ. No. H-96-1149 (S.D. Tex. July 2, 1996). In re R&W Technical Services, CFTC Docket No. 96-3 (filed March 19, 1996).

On April 2, 1996, the Commission filed an injunctive complaint alleging that Michael Indihar and Robert Hoffman and firms controlled by them fraudulently solicited and accepted customer funds for investment in commodity futures contracts through a commodity pool. The Commission's fraud allegations include guarantees of profit and downplaying of risk of loss. According to the complaint, the defendants also allegedly converted customer funds and commingled funds with defendants' personal funds. The day after the complaint was filed, the court entered an ex parte order freezing defendants' assets and protecting and granting CFTC access to books and records. Subsequently, the court denied the Commission's motion for a preliminary injunction without discussion. CFTC v. Indihar, Civ. No. 90-08282 (S.D. Fla. filed April 2, 1996).

The Commission filed a three-count injunctive complaint against Ken Willey in connection with the operation of a commodity pool. According to the complaint, the defendant received investor funds in a name other than the pool's and commingled pool property with assets of other persons. The defendant also allegedly distributed account statements that misrepresented changes in net asset value and income and loss realized. The day the complaint was filed, the court entered a consent order of preliminary injunction freezing the defendant's assets, protecting and granting the Commission access to defendant's books and records, and enjoining future violations. The court subsequently entered an order finding the defendant in contempt for failing to divulge the location of all customer funds, as required by the preliminary injunction. The defendant was jailed on May 8, 1996. CFTC v. Willey, Civ. No. 96-0200 (E.D. Wash. filed April 9, 1996).

On April 17, 1996, the Commission filed an injunctive action against Christopher Schafer and Peter Urbani and two firms in connection with the fraudulent operation of a commodity pool and the mishandling of individual customer funds. According to the complaint, the defendants allegedly provided false reports and statements to investors in the pool and commingled customer funds. The day the complaint was filed, the court entered an ex parte order freezing the defendants' assets and protecting and granting the CFTC access to their books and records. The court subsequently entered consent preliminary injunctions enjoining future violations of the nature alleged and ordering an accounting of the defendants' assets. CFTC v. Schafer, Civ. No. 96-1213 (S.D. Tex. filed April 17, 1996).

On June 20, 1996, the Commission filed and simultaneously settled an administrative action against Oster Communications. In the order accepting the settlement and imposing sanctions, the Commission found that Oster violated the Act's anti-fraud and CTA registration provisions in connection with the sale of a computer software trading system owned by JDI Limited, Inc. In particular, the order finds that Oster joined JDI in the marketing, sale, and support of the trading system by, among other things, supplying JDI with computer hardware, software and commodity quotes at no charge, distributing promotional material and collecting names and addresses of prospective customers, and leading customers to believe that Oster was a participant in the venture. The Commission found that Oster was required to be registered as a CTA by virtue of its joint activity with JDI, notwithstanding the fact that Oster and JDI are independent firms. The Commission also found that Oster and JDI's joint activity resulted in an independent registration obligation on the part of each firm. As a consequence of the joint conduct, Oster also was found liable for fraud committed by JDI employees. Oster consented to the entry of a cease and desist order and agreed not to, either directly or jointly with others, provide advice concerning commodity futures and options contracts, without being registered. In re Oster Communications, Inc., CFTC Docket No. 96-6 (filed June 20, 1996). The Commission also filed an amended injunctive complaint in CFTC and the State of Florida v. JDI Limited, Inc., Civ. No. 95-Civ. 622 (S.D. Fla. filed Mar. 6, 1995), charging Oster with acting as an unregistered CTA and with violating the anti-fraud provisions of the Act and Commission Regulations in connection with its relationship with JDI. Simultaneously with the filing of the amended injunctive complaint, Oster consented to an order of permanent injunction and to disgorge at least $670,000 for the benefit of defrauded JDI customers.

On July 1, 1996, the Commission filed an injunctive complaint against Donald Chancey and a firm controlled by him. The allegations stem from the defendants' solicitation of at least 19 customers to invest more than $3 million in a commodity pool. The complaint alleges that the defendants cheated and defrauded customers by misrepresenting significant profits, misrepresenting the pool's performance, misrepresenting and failing to disclose the risks of trading futures contracts, and misrepresenting the circumstances under which defendants would derive income from the pool. The complaint further alleges that the defendants invested only $703,000 of the $3 million obtained from customers. Chancey paid himself a salary and bonus from some of the funds but the majority are unaccounted-for. Of the amount invested, over 50 percent was lost in trading. Defendants, however, continued to represent that trading was profitable. The day the complaint was filed, the court entered an ex parte order against the defendants in this action, freezing their assets, appointing a receiver, and protecting and requiring access to books and records. CFTC v. Chancey and Southeastern Venture Partners Group, Civ. No. 7:96-61 (M.D. Ga. filed July 1, 1996).

On July 1, 1996, the Commission filed an injunctive complaint alleging that Edward Schroeder, a Trust controlled by him, and an individual who acted as an unregistered AP violated the anti-fraud and registration provisions of the Act in connection with the operation of a commodity pool. According to the complaint, the defendants, through misrepresentations and false statements, solicited approximately 40 customers to participate in a commodity pool. Rather than invest the funds as represented, the defendants allegedly commingled the funds with assets of other persons and converted over $3 million in customer funds to their own use. The defendants also allegedly suffered over $1 million in commodities trading losses while assuring customers that they were earning high profits. The day the complaint was filed, the federal district court issued an ex parte order freezing the defendants' assets and granting Commission access to and protecting books and records. The court subsequently entered a preliminary injunction continuing the previously entered relief and enjoining future violations of the nature alleged. The preliminary injunction also requires Schroeder to make a full accounting of customer funds with the court. CFTC v. Schroeder, Civ. No. 96-5895 (C.D. Cal. filed July 1, 1996).

On July 29, 1996, the Commission filed an injunctive action alleging fraud in connection with an individual's activities as an unregistered CPO. According to the complaint, Thomas Deniz solicited pool participants with misrepresentations of profits, used funds from new participants to pay "interest" to other participants and commingled pool funds with his own. The complaint alleges that the defendant sent false statements to some participants which indicated a rate of return in excess of 25% while losing nearly 50% of the principal amount he deposited in a commodity trading account carried in his own name. The day the complaint was filed, Deniz consented to the entry of a preliminary injunction freezing his assets, protecting and granting Commission access to books and records, and enjoining future violations of the nature alleged. CFTC v. Deniz, Civ. No. 96-5895 (E.D. Cal. filed July 29, 1996).

The Commission filed a four-count injunctive complaint alleging that Everett Hobbs violated the Act by committing fraud in connection with acting as an unregistered commodity pool operator. According to the complaint, Hobbs advertised the pool in a fraudulent manner and pooled in excess of $375,000 from at least 25 customers which he commingled with his own personal funds. The complaint further alleges that the defendant failed to register as a commodity pool operator. The day the complaint was filed, the federal district court issued an ex parte order freezing the defendant's assets and granting Commission access to books and records. The court subsequently entered a temporary restraining order continuing the previously ordered relief, prohibiting the destruction of books and records, and prohibiting further violations of the Act or solicitation of new funds or accounts. On September 5, 1996, the court entered a consent order of preliminary injunction. The preliminary injunction enjoins future violations of the nature alleged, continues the asset freeze and other previously ordered relief, and requires an accounting. CFTC v. Hobbs, Civ. No. 96-5946 (E.D. Cal. filed August 13, 1996).

On September 23, 1996, the Commission, with the Arizona Corporation Commission as co-plaintiff, instituted injunctive proceedings against Anthony Andrews, Marvin Pendergraft and two firms controlled by them. The ten-count complaint alleges that the defendants committed fraud while acting as an unregistered CPO and FCM. The defendants are alleged to have solicited and accepted funds from investors for trading in individual commodity futures trading accounts. It is alleged that, instead of establishing separate accounts as represented, the defendants commingled and misappropriated funds, and then mailed fictitious account statements to their customers reflecting trades and profits that had never been made. The complaint further alleges that the defendants violated Arizona law by selling unregistered instruments and committing fraud in connection with such sales. The day the complaint was filed the federal district court entered ex parte and temporary restraining orders freezing the defendants' assets and protecting and granting Commission access to books and records. The order also prohibits future violations of the nature alleged in the complaint and future sales solicitations by the defendants. CFTC and the Arizona Corp. Comm'n v. United Metals Trading Corp., Civ. No. 96-2185 (D. Ariz. filed Sept. 23, 1996).

On September 30, 1996, the Commission filed a six-count injunctive complaint against Eugene Walter in connection with a commodities trading scheme. According to the complaint, Walter employed material misrepresentations, omissions, and other fraudulent devices in soliciting or encouraging customers to (1) place funds in Walter's own futures and options trading account and share in his ostensible trading profits, and (2) open discretionary futures and options accounts under Walter's sole control. Walter allegedly did not trade the pooled funds as represented, misappropriated certain of the funds, and sent false account statements representing that trading occurred as represented and was profitable. Walter also is charged with acting as an FCM without being so registered and failed to provide required disclosure documents and written monthly account statements. CFTC v. Walter, Civ. No. 3-96CV2734T (N.D. Tex. filed Sept. 30, 1996).

The Commission instituted injunctive proceedings against Meca International, its president and another individual on September 30, 1996. The seven-count complaint alleges violations of the anti-fraud and registration provisions of the CEA and Commission Regulations in connection with the operation of a commodity pool. Both individuals are alleged to have made fraudulent misrepresentations in soliciting customers to invest in Meca. The misrepresentations alleged included statements limiting the risk of loss, the use of investors' funds and the actual profits made. According to the complaint, although some funds were used to trade futures contracts, those transactions did not result in profits and some funds were never invested but rather were allegedly misappropriated by the defendants. The defendants also are charged with failing to provide required disclosure documents. CFTC v. Meca Int'l, Inc., Civ. No. 96- 74525 (E.D. Mich. filed Sept. 30, 1996).

Manipulation and Trade Practice Cases

On July 10, 1996, the Commission filed and simultaneously settled an administrative action against Fenchurch Capital Management, Ltd. The Commission's order finds that Fenchurch attempted to and did manipulate the value of its position on the Ten Year U.S. Treasury Note futures contract by cornering the available supply of the cheapest-to-deliver notes. According to the Commission's order, Fenchurch increased its position in the issue through a series of repurchase market transactions at a time when the notes were in tight supply. Fenchurch exacerbated the tightness in the supply of the cheapest-to-deliver notes by increasing its position and intentionally withholding the notes from the market with no legitimate economic purpose. The Commission's action and its underlying investigation were coordinated with the SEC and the Chicago Board of Trade, both of which filed related charges. In settling the CFTC's action, Fenchurch consented to the entry of a cease and desist order and to various undertakings related to its Treasury market trading. Fenchurch also agreed to conduct a review of its policies and procedures and, if necessary, to formulate and implement reforms or augmentations of those policies and procedures. Fenchurch agreed to pay a civil monetary penalty of $600,000 to the U.S. Treasury, which also satisfies Fenchurch's obligations under the SEC's consent order of permanent injunction. In re Fenchurch Capital Management, Ltd., CFTC Docket No. 96-7 (filed July 10, 1996).

The Commission filed a five count administrative complaint alleging that Ronald Schiller, Eugene Chesrow, Jr. and Emmett Whealan, all floor brokers in the live cattle futures pit at the CME, engaged in a variety of illegal trading practices. According to the complaint, Schiller defrauded customers by allocating favorable trades executed on their behalf into his personal account, allocated unfavorable trades to his customers' accounts, and changed prices and quantities on trades he made on behalf of customers which were detrimental to his customers. Schiller also is alleged to have indirectly bucketed customer orders, filled opposing buy and sell customer orders by offset and various other forms of noncompetitive trading. The other two floor brokers are alleged to have entered into noncompetitive trades with Schiller that permitted him to accomplish the unlawful trades. All three respondents are charged with various recordkeeping violations which resulted in subverting the audit trail of trading activity relied upon by the markets, the exchange and the Commission. In re Schiller, CFTC Docket No. 96- 4 (filed April 18, 1996).

The Commission filed an administrative complaint charging Mark Sitzmann with breaching his fiduciary duty to his employer by trading ahead of its orders and by concealing his personal trading from it. David Sitzmann, Mark's brother, is charged with aiding and abetting the fraud. According to the complaint, Mark Sitzmann was responsible for implementing his employer's hedging strategies. Before placing orders for his employer's account he would place orders for his personal account in the same contract and on the same side of the market as orders he thereafter placed for his employer's account. David Sitzmann allegedly aided and abetted the fraud by accepting his brother's orders through an IB owned by David Sitzmann. Both respondents also are charged with various recordkeeping violations. CFTC v. Sitzmann, CFTC Docket No. 96-5 (filed April 18, 1996).

Reporting, Recordkeeping and Financial Cases

On September 25, 1996, the Commission issued an order instituting an administrative proceeding against Deloitte & Touche LLP, and Thomas Lux, a former partner of Deloitte. Simultaneously with the filing of the complaint, the Commission accepted offers of settlement from both Deloitte and Lux. The allegations arose from Deloitte's 1993-1994 audit of an FCM, for which Lux was the supervising partner. The order finds that Lux failed to conduct the audit of the FCM's financial statements in accordance with generally accepted auditing standards and failed to investigate properly and report on material inadequacies in the FCM's internal controls. The order finds Deloitte liable for Lux's violations. Deloitte settled the charges against it by consenting to pay a civil monetary penalty of $100,000 and to comply with certain undertakings. For a period of four years, the concurring reviewer on each and every audit of a Commission registrant will have at least five years relevant experience and in each year any Deloitte partner acts as a concurring reviewer on audits of FCMs, such partner shall take at least eight hours of relevant continuing professional education. Lux settled the charges against him by agreeing to the entry of a cease and desist order and the entry of a Commission censure. In re Deloitte & Touche, CFTC Docket No. 96-10 (filed Sept. 25, 1996).

On January 24, 1996, the Commission filed and simultaneously settled an administrative action finding that Refco, Inc., violated the segregation requirements of the Act and Commission Regulations by combining the accounts of five separate entities and that Refco failed to supervise diligently the handling of these accounts by its employees. To settle the action, Refco, without admitting or denying the allegations, agreed to the entry of a cease and desist order and the payment of a $925,000 civil monetary penalty. Refco also agreed to make specific changes in its internal controls and reporting lines governing compliance and the establishment and handling of multiple accounts. For example, Refco's Director of Compliance and Senior Officer in Charge of Operations must now approve in writing certain customer account information and the Senior Officer in Charge of Operations must also pre-approve all consolidations of multiple accounts. In re Refco, CFTC Docket No. 96-2 (filed Jan. 24, 1996).

The Commission filed an administrative action against Gary Bielfeldt, Carlotta Bielfeldt and Bielfeldt & Co., alleging that Gary Bielfeldt violated the CFTC's speculative limits for corn futures trading by: (1) acting pursuant to an express or implied agreement with various family members and acquaintances; and (2) controlling the trading in the futures trading accounts of his wife. All three respondents are charged with various recordkeeping violations. In re Bielfeldt, CFTC Docket No. 96-1 (filed Oct. 31, 1996).

Unlawful Off-Exchange Instrument Cases

On April 1, 1996, the Commission, with the Arizona Corporation Commission as co-plaintiff, filed an injunctive action charging AYM Financial Corp. and three individuals associated with AYM with violating the Act by engaging in fraud in connection with the offer and sale of illegal off-exchange futures contracts to the general public. According to the complaint, the defendants exaggerated the profit potential associated with the foreign currency investments being offered and sold, and allegedly "bucketed" customer orders and converted customer funds to defendants' own use. The day the complaint was filed, three of the four defendants consented to the entry of permanent injunctions enjoining future violations of the nature alleged, freezing their assets, and protecting and granting Commission access to books and records. The permanent injunctions also prohibit those defendants from soliciting or accepting any future funds in connection with commodity futures or options and from acting in any capacity requiring registration under the Act. Those three defendants were ordered to make an accounting and they agreed to make disgorgement in the future upon application of the Commission in an amount to be determined by the court. Subsequent to the filing of the complaint, the fourth defendant agreed to the entry of a preliminary injunction enjoining future violations of the nature alleged, and granting Commission access to books and records. CFTC and Arizona Corp. Comm'n v. AYM Financial Corp., Civ. No. 96-2640 (E.D. Pa. filed April 1, 1996).

Registration, Fitness and Other Proceedings

In September, the Commission filed two cases and issued orders pursuant to which the respondents agreed to stop providing advisory services to Internet subscribers until they register as CTAs and comply with applicable regulatory requirements.

In one case, J. Spencer Brown, doing business as ProTrade, consented to the entry of an order finding that he has been operating as an unregistered CTA in violation of the Act and preventing him from violating the Disclosure Document and hypothetical performance requirements of the Commission's regulations. Brown voluntarily withdrew his page when contacted by the Division, which was less than two weeks after it was posted. At the time the page was withdrawn, Brown had not successfully solicited any customers. In re Brown, CFTC Docket No. 96-8 (filed Sept. 3, 1996).

In the other case, Steven Marks also consented to the entry of an order which finds that he has been operating as a CTA without being registered as such and that he failed to provide his customers, or file with the Commission, the Disclosure Document as required. The Commission's order also directs Marks to refund all funds he received from subscribers to his service and to transmit an electronic mail message over the Internet to all former subscribers notifying them of the action and of the Commission's Internet website. In re Marks, CFTC Docket No. 96-9 (filed Sept. 3, 1996).

During FY 1996, the Commission filed 11 statutory disqualification cases, including seven cases against floor broker or floor trader registrants or applicants who were subject to a statutory disqualification. In re Augello, CFTC Docket No. 96-1 (filed Dec. 26, 1996); In re McBride, CFTC Docket No. SD 96- 3 (filed Feb. 12, 1996); In re Blumert, CFTC Docket No. SD 96-4 (filed Mar. 7, 1996); In Kelly, CFTC Docket No. SD 96-6 (filed April 16, 1996); In re Laner, CFTC Docket No. SD 96-7 (filed May 17, 1996); In re Geraghty, CFTC Docket No. SD 96-9 (filed Aug. 7, 1996); and In re Murphy, CFTC Docket No. SD 96-10 (filed Sept. 11,1996). In five of those cases, the Commission simultaneously settled the matter by granting conditional registration to the applicants. See McBride, Blumert, Kelly, Laner, and Geraghty.

On January 17, 1996, the Commission filed an injunctive action against Thomas Richards charging him with violating a Commission order. Richards had agreed to pay a $200,000 civil monetary penalty to settle an administrative action filed in FY 1995. See In re Richards, CFTC Docket No. 95-12. He failed to do so. The injunctive complaint alleged that by failing to pay the civil monetary penalty as agreed in a Commission consent order, Richards violated the Act. The complaint sought an injunction, pre- and post- judgment interest on the unpaid amount, and imposition of a civil monetary penalty for violation of the Commission order. The defendant paid $216,600 in settlement of the matter. CFTC v. Richards, Civ. No. 96-0334 (N.D. Ill. filed Jan. 17, 1996).

Cooperation With States and Other Federal Agencies

The Commission continued to participate in the interagency Securities and Commodities Fraud Working Group. This group facilitates and encourages effective prosecution of securities and commodities fraud. Participants include various United States Attorneys, the SEC, the Federal Trade Commission, the FBI, the IRS, the Postal Inspection Service, the National Association of Attorneys General, state law enforcement officials, and various securities and futures exchanges. During FY 1996, the Commission also continued to participate in the interagency working group on telemarketing fraud, which was formed in FY 1992.

International Matters

During FY 1996, through formal and informal information- sharing arrangements, the Division cooperated with and received assistance from foreign authorities in Belgium, Canada, the Cayman Islands, Denmark, France, Germany, Guernsey, Hong Kong, the Isle of Man, Korea, Japan, Jersey, Malta, Mexico, the Netherlands, the Philippines, New Zealand, Norway, the Peoples Republic of China, Spain, Switzerland, Turkey, and the United Kingdom.

During this fiscal year, the Commission signed two Memoranda of Understanding ("MOU") with foreign regulatory authorities. On October 5, 1995, the Commission signed an MOU and a supervisory Declaration with the Hong Kong Securities and Futures Commission ("SFC"). The MOU formalized the Commission's extensive history of cooperation with the SFC, particularly in battling cross- border fraud that has victimized investors in the United States. The MOU will enable the Commission and the SFC to use their investigative powers to assist each other on an ongoing basis. The Declaration also will enhance the Commission's ability to supervise registrants engaged in managed futures activity in the U.S. and Hong Kong.

On September 16, 1996, the Commission and the New Zealand Securities Commission ("NZSC") signed an MOU concerning consultation and mutual assistance for the exchange of information. Under the MOU, the Commission and NZSC arranged to provide each other with the fullest mutual assistance permitted by U.S. and New Zealand law, including taking testimony and statements, obtaining information and documents, and conducting compliance inspections or examinations of futures transactions and futures businesses.

During FY 1996, the Division continued to represent the Commission as a member of Working Party No. 4 of the Technical Committee of the International Organization of Securities Commissions (IOSCO). This year the working party continued its work on cross-border measures available to protect the interests and assets of defrauded investors, on the exchange of information among regulators and self-regulatory organizations, and on a new mandate concerning challenges for securities and futures regulators posed by the increasing use of computer networks such as the Internet.

Also during FY 1996, Division staff continued to act in an advisory capacity to the U.S. delegation to the Financial Action Task Force, ("FATF"), an international body dedicated to promoting the development of effective anti-money laundering controls and enhanced cooperation in money laundering investigations. In 1990, FATF issued a 40-point list of recommendations on money laundering countermeasures and currently is reviewing and proposing certain modifications to the recommendations, including the mandatory reporting of suspicious transactions. This later modification may impact on the futures industry by ultimately requiring that FCMs and other registrants report suspicious transactions.

Criminal Referral and Assistance

The Division provided assistance to the Department of Justice and other federal and state agencies in commodity-related criminal proceedings, which produced the following results during the fiscal year:

Table 1

FISCAL 1995 ENFORCEMENT CASES

LISTED BY PROGRAM AREA

Name of Case/Press Release No./Date Filed

Commodity Pool Operator and Commodity Trading Advisor Cases

CFTC v. Maseri/3877-95/10/16/95

CFTC v. Besner/3885-96/01/04/96

CFTC v. Shaner3887-9601/04/96

CFTC and SEC v. Tropiano/3886-96/01/11/96

CFTC and Arizona Corp. Comm'n v. Prism Financial Corp./3892-96/02/20/96

In re R&W Technical Services, Ltd./3996-95/03/19/96

CFTC v. Indihar/3900-96/04/02/96

CFTC v. Willey/3912-96/04/09/96

CFTC v. Schafer/3914-96/04/17/96

In re Oster Communications, Inc./3921-96/06/20/96

CFTC v. Chancey/3929-96/07/01/96

CFTC v. Schroeder/3925-96/07/01/96

CFTC v. Deniz/3928-96/07/29/96

CFTC v. Hobbs/3933-96/08/13/96

CFTC and Arizona Corp. Comm'n v. United Metals Trading Corp./3944-96/09/23/96

CFTC v. Walter/3947-96/09/30/96

CFTC v. Meca Int'l, Inc./3946-96/09/30/96

Manipulation and Trade Practice Cases

In re Fenchurch Capital Management, Ltd./3922-96/07/10/96

In re Schiller/3905-96/04/18/96

In re Sitzmann/3904-96/04/18/96

Reporting, Recordkeeping and Financial Cases

In re Bielfeldt/3871-96/10/31/95

In re Deloitte & Touche/3943-96/09/25/96

In re Refco/3888-96/01/24/96

Unlawful Off-Exchange Instrument Cases

CFTC and the State of Arizonia v. AYM Financial Corp./3898-96/04/01/96

Registration, Fitness and Other Cases

In re Augello/None/12/26/95

In re CCFI, Inc./None/12/26/96

In re McBride/None/02/12/96

In re Blumert/None/03/07/96

In re Sharp/3897-96/03/19/96

In re Kelly/3906-96/04/16/96

In re Laner/None/05/17/96

In re Romero/None/08/06/96

In re Geraghty/None/08/07/96

In re Brown/3935-96/09/03/96

In re Marks/3935-96/09/03/96

In re Murphy/3942-96/09/11/96

In re Saxena/3945-96/09/30/96

CFTC v. Richards/None/01/17/96

Table 2

INJUNCTIVE ACTIONS

Fiscal Year - Actions Initiated - Defendants Named

1987 - 11 - 32

1988 - 14 - 25

1989 - 15 - 34

1990 - 11 - 33

1991 - 11 - 18

1992 - 18 - 50

1993 - 11 - 60

1994 - 10 - 34

1995 - 11 - 27

1996 - 17 - 45

Table 3

ADMINISTRATIVE ACTIONS

Fiscal Year - Actions Initiated - Respondents Named

1987 - 22 - 59

1988 - 40 - 100

1989 - 35 - 106

1990 - 37 - 81

1991 - 31 - 51

1992 - 36 - 79

1993 - 45 - 72

1994 - 33 - 60

1995 - 41 - 72

1996 - 21 - 32