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 option 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, those 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.
The Division bases investigations on information the Division develops independently, as well as information referred by other Commission divisions, industry self-regulatory associations, 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 registrations and exchange trading privileges and 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 those enjoined violate court orders, 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 Division 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.
During FY 1997, the Commission instituted 17 injunctive actions and 23 administrative proceedings, which included 8 statutory disqualification actions. Permanent injunctions were entered against 31 individuals or firms, preliminary injunctions were entered against 32 individuals or firms, and 10 ex parte temporary restraining orders were obtained. Five equity receivers were appointed this fiscal year, and approximately $5.7 million of customer funds and other assets were placed under the protection of equity receivers.
Administrative litigation resulted in the entry of cease and desist orders against 31 individuals or firms. Thirty individuals or firms were prohibited from trading on or subject to the rules of any exchange; 52 registrations with the Commission were denied, suspended, revoked, conditioned or restricted; and civil monetary penalties totaling $4,532,000 were imposed on 19 individuals or firms.
This year, the Division has devoted a great deal of its time and attention to matters involving allegations of fraud in a variety of contexts. For example, the Division pursues cases against unregistered persons or entities that have acted in a capacity that requires registration and which have violated the anti-fraud provisions of the Act in connection with these activities. Additionally, the Division has filed cases alleging fraud in the offer and sale of various off-exchange instruments, including hedge-to-arrive grain contracts, precious metals contracts, and foreign currency contracts marketed to the general public. The Division has also pursued cases against entities which it believes are engaged in the use of fraudulent advertising and solicitations. During FY 1997, the Division engaged in the following actions.
Unregistered Activity and Fraud
These cases result from a general increase in customer funds under management by commodity trading advisors (CTAs) and commodity pool operators (CPOs) and from the public's desire to find profitable trading programs. Unregistered CPOs, CTAs and FCMs have taken advantage of this trend by making fraudulent misrepresentations, usually to small retail customers, to induce them to invest. These unregistered persons often convert customer funds to their own personal or business use. Examples of cases alleging unregistered activity and/or fraud filed in FY 1997 follow.
CFTC v. AVCO Financial Corp., et al.
The Commission filed a three-count civil injunctive complaint against AVCO Financial Corp., Anthony Vartuli and J. Michael Gent. Neither Vartuli nor Gent has ever been registered with the CFTC. The Commission filed the case after AVCO failed in its attempt to enjoin the Commission's investigation. The complaint alleges that the defendants fraudulently solicit customers to purchase their software program, known as Recurrence, which provides specific advice about transactions in exchange-traded foreign currency futures. In addition, the complaint includes the charge that AVCO acts as an unregistered CTA. CFTC v. AVCO Financial Corp., et al., No. 97-3119 (S.D.N.Y. filed Apr. 30, 1997).
In re Arnold
In July 1997, the Commission filed a five-count administrative complaint against Curtis McNair Arnold and London Financial, Inc. (LFI). Arnold is president and sole principal of LFI, and neither Arnold nor LFI is registered with the CFTC in any capacity. The CFTC complaint charges Arnold and LFI with violating the anti-fraud provisions of the Act and Commission's regulations by fraudulently soliciting customers to purchase a commodity futures trading system known as Pattern Probability Strategy. The complaint also alleges that at least since 1996, the respondents have fraudulently marketed other trading systems, some authored by Arnold and some by other system vendors. The Commission charged Arnold and LFI with acting as unregistered CTAs and charged Arnold with acting as an unregistered CPO and as an unregistered associated person of a CPO. In re Arnold, CFTC Docket No. 97-12 (filed July 30, 1997).
CFTC and the State of Florida v. Dowler, et al.
In November 1996, the Commission along with the Florida Department of Banking and Finance filed a nine-count injunctive complaint against James V. Dowler and Dowler & Beekman Trading Co. The CFTC and the Florida Department of Banking and Finance alleged that the defendants embezzled and converted customers' funds to their own personal and business uses, committed fraud by falsely representing the state of customers' accounts, and failed to include the proper information regarding their hypothetical trading performance in advertisements. The complaint alleges that the defendants acted as an unregistered CPO, CTA, and associated person. As alleged in the amended complaint (filed Jan. 27, 1997), Dowler and D&B Trading misappropriated customer deposits and trading profits totaling more than $970,000 from customers who opened managed futures trading accounts with D&B Trading. The Florida Department of Banking and Finance also charged the defendants with violating the Florida Securities and Investor Protection Act (FSIPA). In February, the court entered a permanent injunction requiring that Dowler make full restitution to D&B Trading's former customers and enjoining both defendants from violating the Act, Commission's Regulations and FSIPA, from operating as a CTA, CPO or associating with a CTA and CPO, and from seeking registration with the Commission in any capacity. CFTC and the State of Florida v. Dowler, et al., No. 96-14284 (S.D. Fla. filed Nov. 4, 1996).
CFTC v. Hermans
As an outgrowth of the Commission's investigation of Edward Schroeder, against whom the Commission filed an injunctive action in July 1996 on which the Commission obtained a favorable result in July 1997, the Commission moved to enjoin fraud in connection with the activity of unregistered CPO Carl J. Hermans (d/b/a California Traders Group). The five-count injunctive action against Hermans alleges that he operated an unregistered pool and aided and abetted the fraud and registration violations of Schroeder, also an unregistered CPO. One day after the complaint was filed, the court entered an ex parte order freezing Hermans' assets and prohibiting his destruction of books and records. In February 1997, the court issued a preliminary injunction in accordance with the terms of the ex parte order. In June, the court entered a default judgment which, among other things, awarded restitution in the sum of approximately $778,000 and civil monetary penalties in the amount of $125,000. CFTC v. Hermans, Civ. No. 97-0777 (C.D. Cal. Feb. 5, 1997).
In re Jewett
In March, the Commission filed a complaint against Eugene Jewett alleging that he acted as an unregistered FCM when soliciting funds to trade commodity futures and options on behalf of customers. In May, the ALJ issued an Initial Decision on Default, finding that Jewett had acted as a FCM without being registered with the Commission by soliciting and accepting over $30,000 from customers to open accounts to trade commodity futures and options on the customers' behalf. The ALJ also found Jewett liable for commingling customer funds and failing to provide customers with separate written risk disclosure statements and written monthly account statements. The ALJ ordered Jewett to cease and desist various violations of the Act and to pay a total of $30,500 in restitution to three customers. The ALJ also prohibited Jewett from trading on any contract market for a period of ten years or until he has made full restitution to each of the customers, whichever is longer. In re Jewett, CFTC Docket No. 97-7 (filed Mar. 19, 1997).
CFTC v. Rosenberg
In June, the Commission filed a six-count civil injunctive complaint in the U.S. District Court for the District of New Jersey against Murray Ira Rosenberg d/b/a Pro Broker Services Inc. Rosenberg was registered with the CFTC as a floor broker from April 9, 1985, until January 21, 1995, but is not currently registered with the CFTC in any capacity. The complaint alleges, among other things, that between 1993 to 1996 Rosenberg (1) misappropriated and converted $265,000 of customer funds for his own business and personal living expenses, (2) misrepresented that he would open an account in a customer's name, when instead Rosenberg opened the account in his own name, (3) failed to execute and transmit commodity futures and option trades that a customer asked him to make, (4) executed trades in the account without customer knowledge or approval, and (5) provided a customer with IRS form 1099s containing false information. The complaint also alleges that Rosenberg acted as an FCM without being registered with the CFTC, commingled the customer's funds with his own, and failed to provide the customer with the appropriate transaction confirmations and account statements. CFTC v. Rosenberg, No. 97-2927 (D. N.J. filed June 19, 1997, and amended Sept. 2, 1997).
In re Kerzinger
In September, the Commission simultaneously instituted an administrative proceeding against and accepted an offer of settlement from Willy Kerzinger. The Commission's order finds that between 1989 and 1994, Kerzinger, doing business as Commodity Pool Services, acted as an unregistered CPO and obtained approximately $798,000 from investors as a result of his fraudulent misrepresentations. The order also finds that Kerzinger misappropriated investor funds for personal use. Under the terms of the settlement, the Commission permanently prohibited Kerzinger from trading commodity futures or options. Kerzinger agreed to (1) disgorge $15,000 to defrauded investors, (2) never seek registration with the Commission or engage in activity requiring registration, and (3) never accept money from others for the purpose of trading commodity futures or options. The CFTC's action stemmed from a joint investigation by the CFTC and SEC. The SEC filed a separate and simultaneous administrative proceeding alleging federal securities violations and also accepted Kerzinger's offer of settlement. In re Kerzinger, CFTC Docket No. 97-15 (filed Sept. 4, 1997).
CFTC v. L.A. Forex
Also in September, the Commission filed a five-count civil complaint alleging that, since early 1996, defendants L.A. Forex, Inc., Gabor Urban (president of L.A. Forex), and Marta Ban (vice president of L.A. Forex) misappropriated more than $900,000 in a fraudulent Ponzi scheme in connection with their operation of an unregistered commodity pool. The complaint alleges, in part, that the defendants falsely represented to prospective and current investors that their commodity futures trading has been highly profitable when, in fact, the only trading conducted by Urban and Ban sustained over $670,000 in trading losses. It also alleges that the defendants made numerous fraudulent misrepresentations and omissions in the course of their solicitation of investors. Three days following the filing of the complaint, the court entered a temporary restraining order which prohibits the defendants from soliciting or accepting funds from the public in any investment relating to commodity futures. In addition, the court's order freezes the defendants' assets and prohibits them from both destroying books and records and denying CFTC representatives access to such records. CFTC v. L.A. Forex, No. 97-6800 (C.D. Cal. filed Sept. 12, 1997).
CFTC v. Ramirez
In September, the U.S. District Court for the Northern District of Illinois entered a consent order of permanent injunction against Anthony S. Ramirez and Abacus Investment Group, Inc., neither of which has ever been registered with the CFTC. The court's action stems from a five-count injunctive complaint alleging that the defendants cheated and defrauded investors by misappropriating and converting customer funds, and by making misrepresentations and issuing false reports and statements to investors. Specifically, the complaint alleges that the defendants accepted at least $507,000 from commodity investors, $385,000 of which Ramirez converted to his personal use. Defendants agreed (1) to findings that they committed all of the violations alleged in the complaint; (2) to be permanently enjoined from further violations of the Act as charged; (3) to be permanently prohibited from registering with the CFTC and from engaging in any activity in the commodity futures industry on behalf of others; (4) to be permanently barred from trading commodities for their own accounts; and (5) to provide an accounting of customer funds. The court reserved Issues regarding the CFTC's requests for disgorgement of profits, restitution of customer funds, and payment of a civil monetary penalty pending the filing of an accounting by defendants and discovery by the Commission. CFTC v. Ramirez, No. CIV 97 C 6528 (N.D. Ill. filed Sept. 16, 1997).
Quick Strike Cases
The Division has made a commitment to respond quickly to investigations which uncover ongoing fraud. Quick strike cases are civil injunctive actions, generally filed in federal district courts, often within days or a few weeks of the discovery of the illegal activity. This quick strike ability enables the Division to put a stop to fraud at an early stage and to attempt to preserve customer funds. In addition, through these cases, the court imposes sanctions on wrongdoers in an expedited time period, sending a strong, deterrent message to other potential wrongdoers. Some samples of quick strike cases filed to date in FY 1997 follow.
CFTC v. O'Shaughnessey, et al.
In November of 1996, the Commission filed a five-count injunctive complaint alleging that defendants Daniel M. O'Shaughnessey, Glory Fund I, Inc., and Glory Fund, L.L.C., defrauded Glory Fund pool participants, issued false statements, commingled pool funds, and engaged in false advertising. At the time the complaint was filed, the court entered an ex parte restraining order freezing defendants' assets and prohibiting the destruction of, and granting access to, defendants' books and records. Six days later, the court entered a consent preliminary injunction consistent with the terms of the ex parte order. In September 1997, the court granted the Commission's motion for partial summary judgment and issued an order enjoining defendant O'Shaughnessey from violating the Act and Commission's regulations and prohibiting him from soliciting new customers or accepting new deposits for the purpose of trading commodity futures. The Court reserved entering orders regarding restitution, disgorgement or civil monetary penalties pending a hearing. CFTC v. O'Shaughnessey, et al., No. 96-10421 (E.D. Mich. filed Nov. 20, 1996).
CFTC v. AC Trading Group Fund, et al.
In April, based on a referral and substantial assistance from the National Futures Association, the CFTC filed an injunctive complaint against AC Trading Group, Inc., AC Trading Group Fund, L.P., Alexis Carles, and Fred Eric DeJong. The three-count complaint alleges that the defendants have falsely represented to prospective commodity pool investors that their commodity futures trading has been highly profitable, when in fact they have sustained at least $1.7 million in trading losses. The CFTC's complaint also alleges that the defendants sent false account statements reflecting profitable trading, when in fact their trading had sustained massive losses, and that the defendants had misappropriated and converted to their personal use more than $300,000 in investors' funds. The court entered an ex parte asset freeze order at the time the complaint was filed. Less than two weeks later, the court entered a preliminary injunction prohibiting violations of the Act, freezing assets, prohibiting the destruction of and ordering access to books and records, ordering an accounting, and prohibiting solicitation of customers and acceptance of customer funds. CFTC v. AC Trading Group Fund, et al., No. CV 97-3160 MCC (N.D. Cal. filed Apr. 17, 1997).
CFTC v. Rutman
In May, within weeks of receiving a referral, the Commission filed a four count complaint against Robert Rutman. The complaint includes allegations that Rutman engaged in fraudulent solicitation by misrepresenting his track record as a futures trader and the potential risks of trading commodity futures. The complaint alleges that Rutman repeatedly misrepresented that he traded futures profitably when, in fact, he traded unprofitably at all times and lost investor funds. Rutman also failed to register with the CFTC as an FCM, commingled customer funds with his own, guaranteed that principal would not be lost, and failed to provide required risk disclosure statements, account statements and transaction confirmations. In June, the court entered a consent preliminary injunction which, among other things, enjoins Rutman from acting as an FCM without being registered, grants the CFTC access to books and records, prohibits Rutman's solicitation of customer funds, and prohibits him from trading on any contract markets. CFTC v. Rutman, No. 97-CV-3141 (E.D. Pa. filed May 1, 1997).
CFTC v. Berkshire International Hedge Fund L.P. II
In June, the Commission filed a civil injunctive action against Michael Myatt, PragmaCapital Corporation, and the Berkshire International Hedge Fund L.P. II, none of which had ever been registered with the Commission. The three-count complaint alleges that the defendants engaged in fraudulent conduct in connection with their operation of an unregistered commodity pool. Under the terms of a consent preliminary injunction entered on June 5, 1997, the court froze approximately $1.9 million of customer funds, and the defendants have been ordered to perform a full accounting of all funds received and their disposition. CFTC v. Berkshire International Hedge Fund L.P. II, et al., No. 97-838MA (D. Or. filed June 4, 1997).
CFTC v. Klitin, et al.
In August, the Commission filed a three-count injunctive complaint against Oscar A. Klitin and Klitin Associates II. The complaint alleges that defendants (1) misappropriated and converted over $200,000 of customer funds, (2) failed to disclose material business dealings between the pool, Klitin Associates, and Klitin, the pool operator, and distributed misleading account statements to pool participants, (3) failed to provide pool participants with quarterly account statements, and (4) failed to distribute the 1996 Annual Report to each participant and to file a copy with the CFTC. Shortly after the Commission filed the complaint, the U.S. District Court for the Eastern District of New York entered an ex parte restraining order against defendants, freezing the defendants' assets and prohibiting them from destroying books and records and from denying CFTC representatives access to such records. Klitin is registered with the CFTC as a CPO. CFTC v. Klitin, et al., Civ. No. 97-4793 (E.D.N.Y. filed Aug. 26, 1997).
CFTC v. Barback
Also in August, the Commission filed a two-count injunctive complaint charging Ronald Barback with defrauding at least seven customers of at least $165,000. The complaint, which the Commission filed within weeks after the Division learned of the potentially violative conduct, alleges that Barback, who has never been registered with the CFTC, misrepresented to prospective customers his performance record and the risks associated with trading commodity futures contracts. The complaint further alleges that Barback guaranteed certain prospective customers that they would profit from futures trading. In addition, the complaint charges Barback with the unauthorized trading of at least one customer's account. At the time the Commission filed the complaint, the U.S. District Court for the Eastern District of Tennessee entered an ex parte freeze order against Barback prohibiting him from destroying, altering, or disposing of books and records. Shortly thereafter, in September, the court entered a consent preliminary injunction which, among other things, grants the Commission access to Barback's books and records; orders Barback to make a full accounting; prohibits Barback from trading on any contract markets; prohibits Barback from soliciting customer funds in connection with commodity transactions; and enjoins him from acting in any capacity which requires registration with the Commission. CFTC v. Barback, No. 3:97-CV-638 (E.D. Tenn. filed Aug. 27, 1997).
The Division of Enforcement continues to address illegal offers and sales of off-exchange futures contracts. During FY 1997, this activity focused primarily on three types of instruments: those involving the sale of ''hedge-to-arrive'' grain contracts (''HTAs''), those involving precious metals, and those involving foreign currencies marketed to the general public. As to the last category of cases, under the recent interpretation of the Treasury Amendment in CFTC v. Frankwell, 99 F.3d 299 (9th Cir. 1996), the Commission has been unable to pursue foreign currency cases where jurisdiction lies only within the Ninth Circuit. However, enforcement efforts continue in other jurisdictions. Some examples of cases involving fraudulent sales of illegal off-exchange futures follow.
In the first quarter of FY 1997, the Commission filed the first three cases arising out of its investigation of certain hedge-to-arrive contracts (HTAs) involving grain elevators, producers and marketers of grain. The Commission's heightened surveillance of grain markets during volatile market conditions in 1995 and 1996 prompted the investigation. In re Grain Land Cooperative, CFTC Docket No. 97-1 (filed Nov. 13, 1996), alleges that Grain Land, a grain elevator, offered and sold HTAs that constituted illegal, off-exchange futures contracts in violation of the Act. In re Roger Wright, et al., CFTC Docket No. 97-2 (filed Nov. 13, 1996), charges Wright with acting as an unregistered CTA and with fraud in connection with his marketing and promotion of, and his entry into, illegal, off-exchange futures and option contracts. The complaint also charges A.G. Edwards and one of its employees with aiding and abetting Wright's unregistered activities and trading without proper authorization. The complaint charges Buckeye Countrymark, a cooperative grain elevator, with offering and entering into illegal, off-exchange futures and option contracts. In re Southern Thumb Co-op, Inc., CFTC Docket No. 97-3 (filed Nov. 13, 1996), alleges that Southern Thumb, a cooperative grain elevator, violated the Act by selling illegal, off-exchange agricultural options and engaging in fraud in connection with its marketing of the illegal instruments.
Precious Metals Cases
In June 1997, the Commission filed a two-count civil injunctive complaint charging C.O.M. Consultants (d/b/a Golden State Bullion), Richard Otto (Golden State's president and owner) and Linton Samaru, Fred Williams and Bruce Paine (all Golden State telemarketers) with fraudulently selling illegal, off-exchange precious metals futures contracts to the general public. The scheme purported to involve the ''purchase'' of platinum which was ''held'' outside the U.S.. The Commission charged that, in fact, the transactions were not proper purchase and finance arrangements, but instead had all the indicia of futures contracts. In addition, the complaint alleges that defendants' high-pressure sales pitch claims that their program involves little or no risk and is likely to earn a large return in a short period of time. On June 19, 1997, the day the Commission filed the complaint, the court entered an ex parte order freezing Golden State's assets and appointing a receiver to take control of the company. The San Diego office of the FBI, the San Diego Boiler Room Task Force, the California Department of Corporations, the Federal Trade Commission, the Los Angeles County Police Department, the National Fraud Information Center, the Better Business Bureau of Southern California, and the Texas State Securities Board all provided assistance to the CFTC during the investigation. CFTC v. C.O.M. Consultants, Inc., et al., No. 97-4443 (C.D. Cal. filed June 19, 1997).
Foreign Currency Cases
In October 1996, the Commission filed a four-count injunctive complaint naming World Wide Currencies, Inc., United Currencies Corp., and A+ Currencies International, Inc. as defendants. The complaint alleges that the defendants committed fraud in the offer and sale to the general public of illegal futures contracts on various foreign currencies, operated as an unregistered FCM, and converted customers' funds to personal or business uses. At the time the Commission filed the complaint, the court issued an ex parte restraining order freezing the assets of the three defendants, prohibiting the destruction of books and records, and granting the CFTC access to such books and records. In November 1996, the court entered a preliminary injunction to the same effect. CFTC v. World Wide Currencies, et al., No. 97-7814 (S.D.N.Y. filed Oct. 16, 1996).
In January 1997, the Commission filed a seven-count administrative complaint alleging that New York Forex and Peter Lai -- its sole proprietor, President and CEO -- fraudulently solicited customers, illegally offered and sold futures contracts, co-mingled and converted customer funds, and bucketed orders. The complaint also alleges that New York Forex operated as an unregistered FCM and that Andrew Scudiero solicited customers on its behalf as an unregistered associated person. In re New York Forex Ex-Center Corp., et al., CFTC Docket No. 97-5 (filed Jan. 28, 1997).
In August 1997, the Commission filed an eight-count administrative complaint, charging Global Currencies Ltd., its three co-founders (Leon Levitis, Ilya Levitis, and Alex Efrosman) and its sales manager and chief trader (Paul Manfre) with, among other things, fraudulently selling illegal foreign currency futures contracts to the general public. Additionally, the complaint charges that the Levitis brothers and Global Currencies cheated and defrauded customers in connection with the offer and sale of these contracts, issued false reports and statements to customers, bucketed customer orders, commingled and converted customer funds, and violated the CFTC's registration requirements -- all in violation of the Act. The complaint charges Efrosman and Manfre with committing fraud, offering and selling illegal futures contracts, and with registration violations. In re Global Currencies, Ltd., CFTC Docket No. 97-13 (filed Aug. 7, 1997).
In July 1997, the Commission filed a civil injunctive complaint (initially under seal) against two firms and two individuals. The complaint charges Templer International, Ltd., Worldwide Commodities, Ltd., William Sanchez, Worldwide's president, and Brian Willis, Templer's president, with violating the anti-fraud, conversion, and registration provisions of the Act and the Commission's regulations. Among other violations alleged, the complaint charges that the defendants fraudulently solicited customers to trade in the spot foreign currency markets when, in fact, their funds were used, in part, to trade commodity futures contracts. The complaint also alleges that the defendants converted customer funds to their own personal and business uses. Specifically, the complaint alleges that defendants misappropriated approximately $1 million out of approximately $4 million solicited from more that 300 customers nationwide. CFTC v. Templer Int'l, Ltd., et al., No. 97-Civ. 5255 (S.D.N.Y. filed under seal on July 17, 1997).
In a related matter, on September 12, 1997, the U.S. Attorney for the Southern District of New York filed a seven-count indictment against Sanchez, Willis and three others charging conspiracy, wire fraud and mail fraud in connection with their activities at Templer, Worldwide and a predecessor firm, Commonwealth Trading Group. The indictment charges that the defendants fraudulently solicited funds to be traded in the spot foreign currency market, mailed false account statements and wrongfully used investor funds to pay for operational costs, for withdrawal demands made by other customers and for personal use.
Improper Solicitation and Advertising
The Division of Enforcement monitors solicitation through all forms of media including television, radio, and more recently, the Internet. The Division investigates and pursues enforcement actions against individuals and entities engaged in fraudulent advertising. Examples of the Division's work in these areas during FY 1997 follow.
CFTC v Mass Media Marketing, Inc., et al.
In May 1997, the Commission filed a three-count civil injunctive action charging Mass Media Marketing, Inc., Commodity Referral Service, Inc., and Rolando Nanasca with violations of anti-fraud and registration provisions of the Act. None of the defendants has ever been registered in any capacity with the CFTC. In the first case of its kind filed by the Commission, the injunctive action seeks to halt allegedly fraudulent advertisements and infomercials used to generate sales leads to be referred to introducing brokers. In addition to alleging registration and record keeping violations, the complaint alleges that the defendants engaged in fraud by claiming that presently known market conditions and predictable price trends that affect the spot market price of a commodity increase the likelihood of profiting from options on that commodity's futures contract and decrease the risks associated with such options. CFTC v. Mass Media Marketing, Inc., et al., No. 97-1492 (S.D. Fla. filed May 8, 1997).
In re Lexus Financial Group, Inc.
In November 1996, the Commission filed an administrative action alleging that Lexus Financial Group, Inc., a registered introducing broker, David Alan Luger, Lexus's co-owner and president, and Mark Lee Singer, its co-owner and vice president, committed fraud by making false, deceptive, and misleading statements in radio infomercials and in telephone solicitations of customers to purchase commodity options. The alleged misrepresentations included statements virtually guaranteeing commodity price increases; overstating the extent to which option customers would profit from these price increases; exaggerating the likelihood of profit and minimizing the risk of loss in trading commodity options; and overstating Lexus's performance record. The complaint further alleges that since its inception in late 1992, Lexus has traded over 800 customer accounts, over 88 percent of which have lost money, while Lexus has received $5.3 million in commissions, representing more than 75 percent of total customer losses. The complaint includes counts for fraud and for failure to supervise. In re Lexus Financial Group, Inc., CFTC Docket No. 97-4 (filed Nov. 25, 1996).
The Division maintains an Internet surveillance program to monitor commodity option and futures related web sites and homepages on the Worldwide Web, as well as messages posted on Internet bulletin boards. Staff also monitor various newsgroups and chat rooms relating to commodity futures. This monitoring of the Internet has generated dozens of enforcement inquiries concerning issues such as possible registration violations, possible misrepresentations of the success of trading programs and the offer of potentially illegal, off-exchange products. The Division has also used the Internet to disseminate information to the general public. In one injunctive case involving fraud by an unregistered CPO in which the defendant fled, the Division used its homepage to post a picture of the defendant in search of information concerning his whereabouts. Later, when the court ordered an auction of defendant's assets for the benefit of defrauded customers, the Division posted on its homepage pictures of the personal property to be auctioned in order to generate interest in the upcoming auction. To assist the public in contacting the Division to report suspicious conduct, the Division's homepage also contains an electronic questionnaire which can be completed on-line. The homepage also provides access to the Proceedings Bulletin, by which the public can check the existence of enforcement sanctions assessed or actions pending against individuals and entities.
Supervision and Compliance Cases
In its efforts to ensure the sound practices of firms handling customer funds, the Division investigates and prosecutes registrants which fail to supervise diligently the handling of customer accounts and that fail to establish adequate compliance systems to prevent fraud or market abuse. The matters below illustrate the Division's work in this regard during FY 1997.
Report of Investigation in the Matter of Merrill, Lynch, Pierce, Fenner & Smith, Inc.
On March 19, 1997, the Commission issued a report of investigation concerning the conduct of Merrill, Lynch, Pierce, Fenner & Smith, Inc. The investigation concerned the conduct of Richard Bell, who, while an associated person (AP) of Merrill Lynch but outside his employment, operated an unregistered commodity pool/''Ponzi'' scheme that raised approximately $16 million from investors. The report, the first of its kind issued by the Commission, indicates that Merrill Lynch received several inquiries regarding Bell, but did not follow up other than by interviewing Bell. The report concluded that information regarding an employee's outside business activity can be relevant to an assessment of the employee's ability to do his job and the employer's discharge of its obligation to provide proper supervision. The report expressed the Commission's belief that Merrill Lynch's inadequately inquired into Bell's activities. Merrill Lynch did not admit the facts or conclusions stated in the report. Because the Commission had not previously considered the level of inquiry required of a registrant regarding outside activities, the Commission, in its discretion, determined to issue the report instead of bringing an enforcement action. Report of Investigation in the Matter of Merrill Lynch, Pierce, Fenner & Smith, Inc. (March 19, 1997).
CFTC v. Ahrens
In October 1996, as a result of a cooperative investigation with the Securities and Exchange Commission and the Department of Justice, the Commission filed and settled an injunctive action against Kent Ahrens, an employee of First Capital Strategists. The complaint alleged that Ahrens committed fraud by engaging in futures and options transactions contrary to clients' authorizations, and misrepresenting the profits and losses from his trading. According to the complaint, Ahrens, while trading on behalf of The Common Fund, a pool of funds from colleges and universities, engaged in a trading strategy which, over a three-year period, resulted in losses of approximately $137 million. While the losses were accruing, Ahrens allegedly concealed his trading from First Capital and instead reported that his trading was profitable. First Capital then reported those false results to The Common Fund in monthly statements. Ahrens consented to the entry of a permanent injunction enjoining future violations of the nature alleged, prohibiting him from seeking registration with the CFTC and ordering him to pay restitution of at least $182,000. CFTC v. Ahrens, No. 96-1855 (M.D. Pa. filed Oct. 16, 1996). The SEC also filed an injunctive action against Ahrens alleging violations of the securities laws. The U.S. Attorney's Office for the Middle District of Pennsylvania filed criminal charges against Ahrens.
In re First Capital Strategists
In a related matter, in August 1997 the Commission issued an order instituting proceedings against, and accepting the offers of settlement from, respondents First Capital Strategists and its four partners: John J. McCollum, Paul J. Gangemi, Robert E. Frith, Jr., and Keith H. Cunningham. McCollum and Gangemi were registered as APs of First Capital, itself a registered CTA; Frith and Cunningham have never been registered with the CFTC. The Commission found fraud, failure to supervise, and recordkeeping and registration violations against First Capital and its partners, specifically finding First Capital liable for its employee Kent Ahrens' fraud. Without admitting or denying these findings, respondents agreed to pay $2.6 million in restitution to the educational institutions that lost money as a result of the misconduct. Under the settlement order, the individuals have also agreed not to apply for registration with the CFTC for a 5-year period, nor to act in supervisory roles for 7 years. The staffs of the CFTC and the SEC worked together to investigate and to negotiate the settlement, and the restitution sum satisfies the disgorgement required under a settlement order of the SEC which was issued simultaneously with the Commission's order. In re First Capital Strategists, CFTC Docket No. 97-14 (filed Aug. 13, 1997).
In re Prudential Securities
In May 1997, the Commission filed a four-count administrative complaint against Prudential Securities, Inc., Kevin A. Marshburn (a registered AP of Prudential Securities, Inc.), Kathleen Chiappone, and Kathryn Sarabasa alleging, in part, that Prudential had failed to supervise diligently Marshburn's handling of commodity interest accounts. According to the complaint, Prudential did not have policies and procedures in place which could detect and deter the type of misconduct engaged in by Marshburn, including supervisory and compliance systems which could identify and respond to indicators of possible fraudulent trade allocation involving an account executive's personal futures account. The complaint alleges that Marshburn defrauded customers in connection with his handling of commodity futures accounts by fraudulently allocating trades between his personal futures account and customer accounts. In re Prudential Securities, Inc., et al., CFTC Docket No. 97-8 (filed May 20, 1997).
In re Visioneering Research and Development Company
In July 1997, the Commission simultaneously instituted administrative proceedings against and accepted offers of settlement from Visioneering Research and Development Company and Robert W. Everson, the firm's president, a principal, and stockholder. Visioneering is a registered CTS, CPO and introducing broker, and Everson is registered as an AP of Visioneering. The CFTC order, based on the settlement, finds that Visioneering improperly included its proprietary trading results in client performance results for its V-150 and V-SP500 programs. As a result, Visioneering depicted a continuous client performance record of up to 24 months when, in fact, there were months where no trading took place on behalf of clients. Similarly, in months where Visioneering traded on behalf of clients, the company distorted these results by including proprietary trading results. The order finds that Visioneering forwarded these distorted performance returns directly to clients in disclosure documents, as well as to trade publications that, in turn, disseminated this inaccurate information to their subscribers. Without admitting or denying the findings in the order, Visioneering and Everson consented to the entry of the order which directed both respondents to cease and desist from further such violations and required Visioneering to pay a $50,000 civil monetary penalty. Visioneering also agreed to retain an independent consultant for a two-year period and to appoint a compliance officer who will ensure that the information provided in disclosure documents and to industry publications is accurate and prepared in accordance with all applicable CFTC and NFA regulations. In re Visioneering Research & Development Co., CFTC Docket No. 97-11 (filed July 30, 1997).
Trade Practice Cases
During FY 1997, the Division pursued investigations, filed actions and obtained orders from the Commission which address specific types of abusive conduct on exchanges. Examples of such matters follow.
In re Mitsubishi Corp., et al.
In June 1997, the Commission addressed the duty of inquiry required of registrants when confronted by apparently prohibited trading activity by their customers when it accepted offers of settlement from Mitsubishi Corporation of Tokyo, Japan, Merrill Lynch Futures, Inc., Country Hedging, Inc. and Charles B. Soule. In its order imposing sanctions in accordance with the terms of the settlement, the Commission found that Merrill Lynch accepted simultaneous orders to buy and sell equal quantities of wheat spreads at approximately the same price from Mitsubishi and transmitted them to Soule, an employee of Country Hedging, a clearing firm on the Minneapolis Grain Exchange (MGE). Based on this activity, the Commission found that the respondents had engaged in wash sales in violation of the Act. The Commission also found that Merrill Lunch violated recordkeeping requirements. Under the terms of the settlement order, the Commission ordered the respondents to cease and desist from violating the Act and to pay the following civil penalties: Mitsubishi, $150,000; Merrill Lynch, $175,000; Country Hedging, $75,000; and Soule, $15,000. The Commission also ordered Merrill Lynch and Country Hedging, both registered FCMs, to implement and/or to maintain certain compliance procedures relating to the handling of orders from customers. The Commission suspended Soule's registration as an AP for three months and conditioned his registrations as an AP and as a floor broker for two years. In re Mitsubishi Corp., et al., CFTC Docket No. 97-10 (filed June 24, 1997).
In re Piasio and Wilson
In a related action, the Commission filed a two-count complaint against Alfred R. Piasio and Donald W. Wilson alleging that each violated the Act's wash sale prohibition in connection with simultaneous orders to buy and sell equal quantities of wheat spreads at approximately the same price. The complaint alleges that on eleven occasions in 1992 and 1993, Piasio, then a registered AP employed by Merrill Lynch, accepted such simultaneous orders from his customer, Mitsubishi, and transmitted them to Soule on the MGE trading floor. Wilson, an independent floor broker at the MGE, allegedly accepted the eleven pairs of simultaneous orders from Country Hedging and executed eight of them by buying and selling spreads simultaneously. According to the complaint, Piasio and Wilson violated their duties of inquiry required of registered persons by accepting such simultaneous orders without seeking clarification of the customer's intent. In re Piasio and Wilson, CFTC Docket No. 97-9 (filed June 24, 1997).
The Enforcement program investigates and prosecutes administrative registration cases based on statutory disqualification. While the National Futures Association (NFA) commences most statutory disqualification actions as part of its delegated authority to handle registration functions for the Commission, the Commission retains authority to act directly in appropriate cases. Statutory disqualification actions can result in suspension or revocation of registration or conditioned or restricted registration. Such actions ensure that commodity professionals meet high standards of fitness. Examples of these cases filed in FY 1997 follow.
In re ADM Investor Service, Inc. and In re Benson-Quinn Commodities, Inc.
In May 1997, in related actions, the Commission simultaneously filed and accepted two registrants' offers to settle registration actions against ADM Investor Service, Inc. (ADMIS) and Benson-Quinn Commodities, Inc. (BCQI), both registered FCMs owned by Archer Daniels Midland Company (ADM). The Commission had not previously filed actions against registered entities based on serious misconduct unrelated to the Act and Commission Regulations engaged in by a parent company. Under the Act, misconduct by a principal which would disqualify the principal from registration creates a statutory disqualification for its subsidiaries. The registration action stemmed from ADM's conviction for violations of the Sherman Antitrust Act in a case filed by the Department of Justice. In that case, ADM pled guilty to charges that it had participated in a conspiracy to fix lysine and citric acid prices and agreed to pay fines totaling $100 million. Accepting ADMIS's and BCQI's offers of settlement, the Commission imposed restrictions designed to maintain the independence of ADM's registered subsidiaries to the extent possible. The Commission prohibited each firm from employing anyone with any direct or indirect involvement in ADM's criminal conduct and restricted the ability of the two firms to employ anyone also employed by ADM. The two firms agreed to conduct weekly reviews of all trading done by them on behalf of ADM and to report all information indicating violative trading by ADM to ADM's corporate compliance officer. The agreement required both firms to keep records of ADM's trading and to make them available to the CFTC and NFA upon request. Finally, both firms agreed that the CFTC may initiate statutory disqualification actions against them if they or ADM have not complied with a Compliance Agreement in Lieu of Debarment that ADM entered into with the U.S. Department of Agriculture in January of 1997. Most of these conditions will remain in effect for years. In re ADM Investor Services, Inc., CFTC Docket No. SD 97-5 (filed May 16, 1997), and In re Benson-Quinn Commodities, Inc., CFTC Docket No. SD 97-6 (filed May 16, 1997).
In re LaRocque
In November 1996, the Commission filed a registration action against and accepted the settlement offer of John P. LaRocque, a registered floor trader. The Commission's Notice of Intent to Suspend, Revoke or Restrict LaRocque's registration alleged that LaRocque was the subject of six separate Chicago Board Options Exchange (CBOE) disciplinary proceedings, which LaRocque settled without admitting or denying the allegations. Under the terms of the Commission settlement, during a two-year period of conditioned registration, LaRocque must be supervised by a sponsor who will provide close supervision of his trading. LaRocque may not serve on certain self-regulatory committees, including disciplinary committees, arbitration panels, and governing boards. In re LaRocque, CFTC Docket No. SD 97-1 (filed Nov. 26, 1996).
In re Graeber
In February 1997, the Commission filed and accepted respondent's offer to settle a registration action against James P. Graeber, a registered floor broker. The Commission's Notice of Intent to Suspend, Revoke or Restrict Registration alleged that Graeber was statutorily disqualified from registration as a result of a felony conviction for reckless homicide and a conviction for misdemeanor theft. The terms of the settlement prohibit Graeber, during a two-year period of restricted registration, from acting as a registrant unless he obtains a sponsor who will closely supervise his activities. The agreement also prohibits Graeber from acting as a principal, partner, officer, or branch office manager of any entity required to be registered with the Commission; acting as a supervisor over anyone required to be registered; exercising discretionary authority over orders (with limited exceptions); and serving on certain self-regulatory committees. In re Graeber, CFTC Docket No. SD 97-2 (filed Feb. 27. 1997).
In re Zuccarelli
In March 1997, the Commission filed a Notice of Intent to Revoke, Suspend or Condition Eric Zuccarelli's registration as a floor broker. The Notice alleges that COMEX twice charged Zuccarelli with rule violations, including prearranged and noncompetitive trading and record keeping violations. On the first occasion, following a hearing, the COMEX imposed a $30,000 fine, a two-week suspension, and a cease and desist order. On the second occasion, the COMEX accepted Zuccarelli's offer of settlement by which it assessed a $50,000 fine (half of which was suspended with the provision that future rule violations would result in automatic imposition of the remaining portion of the fine), imposed a four-week suspension, and issued a cease and desist order. The Commission's Notice alleges that facts underlying the COMEX disciplinary actions constitute a basis for statutory disqualification. In re Zuccarelli, CFTC Docket No. SD 97-3 (filed Mar. 5, 1997).
In re Hanley
In April 1997, the Commission filed and accepted respondent's offer to settle a registration action against Kevin Hanley, an applicant for registration as a floor broker. The Commission's Notice of Intent to Suspend, Revoke or Restrict Registration alleged that Hanley was statutorily disqualified from registration as a result of a plea of guilty to misdemeanor theft. The terms of the settlement prohibit Hanley, during a two-year period of restricted registration, from acting as a registrant unless he obtains a sponsor who will closely supervise his activities. The settlement also prohibits Hanley from acting as a principal, partner, officer, or branch office manager of any entity required to be registered with the Commission; acting as a supervisor over anyone required to be registered; exercising discretionary authority over orders (with limited exceptions); and serving on certain self-regulatory committees. In re Hanley, CFTC Docket No. SD 97-4 (filed Apr. 8, 1997).
In re Wheeler
In July 1997, the Commission simultaneously filed and settled a registration action against Richard F. Wheeler. The Commission's Notice of Intent to Refuse or Condition Registration alleged that on eighteen separate occasions Wheeler had been fined for recording inaccurate execution times as a stock options trader at the Chicago Board Options Exchange. In addition, Wheeler willfully failed to disclose the CBOE disciplinary actions when he submitted his floor broker application. These facts, the Commission alleged, constituted a basis for refusing to register Wheeler or for conditioning his registration under Sections 8a(3)(M) and 8a(3)(G) of the Act. In its opinion and order accepting Wheeler's offer of settlement, the Commission granted Wheeler's floor broker registration subject to conditions including the following: (1) he cannot act as a principal, partner, officer, or branch office manager of any entity registered or required to be registered with the Commission; (2) he may not act in any supervisory capacity over anyone required to be registered with the Commission; (3) he may trade only for proprietary accounts of a particular entity; (4) he may not act as a floor broker unless supervised according to the terms of the settlement; and (5) his registration will be automatically suspended if he is charged with certain disciplinary offense as defined in the Commission's regulations. The order further provides that the conditions will remain in effect for two years from the date of the order. In re Wheeler, CFTC Docket No. SD 97-7 (filed July 24, 1997).
In re Shaner
In September 1997, the Commission simultaneously filed and settled a registration action against Mark Shaner, a registered AP, and Shaner Trading Partners, Inc., a registered CPO and IB. The Commission's Notice of Intent to Suspend, Revoke or Restrict Registration alleges that on July 31, 1997, the U.S. District Court for the Southern District of Iowa entered a consent order of permanent injunction against Shaner and Shaner Trading Partners, Inc. The consent order stemmed from a four-count CFTC civil complaint filed on January 4, 1996, alleging that the defendants defrauded commodity pool participants, engaged in commodity pool fraud, and misappropriated and converted customer funds. The permanent injunction prohibits Shaner and Shaner Trading Partners from violating the Act as charged and from seeking registration with the CFTC in any capacity, among other sanctions. In addition, the court ordered disgorgement. The Commission's Notice of Intent further alleges that the consent permanent injunction constitutes a basis to suspend, revoke or restrict Shaner's and Shaner Trading Partners' registrations under Section 8a(2)(C)(ii) of the Act. The CFTC's settlement order revokes Shaner's registration as an AP and revokes Shaner Trading Partners' registrations as an IB and CPO. In re Shaner, CFTC Docket No. SD 97-8 (filed September 23, 1997).
The Division pursues actions against registrants who fail to maintain records and to produce records needed in an enforcement investigation. The Division and the Commission take seriously improper conduct that interferes with the Commission's ability to investigate possible wrongdoing. An example of one such case filed in FY 1997 follows:
In re Kelly
In February, the Commission filed an administrative complaint against Sean G. Kelly, who has been registered with the CFTC as a CTA since January 1996. The one-count complaint charges Kelly with failing to maintain books and records in a manner prescribed by the Commission and failing to furnish these books and records to representatives of the Commission when requested to do so. In re Kelly, CFTC Docket No. 97-6 (filed Feb. 26, 1997).
Cooperative enforcement efforts enhance the Division of Enforcement's ability to promote compliance with and to deter violations of federal commodities laws. During FY 1997, the Division coordinated enforcement efforts with numerous local, state and federal law enforcement and regulatory authorities and agencies. This cooperation has resulted in the filing of several administrative and injunctive actions.
Additionally, the Division's cooperation with law enforcement agencies can result in the filing of criminal charges by those agencies. For example, through the cooperative efforts of the Division, the SEC and the Department of Justice (DOJ) filed a criminal information against Michael Tropiano alleging 66 counts of mail fraud, one count of securities fraud, one count of commodity pool fraud, and two counts of tax evasion. United States v. Tropiano, Cr. No. 96-0061401 (D.N.J. 1996). The filing of the criminal information coincided with the joint filing of an injunctive complaint against Tropiano by the CFTC and SEC. SEC and CFTC v. Tropiano, No. CV 96-228 (D.N.J. 1996).
In March 1997, an indictment was unsealed charging six defendants with participating in a multi-million dollar foreign currency trading scheme during their employment as executives and employees at Korbean International Investment Corporation (''KIIC'') from 1992-1995. The indictments were the result of cooperative efforts of the Division, the DOJ, the FBI, and the Attorney General's Office for the State of New York. United States v. Young C. Park, et al., No. 97 Cr. 170 SHS. Bong Jae Kim, the former vice-president of KIIC, previously pled guilty to conspiring to commit mail fraud at KIIC. The criminal indictment followed the joint filing of an injunctive action against Korbean and others by the CFTC and the Attorney General for the State of New York. CFTC and Attorney General for the State of New York v. Korbean International Investment Corp., et al., No. 95 CV 0919 (S.D.N.Y. 1995). In February 1995, the court entered permanent injunctions against Korbean and Bong Jae Kim.
In August 1997, the U.S. District Court for the Eastern District of Michigan sentenced Elliot Nachwalter to serve a term of three years in prison and to pay approximately $120,000 in restitution as a result of Nachwalter's scheme to defraud investors in his commodity trading firm, Nachwalter Financial Development Corporation. Both the CFTC and the FBI, in cooperation with the DOJ, investigated the matter. United States v. Elliot Nachwalter, Cr. No. 94-81035.
In September 1997, the U.S. Attorney for the Southern District of New York filed a seven-count indictment against William Sanchez, Brian Willis, and three others charging conspiracy, wire fraud and mail fraud in connection with their activities at Templer International, Ltd., Worldwide Commodities Ltd. and a predecessor firm, Commonwealth Trading Group. The indictment charges that the defendants fraudulently solicited funds to be traded in the spot foreign currency market, mailed false account statements and wrongfully used investor funds to pay for operational costs, for withdrawal demands made by other customers and for personal use. United States v. William Sanchez, et al., No. 97 Cr. 912. The Commission named Sanchez and Willis as defendants in a civil injunctive complaint filed by the Commission alleging violations of the antifraud and registration provisions of the Act and the Commission's regulations. See CFTC v. Templer Int'l, Ltd., et al., No. 97-Civ. 5255 (S.D.N.Y. filed under seal on July 17, 1997).
The cooperative enforcement efforts of the Division extend internationally. In FY 1997, the Enforcement Division made 30 requests for assistance to 21 foreign authorities. In addition, Enforcement received 49 requests from 25 authorities in foreign jurisdictions. Information exchanged between the Commission and foreign authorities has included information on registration status and disciplinary history of U.S. and foreign firms and individuals; evidence -- including testimony and bank and brokerage account records -- for use in investigations and enforcement actions; and details from ongoing investigation and litigation files. Foreign authorities also have assisted the Commission in locating and serving defendants outside of the United States.
Such cooperation with regulators and law enforcement authorities from around the globe comes about through the establishment of arrangements to share enforcement information. On May 27, 1997, for example, the Commission and the Financial Services Board (FSB) of South Africa signed a cooperative enforcement arrangement entitled a ''Joint Communiqué.'' The Joint Communiqué establishes a formal arrangement between the Commission and the FSB for the exchange of information relating to investigative, enforcement, supervisory and surveillance matters. Under the arrangement, the CFTC and the FSB have agreed to provide each other with the fullest mutual assistance permitted by U.S. and South African law.
The Division also pursues cross-boarder cooperation through its participation in organizations such as International Organisation of Securities Commissions (IOSCO) -- especially through the IOSCO Technical Committee's Working Party on Enforcement and the Exchange of Information. During FY 1997, with the Division's participation, the Working Party continued its efforts to improve international cooperation and the exchange of information among IOSCO members and completed its mandate concerning the enforcement challenges presented by the increasing use of electronic networks such as the Internet. During FY 1997, the Division participated in the annual Wilton Park International Securities Regulators Conference, which Her Majesty's Treasury of the United Kingdom sponsors. The conference focused on current international enforcement issues.
The Division provides assistance and advice 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. The assistance provided in FY 1997 involved responding to an evaluation of the U.S. anti-money laundering program undertaken by FATF and completing a review of U.S. laws relating to identification of account holders at financial institutions such as futures firms.
In May, the Division and the SEC's Office of International Affairs hosted an Internet Surveillance Training Program for members of IOSCO's Working Party on Enforcement and the Exchange of Information. The interactive program included an exchange of techniques for detecting securities and futures violations on the Internet and application of the Internet to educate investors. Participants also discussed methods of tracing the source of Internet communications and of preserving electronic information for evidence in enforcement proceedings. Participants from 15 IOSCO member jurisdictions and a representative from the IOSCO Secretary-General attended the program.