Division of Enforcement

The Division of Enforcement (Division) investigates and prosecutes alleged violations of the Commodity Exchange Act (CEA or Act) and Commission regulations. 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 domestic exchanges, and those who improperly market futures and option contracts.

The Division bases investigations on information it develops independently, as well as information referred by other Commission divisions; industry self-regulatory organizations; 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 registration and exchange trading privileges and imposing civil monetary penalties, cease and desist orders, and orders of restitution. The Commission also may obtain temporary restraining orders and preliminary and permanent injunctions in Federal court to halt ongoing violations, as well as civil monetary penalties. Other relief may include appointment of a receiver, the freezing of assets, restitution, and disgorgement of unlawfully acquired benefits. The CEA also provides that the Commission may obtain certain temporary relief on an ex parte basis (that is, without notice to the other party) including restraining orders preserving books and records, freezing assets, and appointing a receiver. When those enjoined violate court orders, the Division may seek to have the offenders held in contempt.

When the Division obtains evidence that criminal violations of the CEA have occurred, it 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 1999, the Commission instituted 20 civil injunctive actions and 25 administrative proceedings, which included 8 statutory disqualification actions. The following sanctions became final during FY 1999. These include sanctions assessed in settled matters and unappealed decisions of the Commission, U.S. District Courts, or U.S. Circuit Courts of Appeals. The results obtained by the Division in civil injunctive proceedings in FY 1999 included: ex parte restraining orders against 33 defendants; preliminary injunctions against 24 defendants; permanent injunctions against 75 defendants; the appointment of 6 equity receivers; the assessment of nearly $59 million in civil monetary penalties against a total of 15 defendants; and approximately $85 million in restitution and disgorgement ordered against a total of 41 defendants. The results obtained by the Division in administrative proceedings included: cease and desist orders against 48 respondents; trading prohibitions against 28 respondents; the imposition of registration suspensions, denials, or revocations against 31 respondents; the assessment of nearly $27 million in civil monetary penalties against 34 respondents; and approximately $4.7 million in restitution ordered against 6 respondents.

Manipulation

Among the core provisions of the Act is a prohibition against price manipulation. Because price manipulation can undermine the hedging and price discovery functions of, and diminish public confidence in, these markets, the Commission, when necessary, focuses its enforcement resources on responding to potentially manipulative activity. During FY 1999, for example, the Division pursued the following major case.

In re Global Minerals & Metals Corp., et al.

The Division�s ongoing investigation into events in the copper market resulted in the filing of manipulation charges against Global Minerals and Metals Corporation (Global); Global�s president and chief executive officer R. David Campbell; and Global�s chief copper trader Carl Alm. The one-count complaint, filed by the Commission in May 1999, alleged that the respondents manipulated, cornered, attempted to manipulate, and attempted to corner the copper market in late 1995. The complaint also named Merrill Lynch & Co. (Merrill Lynch), Inc.; Merrill Lynch International, Inc. (Merrill International); and Merrill Lynch, Pierce, Fenner and Smith (Brokers & Dealers) Limited of London, England (Merrill B&D) (collectively referred to as the Merrill Lynch respondents). The complaint alleged that these respondents aided and abetted Global, Campbell, and Alm in the worldwide copper market manipulation and attempted manipulation. Specifically, the complaint alleged that between October and December 1995, Global, Campbell, and Alm, together with Sumitomo Corporation of Japan, manipulated and attempted to manipulate upward the worldwide price of copper and copper futures contracts in violation of the Act. According to the complaint, the manipulation of copper prices was the culmination of a long and deliberate scheme by Campbell and Sumitomo�s former chief copper trader, Yasuo Hamanaka, to acquire large market positions and liquidate them at distorted and artificially high prices. The Division alleged that Global, Campbell, and Alm, in order to accomplish the manipulation, among other things: acquired and maintained a dominant and controlling position in London Metal Exchange (LME) warehouse stocks of copper and thereafter withheld substantially all or a large percentage of that copper from the market; purchased and held massive and unneeded long copper futures contract positions; and engaged in an elaborate scheme of deception and false statements, which fostered the manipulation. As a result of their conduct, it is alleged that the prices of copper futures contracts, copper spread price differentials, and the prices of cash or physical copper, both in the United States and abroad, reached artificially high levels.

The complaint further alleged that the Merrill Lynch respondents knowingly and intentionally aided, abetted, and assisted the worldwide manipulation and attempted manipulation of copper prices through, among other actions, providing large sums of credit and finance with which the Global respondents and Sumitomo cornered LME warehouse stocks. The Merrill Lynch respondents allegedly provided the trading facilities and capacity through which the Global respondents and Sumitomo acquired their cornering position in warehouse stocks, maintained their massive and overhanging futures contract positions and made available only a small portion of their holdings to the market at artificially high prices and spread price differentials. According to the complaint, Merrill Lynch also knowingly and intentionally advised, counseled, and assisted the Global respondents and Sumitomo on the manner in which they could best manage their position for the purpose of manipulating the market. Merrill Lynch is alleged to have benefited from the manipulation through, among other things, its own proprietary trading in the copper market, which was conducted based upon knowledge of the manipulative actions of the Global respondents and Sumitomo. In re Global Minerals & Metals Corp., et al., CFTC Docket No. 99-11 (CFTC filed May 20, 1999).

In June 1999, the Commission issued an order accepting the offer of settlement of Merrill (B&D) and Merrill International. In re Global Minerals & Metals Corp., et al., CFTC Docket No. 99-11, Order Making Findings And Imposing Remedial Sanctions As To Respondents Merrill Lynch, Pierce, Fenner & Smith (Brokers & Dealers), Ltd. And Merrill Lynch International, Inc., And Dismissing The Proceedings As To Respondent Merrill Lynch & Co., Inc. (CFTC entered June 30, 1999). Without admitting or denying the allegations of the complaint or the findings contained in the order, Merrill (B&D) and Merrill International consented to the entry of the order, which found that they aided and abetted violations of the anti-manipulation provisions of the Act during the fourth quarter of 1995. More specifically, the order found that the firms aided and abetted the manipulators (Sumitomo Corporation of Japan and others) in at least the following ways: by providing more than one-half billion dollars of credit and finance to the manipulators; by providing trading facilities, accounts, and trading capacity through which the manipulators acquired their dominant position in a combination of futures contracts and warehouse stocks, and through which the manipulators sold or lent a small portion of their holdings at artificially high absolute prices and artificially high backwardated spread price differentials; and by providing trading advice which the manipulators used in the execution of their strategy of withholding their copper from the market. The order stated that Merrill (B&D) and Merrill International possessed the requisite knowledge and intent to find that they aided and abetted the manipulators' violations. In addition, the order found that Merrill (B&D) benefited from the manipulation by providing financing, trading facilities, and credit to the manipulators, and by earning profits through its proprietary trading. The CFTC ordered the companies to pay a civil monetary penalty of $15 million and to cease and desist from further violations of the Act, as charged. The settlement also requires Merrill Lynch to cooperate with the CFTC in proceedings and any investigations related to this matter, and dismisses the action as to Merrill Lynch & Co., Inc.

�Trade Practice Fraud

The Commission continued to pursue actions that address specific types of fraudulent practices that affect the interests of customers and the integrity of futures markets.

In re Soule, et al.

In December 1998, the Commission filed a three-count administrative complaint against Kyler F. Lunman II, his company, Hold-Trade, Inc. (a/k/a Hold Trade, Ltd.) (Hold-Trade) and Steven G. Soule, a former employee of Coastal Corporation (Coastal). The complaint was amended on February 4, 1999, to add as a respondent Robert C. Rossi, the principal owner and manager of Refined Energy Executions, Inc., and Refine Executions, Inc. (collectively referred to as Refined), the company which provided Coastal with floor broker (FB) services on the New York Mercantile Exchange (NYMEX). The amended complaint alleged that, from September 1993 through December 1994, the respondents defrauded Coastal by misappropriating its energy futures trades and wrongfully allocating them to accounts they controlled. Specifically, the complaint alleged that Soule, as the Coastal employee responsible for entering its energy futures orders to the floor of the NYMEX, allocated, with the assistance of one of Refined�s telephone clerks, profitable Coastal trades to futures trading accounts owned or controlled by respondents Lunman and Hold-Trade who, along with Rossi, distributed the profits among the members of the scheme. In re Soule, et al., CFTC Docket No. 99-4 (CFTC filed December 22, 1998, amended February 4, 1999).

In re Mitsopoulos, et al.

In September 1999, the Commission filed a four-count administrative complaint against Constantine Mitsopoulos alleging that Mitsopoulos committed fraud while handling customer orders. The complaint also alleged that Margaret Dull, Lisa Budicak, and Richard Marisie violated order-taking and recordkeeping requirements. Mitsopoulos was also charged with order taking and recordkeeping violations and failing to supervise diligently Dull, Budicak, and Marisie. The charges against Mitsopoulos, a registered FB, and Dull, Budicak, and Marisie, phone clerks who worked for Mitsopoulos, arise out of an alleged fraudulent trade allocation scheme undertaken by a registered introducing broker (IB) over an approximate two-year period. From at least January 1994 through December 1995, the IB allegedly entered orders for thousands of Treasury bond futures and options contracts per day for its customers through Mitsopoulos� floor desk at Refco, Inc. on the Chicago Board of Trade and, for a substantial number of the orders, did not provide account identification until after the trades were executed. As a result, the IB was allegedly able to allocate trades at better prices to certain customer accounts and trades at worse prices to other customer accounts. The IB also allegedly allocated trades by instructing one of the phone clerks to transfer executed and already assigned trades from one customer account to another by changing the account numbers on the executed trades.

The complaint alleged that Mitsopoulos routinely allowed the IB to delay giving account numbers for trades until after they were executed and to transfer trades between customer accounts after the trades were executed. By such actions, Mitsopoulos allegedly committed fraud by breaching his duty to pursue the best possible price for customers, failing to inform customers that he routinely accepted orders from the IB without account identification, and allowing trades to be moved from one account to another after execution, in violation of the Act and Commission regulations. The complaint further alleged that Mitsopoulos, Dull, Budicak, and Marisie violated Commission order-taking and recordkeeping requirements by not placing account identification on order tickets immediately upon receipt of the orders from the IB in violation of the Act and Commission regulations. Mitsopoulos is also charged with failing to supervise diligently the activities of Dull, Budicak, and Marisie, and failing to design, implement, monitor, and follow a program of supervision and compliance designed to detect and deter violations of the Act and Commission regulations. On May 24, 1999, the Commission filed and settled a related action against Refco, Inc. In re Mitsopoulos, et al., CFTC Docket No. 99-17 (CFTC filed Sept. 30, 1999).

Trade Practice Case Results

Among the results obtained in trade practice cases in FY 1999 are the following:

• In November 1998, the Commission resolved a portion of a trade practice case through settlement with respondent Geldermann. The Commission made findings, neither admitted nor denied by Geldermann, that Geldermann, a registered futures commission merchant (FCM), transferred and confirmed the transfer of 120 positions in futures contracts among accounts with different ownership by simply entering those transfers on its books. The Commission found that these book entries, or transfer trades, were not made to correct errors and were not made in accordance with the board of trade rules applying to such transactions. Accordingly, the Commission found that Geldermann violated the Act and Commission regulations by engaging in fictitious sales, facilitating the purchase or sale of futures contracts through transactions which were executed noncompetitively, and failing to diligently supervise the handling of the accounts in question. The Commission ordered Geldermann to cease and desist from the violations of the Act and regulations as alleged; to pay a civil monetary penalty of $325,000; and to appoint a consultant to review Geldermann�s compliance procedures and to recommend necessary changes. In re Collins, et al., CFTC Docket No. 94-13, Order Making Findings and Imposing Remedial Sanctions as to Respondent Geldermann, Inc. (CFTC entered November 10, 1998).

• In August 1999, the Commission issued an order accepting an offer of settlement from Michael Singer, a registered FB on the Coffee, Sugar & Cocoa Exchange (CSCE), in connection with an administrative complaint alleging trade practice fraud filed by the Commission on October 19, 1992. The order, filed on August 23, 1999, found that Singer violated the Act by cheating and defrauding his customers in the handling of their orders while trading on the CSCE. According to the order, Singer: executed trades noncompetitively with other brokers and local traders, which enabled him to indirectly bucket his own customer orders; illegally took the opposite side of his customers� orders; illegally offset two customer orders opposite the same floor trader (FT) at advantageous prices to that trader; benefited from changes to execution prices on customer orders while trading for himself; and aided and abetted another FB to bucket indirectly that broker�s customers� orders.

Without admitting or denying the findings, Singer consented to the entry of the order which, among other things: directed Singer to cease and desist from violating the Act and regulations as alleged in the complaint; prohibited Singer from trading for five years; revoked Singer�s registration with the Commission; and assessed Singer a civil monetary penalty of $75,000. Singer also agreed never to apply for registration or claim exemption from registration with the Commission or to act in any capacity requiring registration or for which exemption from registration may be claimed. The litigation continues as to the remaining respondents found liable by a Commission Administrative Law Judge (ALJ) in his Initial Decision issued on May 5, 1999, which is now on appeal to the Commission. In re Fisher, et al., CFTC Docket No. 93-2, Order Making Findings and Imposing Remedial Sanctions as to Michael Singer (CFTC entered Aug. 23, 1999).

Fraud in the Handling of Customer Business and/or Unregistered Activity

In FY 1999, as in past years, the Commission has continued to devote significant time and attention to matters involving customer fraud and failure to register, cases that reflect the increase in customer funds under management and the public�s desire to find profitable trading programs. Certain registered and unregistered commodity pool operators (CPOs), commodity trading advisors (CTAs) and FCMs have taken advantage of this trend by making fraudulent misrepresentations, usually to small retail customers, to induce them to invest. Customer funds have been misappropriated for the personal or business use of those accused of fraud. The Commission�s efforts against unregistered activity and/or fraud during FY 1999 follow.

In re Green

In November 1998, the Commission entered an order instituting proceedings, making findings, and imposing sanctions on David Green. In the order, which accepted an offer of settlement in which Green neither admitted nor denied the findings, the CFTC found that the respondent acted as an unregistered CPO and mishandled customer funds. Specifically, the order found that Green, from approximately June 1996 to July 1997, operated a commodity pool and received a total of at least $263,995 in customer funds. The order further found that Green commingled customer funds, failed to provide proper risk disclosure documents or issue required customer statements, and failed to refund customer funds when the pool ceased trading. As part of the settlement, the Commission ordered Green: to cease and desist from further violations of the Act and Commission regulations as charged; to pay $28,677.92, of which $9,943.80 represents a civil monetary penalty and the remainder represents sums to be paid as restitution to certain pool participants; and to comply with his undertaking never again to engage in trading commodities for future delivery or options thereon on behalf of persons other than himself, his spouse, or his children. In re Green, CFTC Docket No. 99-1 (CFTC filed November 2, 1998).

In re Dunhill Financial Group, Inc., et al.

In March 1999, the Commission filed a four-count administrative action against Dunhill Financial Group, Inc. (Dunhill); Dunhill�s sales manager, Mark Hutcherson; Dunhill�s compliance officer, Kevin Jackam; New Millennium Promotions (NMP); and two NMP employees, Michael Thomas and Forrest Dayton, Jr. The complaint charged that Dunhill, a registered IB, and Dunhill�s registered associated persons (APs), Hutcherson and Jackam, violated the anti-fraud provisions of the Act and Commission regulations by fraudulently soliciting prospective customers to open accounts to trade options on commodity futures contracts. The complaint also charged NMP with operating as an unregistered IB of Dunhill. Thomas and Dayton were charged with failing to register as APs of NMP. The complaint alleged that NMP solicited customers over the Internet on Dunhill�s behalf by sending unsolicited bulk e-mail in return for a fee paid by Dunhill for generating a list of prospective customers. The complaint also alleged that, from October 1995 through the filing of the complaint, Dunhill, Hutcherson, and Jackam made false and misleading statements regarding the likelihood of profit, risk of loss, and amount of commissions involved in the trading of commodity options, specifically that customers who purchase options on futures contracts would profit from seasonal and other existing and known supply and demand forces that affect the prices of certain commodities in the cash market. These misrepresentations were allegedly made in advertisements over the Internet, on the radio, in promotional materials sent to customers, and in direct telephone solicitations of prospective customers. As alleged in the complaint, at least 91.4 percent of the customer accounts opened by Dunhill from October 1995 through September 1998 lost money and total net losses, including commissions, were in excess of $9.3 million. In re Dunhill Financial Group, Inc., et al., CFTC Docket No. 99-7 (CFTC filed March 4, 1999). In May, a Commission ALJ entered an order of default against respondent Forrest Dayton, who was ordered to cease and desist from violating the Act and Commission regulations, as charged in the complaint, and to pay a civil monetary penalty of $273,000. In re Dunhill Financial Group, Inc., et al., CFTC Docket No. 99-7, Ruling on Motion for Default Order (CFTC entered May 26, 1999).

In July, the Commission issued orders accepting offers of settlement from respondents Jackam, Thomas, and NMP. Jackam, without admitting or denying the findings, consented to the entry of an order that, among other things, directed him to cease and desist from further violations as charged; prohibited him from trading on or subject to the rules of any contract market; imposed a $200,000 restitution award on him, to be paid pursuant to a five-year payment plan; and ordered him never to apply for registration or claim exemption from registration in any capacity. In re Dunhill Financial Group, Inc., et al., CFTC Docket No. 99-7, Order Making Findings and Imposing Remedial Sanctions as to Respondent Kevin Jackam (CFTC entered July 29, 1999). Thomas and NMP, without admitting or denying the findings, consented to the entry of an order that, among other things, directed them to cease and desist from further violations as charged; and required them never to apply for registration or claim exemption from registration in any capacity. In re Dunhill Financial Group, Inc., et al., CFTC Docket No. 99-7, Order Making Findings and Imposing Remedial Sanctions as to Respondents Michael Thomas and New Millennium Productions (CFTC entered July 29, 1999). The Commission chose not to order immediate restitution and civil monetary penalties against the three respondents due to their financial condition.

In re Gaiber

In March 1999, the Commission filed a two-count administrative action against Selwyn "Sy" Gaiber. The complaint charged that Gaiber failed to register as a CTA. Specifically, the complaint alleged that from January 1997 through December 1997, Gaiber acted as an unregistered CTA by giving commodity trading advice for compensation to the members of a private investment club he co-founded and operated, the Bulls and Bears Club. The complaint further alleged that Gaiber recommended trades pursuant to discretionary trading authority over seven of the members� trading accounts and acted as the CTA for the participants of a commodity pool formed by some members. Finally, the complaint alleged that Gaiber failed to deliver required disclosure documents and past performance records to his customers. In re Gaiber, CFTC Docket No. 99-8 (CFTC filed March 4, 1999). In June 1999, the Commission entered an order accepting Gaiber�s offer of settlement. The order found that Gaiber violated the Act by failing to register as a CTA and further found that he had violated certain regulations governing the conduct of CTAs. Without admitting or denying the findings, Gaiber consented to the entry of the order that: directed him to cease and desist from further violations of the Act and Commission regulations, as charged; imposed a three-year trading ban; and required him to comply with his undertaking never to apply for registration or ever engage in any activity requiring such registration. In re Gaiber, CFTC Docket No. 99-8, Order Making Findings and Imposing Remedial Sanctions (CFTC entered June 23, 1999).

In re Hoffman

In March 1999, the Commission entered an order instituting proceedings, making findings, and imposing sanctions against Peter D. Hoffman. In the order, which accepted an offer of settlement in which Hoffman neither accepted nor denied the findings, the Commission found that Hoffman violated the Act and Commission regulations by acting as an unregistered CTA. The order further found that Hoffman had solicited customers for his commodity trading advisory service, the Renaissance Trading Program, with false claims regarding both his success in the market and the risk involved in trading futures contracts. As part of the settlement, the Commission ordered Hoffman to cease and desist from further violations of the Act and Commission regulations as charged; imposed a five-year trading ban; and ordered Hoffman to comply with his undertaking to never seek registration with the Commission in any capacity and to never engage in any activity requiring such registration. While the Commission noted the appropriateness of a civil monetary penalty, it waived the assessment of such penalty based on Hoffman�s financial condition. In re Hoffman, CFTC Docket No. 99-9 (CFTC filed March 30, 1999).

In re Wellington Financial Group, Inc.

In March 1999, the Commission filed a one-count administrative action against Wellington Financial Group, Inc. (Wellington), a registered IB. The complaint alleged violations of the anti-fraud provisions of the Act and Commission regulations. Specifically, the complaint alleged that Wellington fraudulently misrepresented that customers who purchase options on futures contracts would profit from seasonal and other existing and known supply and demand forces that affect the prices of certain commodities in the cash market. These misrepresentations were allegedly made in radio "infomercials," radio advertisements, and telephone sales solicitations. In addition, the complaint alleged that 109 of approximately 120 customer accounts opened by Wellington from March 1997 through September 1998 lost money and that total net losses, including commissions, were approximately $800,000. One of Wellington�s principals, Todd Thomas, is the named respondent in a pending administrative action charging him for his fraudulent solicitation of customers, including his customers at Wellington (In re Thomas, CFTC Docket No. 98-13 (CFTC filed April 27, 1998)). In re Wellington Financial Group, Inc., CFTC Docket No. 99-10 (CFTC filed March 30, 1999).

CFTC v. Trivette

In April 1999, the Commission filed a four-count civil injunctive action against Donald G. Trivette, a former FB who was registered with the Commission from 1993 to 1998. The complaint alleged that, from at least 1995 to the present, Trivette violated anti-fraud provisions of the Act and Commission regulations by fraudulently soliciting and accepting in excess of $100,000 from investors to participate in a commodity pool or, in the case of one investor, a joint account to trade S&P 500 futures contracts and options on those futures. The complaint alleged that Trivette misrepresented to prospective investors the performance record and size of a pool that he had been trading and later misappropriated at least part of the funds he had solicited by using them for his own trading and personal expenses. The complaint further alleged that Trivette continuously represented to investors that their investments were doing well and earning double-digit returns, when, in fact, both the commodity pool account and Trivette�s other trading accounts lost money in 1996, 1997, and 1998. Eight days after the filing of the complaint, the court entered an ex parte statutory restraining order prohibiting Trivette from destroying or altering any of his business records and granting Commission representatives immediate access to Trivette�s books and records. Subsequently, the court entered a restraining order freezing the defendant�s assets and enjoining him from further violations of the Act and Commission regulations. CFTC v. Trivette, 5:99 CV 59-V (W.D.N.C. filed April 6, 1999). In June, the Court entered a preliminary injunction enjoining Trivette from further violations of the Act and Commission regulations and requiring an accounting of all customer investments with Trivette.

CFTC v. McGivney, et al.

In April 1999, the Commission filed an eight-count civil injunctive action against Joseph P. McGivney, Sr., Edwin A. Koziol, Jr., and a series of six corporations in which they were officers. The complaint alleged that the defendants violated the anti-fraud provisions of the Act and Commission regulations. McGivney is not currently registered with the Commission in any capacity, but the complaint alleged that he had CPO and AP registrations revoked by the Commission in December 1990. The complaint first alleged that McGivney, through a series of companies he incorporated, solicited money from individual investors under the guise of "loan" agreements between the companies and the investors. The agreements provided that investors would receive a pro-rata share of profits from commodity futures trading purportedly being conducted by the corporations. McGivney and the companies allegedly accepted nearly $1 million from at least 72 investors pursuant to these "loan" agreements. The complaint alleged that McGivney and the companies defrauded the investors by fraudulently soliciting funds and that they are acting, and have acted, as unregistered CPOs. Additionally, the complaint alleged that McGivney, Koziol, and the companies misappropriated customer funds and mailed false statements to customers. The complaint also alleged that McGivney and the companies failed to operate their commodity pools as separate legal entities, commingled investor funds with the property of others, and failed to distribute a disclosure document to commodity pool investors. The complaint further alleged that McGivney and the companies repaid a fraction of the funds invested, misappropriated the remaining investor funds for their own use, and diverted a portion of the funds to Leslie Wnukowski, Marita McGivney (each as a relief defendant), and others. In addition, the complaint alleged that McGivney and three of the companies have advertised and operated a daily telephone hotline that disseminated specific commodity futures trading recommendations since at least 1997 without being registered as required by Federal commodity laws. Finally, the complaint alleged that McGivney and these three companies, while acting as CTAs, failed to distribute required disclosure documents to clients or prospective clients. On the same day the complaint was filed, the court issued a statutory restraining order freezing the assets of the defendants, prohibiting the defendants from destroying any of their books and records, requiring them to make their books and records available for inspection and copying by the Commission, and temporarily prohibiting the defendants from soliciting investments in commodity futures or engaging in any futures-related activities. The statutory restraining order was later modified to allow defendants to continue operating certain aspects of their business under the court�s supervision. CFTC v. McGivney, et al., No. 99-Civ. 2375 (N.D.Ill. entered April 12, 1999).

In re Godres

In June 1999, the Commission filed an order instituting administrative proceedings against and simultaneously accepting an offer of settlement from Ross R. Godres. Godres founded the commodity pool, Navco Precious Metals Fund, Ltd., in 1993. In its order, the Commission found that Godres violated the anti-fraud provisions of the Act by fraudulently concealing from commodity pool participants losses he had sustained trading precious metals futures on behalf of the pool and by making verbal misrepresentations and sending sporadic falsified statements to participants that their investments were secure and still intact. Specifically, the order found that Godres began trading on behalf of the pool�s five participants in June 1993 and that, within a year, he lost almost all of the pool�s assets of over $60,000. Godres, without admitting or denying the findings, consented to the entry of the order that: ordered him to cease and desist from further violations of the Act and Commission regulations, as charged; imposed a permanent trading ban; ordered him to pay a total of $67,750 as restitution, plus pre-judgment interest, to the pool participants over a five-year period; and ordered him to comply with his undertaking to never apply for registration or engage in any capacity requiring registration. In re Godres, CFTC Docket No. 99-13 (CFTC filed June 28, 1999).

CFTC v. Calhoun

In June 1999, the Commission filed a four-count civil injunctive action against Kent C. Calhoun. Calhoun has not been registered in any capacity since July 1983 when he was registered as a CTA. The complaint alleged that Calhoun violated the anti-fraud provisions of the Act by, among other things, implying in his solicitations to customers that the CFTC has in some manner recommended or approved him as a CTA or otherwise passed upon his abilities or qualifications as a CTA. Specifically, the complaint alleged that from at least June 1995 to the present, Calhoun, individually, as an agent of, or doing business as KCI seminars, solicited customers to purchase his commodity trading systems and attend his KCI commodity trading seminars through national advertisements that included false and misleading statements representing or implying that the CFTC has documented, verified, or otherwise passed upon the success of his KCI trading systems and/or the accuracy of his advertisements for such trading systems. CFTC v. Calhoun, No. SA99CA0684 (W.D.Tex. filed June 29, 1999). In August 1999, the district court entered a consent preliminary injunction against Calhoun. Without admitting or denying the allegations of the complaint, Calhoun agreed, among other things, to be enjoined from referencing the CFTC or using the Commission�s name in the solicitation of customers or potential customers and from violating the antifraud provisions of the Act or Commission regulations. CFTC v. Calhoun, No. SA99CA0684, Consent Order of Preliminary Injunction (W.D. Tex. entered Aug. 6, 1999).

CFTC v. Benun

In July 1999, the Commission filed a six-count civil injunctive complaint against Morris J. Benun. Benun had been registered with the Commission as an IB from 1989 through 1990 and as a CTA and CPO from 1989 until 1996. The complaint alleged that Benun violated the anti-fraud provisions of the Act and Commission regulations in his operation of two commodity pools, Benun Futures Fund and Aspen Capital Management Fund, L.P. Specifically, the complaint alleged that Benun falsely represented through oral and written statements to pool participants and prospective participants that the pools were profitable when, in fact, they were losing almost all of the approximately $3.6 million invested. The complaint further alleged that Benun converted for his own use at least $49,531 in participant funds and commingled property of the pool with the property of others. The complaint was filed with the court on July 2, 1999, and on July 19, 1999, a consent order and judgment of permanent injunction was entered. Benun consented to the order without admitting or denying the allegations of the complaint. Under the terms of the consent order, Benun is: permanently enjoined from committing further violations of the Act and Commission regulations as charged; permanently banned from seeking registration with the Commission; barred from any activity in the futures industry on behalf of himself or others; and ordered to pay $1,046,516 in restitution, of which $49,531 also constitutes disgorgement to participants. CFTC v. Benun, No. 99 Civ. 4822 (S.D.N.Y. filed July 2, 1999).

CFTC v. R.J. Fitzgerald & Co., Inc., et al.

In July 1999, the Commission filed a six-count civil injunctive complaint against R.J. Fitzgerald & Co., Inc. (RJFCO), Raymond Fitzgerald (R.Fitzgerald), Leiza Fitzgerald (L.Fitzgerald), Greg Burnett, Al Coringrato, and Chuck Kowalski. RJFCO, whose president and sole shareholder is R.Fitzgerald, is a registered IB whose obligations are guaranteed by Iowa Grain Company. R.Fitzgerald, L.Fitzgerald and Kowalski are registered APs of RJFCO. Burnett and Coringrato were registered as APs of the firm between January 1997 and August 1998 and between June 1997 and July 1998, respectively. The complaint alleged that the defendants violated the anti-fraud provisions of the Act and Commission regulations in connection with the solicitation and offer or sale of commodity futures and options contracts to customers or prospective customers. Specifically, the complaint alleged that, from January 1996 through July 1998, RJFCO and R.Fitzgerald made misrepresentations and omissions of material fact to customers including claims about the likelihood of high profits in the grain markets due to the effects of El Ni�o and about the limited risk of loss in trading commodity options contracts. The complaint further alleged, among other things, that: R.Fitzgerald and Burnett churned customer accounts; R.Fitzgerald, Burnett, and Kowalski operated RJFCO to cheat, defraud or deceive customers; and R.Fitzgerald, L.Fitzgerald, Coringrato, and Burnett failed to properly supervise RJFCO and its employees. CFTC v. R.J. Fitzgerald & Co., Inc., et al., No. 99-1558 Civ-T-23F (M.D.Fla. filed July 6, 1999).

CFTC v. Belz, et al.

In July 1999, the Commission filed a five-count injunctive action against Richard G. Belz d/b/a Safetrak Group, Ltd., Andrew E. Cafferky, and Blue Chip Information Corporation (Blue Chip). Blue Chip publishes a daily newsletter about market trends in stocks and stock indices called Options Fastrak Newsletter. Cafferky was Blue Chip�s owner and president, and Belz was a Blue Chip agent and corporate secretary. While Belz had been registered as an AP of various FCM�s from 1979 until 1991, neither Cafferky nor Blue Chip has ever been registered. The complaint alleged that the defendants violated the Act and Commission regulations by, among other things, fraudulently soliciting customers to participate in an unregistered commodity pool, Safetrak Group, Ltd. (Safetrak), failing to register as APs of Safetrak, operating an unregistered commodity pool, and failing to comply with CPO recordkeeping and disclosure requirements. Specifically, the complaint alleged that, from April 1994 through at least July 1997, Belz, Cafferky and Blue Chip participated in a fraudulent scheme to solicit and misappropriate commodity pool funds. The complaint alleged that during the relevant time period, the defendants fraudulently solicited 12 individuals to invest $56,581. The complaint further alleged that Belz and Cafferky misrepresented to Safetrak participants the profitability of pool investments, the trading activity in the pool, and the total amount of funds in the pool. These deceptions masked Safetrak�s actual trading losses of over $137,000 and the misappropriation of approximately $459,581 in customer funds. CFTC v. Belz, et al., No. 3:99-CV-378 (E.D. Tenn. filed July 19, 1999).

In September 1999, the court entered a consent permanent injunction against the defendants, who neither admitted nor denied the allegations in the complaint. Among other things, the order: finds that they committed the violations as alleged in the CFTC�s complaint and enjoins them from such further violations of the CEA and Commission regulations; prohibits them from acting as unregistered CPOs or unregistered APs of CPOs; permanently bans them from seeking registration with the CFTC or acting in any capacity requiring CFTC registration and from trading on any futures market on behalf of themselves or others; and requires Belz, Cafferky, and Blue Chip, jointly and severally, to disgorge $596,581, plus post-judgment interest, to defrauded investors by making annual payments based on a percentage of their future income over a five-year period. Civil monetary penalties were not ordered based on defendants� sworn financial statements. CFTC v. Belz, et al., No. 3:99-CV-378, Consent Order of Permanent Injunction (E.D. Tenn. entered Sept. 3, 1999).

CFTC v. Pelton Street Publishing, Inc., et al.

In August 1999, the Commission filed a four-count civil injunctive complaint against Pelton Street Publishing, Inc. (Pelton), and its president and principal, Roger Martin Hoy a/k/a/ Roger Martin. The complaint alleged that Pelton and Hoy fraudulently solicited members of the public to purchase a 90-day commodity trading "course" called "The Keys to the Marvelous Money Machine" (Money Machine). Pelton was registered as a CTA since October 1998. The complaint specifically charged that from at least October 1998 until the complaint was filed, in mail solicitations sent nationwide, Pelton and Hoy falsely claimed that Hoy had personally made substantial profits through futures trading, that purchasers of the Money Machine were likely to achieve substantial profits with minimal or no risk, and that specific commodity traders had made extravagant profits by using the Money Machine. According to the complaint, the defendants� mail solicitations include testimonials that falsely purport to be from customers who purchased the Money Machine and make false claims of huge profits achieved by using the course. Defendants� commodity trading course consists, the complaint alleged, of a manual and audiotapes that describe basic information about futures and options trading, provide a trading strategy, and purport to teach how to use stop loss orders and options to trade in a manner described as "virtually risk free." It is also alleged that the course includes 90-day access to messages recorded by the defendants that can be retrieved through an automated telephone system. The complaint alleged, among other things, that by making false and misleading statements about the Money Machine, Pelton and Hoy violated the anti-fraud provisions of the Act and Commission regulations. On September 1, 1999, defendants, without admitting the allegations in the complaint, entered into a Consent Order of Preliminary Injunction that was filed with the Federal court. They were ordered, among other things, to cease violating the Act and Commission regulations, and are prohibited from marketing the Money Machine course. CFTC v. Pelton Street Publishing, Inc., et al., No. 99-CV-1184 (D. Minn. entered Sept. 1, 1999).

In re Walters

In August 1999, the Commission filed a two-count administrative complaint against Max E. Walters, alleging that as general partner in a limited partnership he defrauded both the limited partnership and the limited partner out of more than $1 million in connection with commodity futures and options trading. The complaint against Walters alleged that from August 1993 through October 1996, Walters violated the anti-fraud provisions of the Act and Commission regulations. Specifically, the complaint alleged that Walters misrepresented to the limited partner, both orally and in writing, that the limited partnership was earning constant trading profits that eventually exceeded $945,000 when, in fact, it was accumulating trading losses that exceeded $800,000 by September 1996. Further, the complaint alleged that Walter misappropriated limited partnership funds for his own personal trading and other personal uses. In re Walters, CFTC Docket No. 99-15 (CFTC filed Aug. 9, 1999).

CFTC v. Marantette, et al.

In September 1999, the Commission filed a five-count civil injunctive complaint in the U.S. District Court for the District of Hawaii against David T. Marantette III and Troubadour, Inc. The complaint alleged that Troubadour and Marantette, who appears to be the president, treasurer, director, and primary shareholder of Troubadour, operated the pools without being registered as CPOs. The complaint also alleged that Marantette and Troubadour, through private offering memoranda and over the Internet, fraudulently solicited members of the public to purchase commodity trading advisory products, including the defendants� weekly commodity trading advisory newsletters, and fraudulently solicited customers to invest in two commodity pools. The complaint further alleged that Marantette fraudulently solicited customers to invest in a third commodity pool by falsely representing that Marantette and Troubadour had made substantial profits over the past 12 years using a cyclic analysis program, when, in fact, the profits were based on hypothetical trading results. Marantette also failed to disclose that he had been permanently barred from the securities industry in 1992. CFTC v. Marantette, et al., No. CV99-00653 SOM/LEK (D. Haw. filed Sept. 22, 1999).

CFTC v. Monte, et al.

In September 1999, the Commission filed a three-count civil injunctive complaint in the U.S. District Court for the Southern District of Florida against Fred Monte (Monte), Jeanne H. Monte (J.Monte), and Comp Tech Ltd., Inc. (Comp Tech). Monte and J.Monte are the president and the secretary, respectively, of Comp Tech. According to the complaint, the defendants solicited investors to purchase Comp Tech�s trading system for foreign currency futures contracts by falsely stating in various advertisements that defendants earn $300 per day through currency trading and that prospective customers could earn an equal amount. The complaint further alleged that, among other things, defendant Monte falsely told investors that Comp Tech�s trading system had been successful 83 percent of the time and that Monte had many years of experience as a broker or trader in the futures industry. In the complaint, the Commission alleged that Comp Tech received at least 45 deposits of $6,000 (totaling at least $270,000) into its bank account for the sale of its trading system. CFTC v. Monte, et al., No. 99-8750 CIV-RYSKAMP (S.D. Fla. filed Sept. 29, 1999).

CFTC v. Nickolaou, et al.

In September 1999, the Commission filed a four-count civil injunctive complaint in the U.S. District Court for the Northern District of Illinois against Ca-Ni Industries, Ltd. (Ca-Ni), and its owner and principal, Nicholas J. Nickolaou. Ca-Ni has been registered with the Commission as a CTA since 1991. Nickolaou has never been registered with the Commission in any capacity. The complaint alleged that, from at least 1995 to the date it was filed, Ca-Ni and Nickolaou fraudulently solicited members of the public to purchase a computerized commodity trading program and methodology called Wisdom of the Ages and to allow their commodity accounts to be managed by Nickolaou. Specifically, the complaint alleged that Ca-Ni and Nickolaou fraudulently solicited customers by falsely presenting a simulated track record as if it were based on real trading and fraudulently guaranteed the profits to be made using Wisdom of the Ages. It is alleged that, at the same time, the defendants downplayed the risks of commodity trading, falsely represented Nickolaou�s trading experience, including suggesting that he used the program to trade, and included testimonials in their advertisements that falsely purported to be from customers who had purchased Wisdom of the Ages. The Commission complaint further alleged that, based on the same misrepresentations and omissions of material fact, Nickolaou fraudulently solicited Ca-Ni customers to allow him to direct trading for their commodity futures accounts and did so without the required registration and disclosures. The complaint alleged that, by making these false and misleading statements, Ca-Ni and Nickolaou violated the anti-fraud provisions of the Act and Commission regulations. The complaint also charged Nickolaou with violating the Act and regulations by failing to register with the Commission and failing to provide required disclosures to clients before undertaking to manage their accounts. CFTC v. Nickolaou, et al., No. 99-C-6425 (N.D.Ill. filed Sept. 30, 1999).

�Customer Fraud and Failure to Register Case Results

The Commission has obtained numerous results in this area during FY 1999. See CFTC v. Ramirez, et al., No. 97 C 6528, Consent Order Addressing Issues of Restitution, Disgorgement and Civil Monetary Penalty (as to Defendants Ramirez and Abacus Investment Group, Ltd.) (N.D.Ill. entered January 9, 1999); In re Abraham and Sons Capital, Inc., et al., CFTC Docket No. 98-7, Order Making Findings and Imposing Remedial Sanctions (CFTC entered February 3, 1999); CFTC v. Sigma, Inc., et al., No. 95-1598 (AET), Order of Permanent Injunction Against N.S. Ramchandran (D.N.J. entered March 30, 1999); CFTC v. Sigma, Inc., et al., No. 95-1598 (AET), Consent Order of Permanent Injunction Against Chuck Kohli (D.N.J. entered March 30, 1999); In re Hsu, et al., CFTC Docket No. 98-10, Order Granting Motion for Entry of Default Order, Findings of Fact and Conclusions of Law and Imposition of Sanctions (CFTC entered April 6, 1999); CFTC v. Swartz, No. 98 C 7505, Order of Default Judgment For Permanent Injunction And Other Ancillary Relief (N.D.Ill. entered May 27, 1999); In re Bradshaw, No. 98-6, Summary Disposition (ALJ May 27, 1999); In re Liberty Futures, Inc., No. 98-2, Default Judgment (ALJ entered May 28, 1999); CFTC v. Schafer, et al., No. H-96-1213 Final Judgment (S.D.Tex entered May 28, 1999); CFTC v. Michael Indihar, et al., No. 96-8202-CIV-GONZALEZ, Consent Order Of Permanent Injunction Against Michael Indihar, Computer Warehouse, Inc. and Automated Trading Systems, Inc. (S.D.Fla. entered June 25, 1999); and CFTC v. Michael Indihar, et al., No. 96-8202-CIV-GONZALEZ, Order Of Permanent Injunction and Ancillary Equitable Relief by Default Against Defendant Robert Hoffman (S.D.Fla. entered Sept. 29, 1999). Further results achieved in this area during FY 1999 include the following:

• In October 1998, the U.S. District Court for the Southern District of New York issued its Judgment in CFTC v. AVCO Financial Corp., et al., No. 97 Civ. 3119 (JFK). The court permanently enjoined AVCO Financial Corp. (AVCO) and Anthony Vartuli from, among other things: acting as a CTA and using any means of interstate commerce in connection with such activity unless registered with the Commission; violating the anti-fraud provisions of the Act and Commission regulations; soliciting or accepting any new clients for commodity futures or commodity options trading or accepting any new funds from existing clients or acting in any capacity that requires registration with the Commission; and engaging in trading on or subject to the rules of a contract market subject to Commission regulation. AVCO and Vartuli are jointly and severally liable for disgorgement in the amount of $701,534. AVCO and Vartuli were ordered to each pay $5,000 to the U.S. Treasury as a civil penalty. The action was dismissed as to defendant J. Michael Gent. CFTC v. AVCO Financial Corp., et al., No. 97 Civ. 3119 (JFK), Judgment (S.D.N.Y. entered Oct. 14, 1998).

• In November 1998, the U.S. District Court for the Southern District of New York entered consent orders of permanent injunction against Thomas E. Kelly, Andrew David Rhee, and Reflex Asset Management Corporation, a Delaware corporation. The orders bar the defendants from any activity in the futures industry, permanently enjoin them from violations of Federal commodities laws, and require disgorgement payments totaling approximately $2.6 million. The court�s orders stem from a two-count civil injunctive action filed by the CFTC on July 23, 1998. The complaint alleged that, from October 1995 through February 1998, the defendants cheated, defrauded and willfully deceived Kelly�s employer, John W. Henry & Co. (JWH) and others. The Commission�s complaint charged, in part, that Kelly stole confidential, non-public proprietary information concerning JWH�s planned commodity futures trades and provided that information to Rhee. Rhee, in turn, allegedly placed trades, ahead of JWH�s commodity futures trades, in Reflex�s commodity pool account, his personal commodity trading account, and the accounts of several customers. Further, the complaint alleged that, based on the trading results obtained with the stolen information, Rhee created a commodity futures trading performance record for himself and Reflex, which they used to solicit new customers and retain existing customers. Without admitting or denying the allegations of the complaint, Kelly, Rhee, and Reflex agreed to be enjoined permanently from further violating the provisions of the Act alleged in the complaint. The orders also prohibit all defendants from engaging in any activity in the futures industry for themselves or on behalf of others. Kelly and Rhee are ordered, jointly and severally, to disgorge $4,735,000, the amount by which they profited. Due to their current financial situations, the court waived all of the disgorgement but $291,938 as to Kelly and all but $2,308,578 as to Rhee. CFTC v. Rhee, et al., Consent Order of Permanent Injunction (S.D.N.Y. entered November 3, 1998).

• In November 1998, the U.S. District Court for the Southern District of Florida entered a final judgment order against defendants Richard E. Maseri, Ronald Bruce Romberg, and the three firms they controlled, Bullseye International, Inc. (Bullseye), AIM International, Inc. (AIM) and Private Research, Inc. (PRI). This six-count civil injunctive action was filed October 16, 1995. The final judgment was based on the court�s previous findings that the defendants had committed fraud in connection with the sale of a commodity trading program; the court�s October 1997 order granting the Division�s motion for summary judgment against Maseri and PRI and motion for default judgment against Bullseye and AIM; and the court�s default final judgment against Romberg. In its previous orders, the court had found, among other things, that the defendants had defrauded customers in connection with the sale of a commodity software-trading program known as "CAT-FX" that Maseri developed, owned, and marketed. As sanctions, the court ordered that the defendants cease and desist from further violations of the Act and Commission regulations as charged; that Maseri pay restitution of $552,271, plus interest; that Romberg pay restitution of $225,000; and that PRI pay $239,432 in restitution, plus interest. CFTC v. Maseri, No. 95-6970-CIV-DAVIS, Final Judgment (S.D.Fla. entered November 6, 1998).

• In December 1998, the U.S. District Court for the Western District of Kentucky entered a consent order against defendant Charles Nicholas Barth. The court�s order was entered to settle this seven-count civil administrative action filed on April 4, 1995. While the defendant neither admitted nor denied the findings, the order found that Barth violated the Act and Commission regulations by defrauding commodity pool investors and mishandling pool funds. Specifically, the order found that, from at least September 1986 through January 1995, Barth fraudulently solicited investors by misrepresenting not only the profitability and success of his trading but also the risks associated with trading commodity futures and options contracts. The court further found that Barth: failed to register as a CPO, FCM, and AP of a CPO and FCM; distributed false account statements to customers; failed to distribute required disclosure documents; and commingled customer funds. Under the terms of the consent order, Barth was: permanently enjoined from committing further violations of the Act and Commission regulations as charged; permanently banned from seeking registration with the Commission; barred from any activity in the futures industry on behalf of himself or others; and ordered to make restitution of $2,292,902 to his customers by making annual payments based on a percentage of his future income. CFTC v. Barth, No. 3:95CV-279-A, Consent Order of Permanent Injunction (W.D.Ky. entered December 1, 1998).

• In December 1998, the U.S. District Court for the Northern District of Oklahoma entered a consent order against: Richard Conroy Bell; his defunct company, Barrett Bell Investment Corporation (BBIC); and two partnerships he formed, Manticore Resources and ZIA Investments. The court�s order was entered to settle this six-count civil injunctive action filed on November 16, 1993. While the defendants neither admitted nor denied the findings, the order found that the defendants defrauded investors in a commodity pool and misappropriated pool funds. Specifically, the order found that, between 1990 and 1993, Bell and BBIC defrauded approximately 110 investors of approximately $8 million in a commodity pool formed to trade oil futures. The court found that the defendants sent investors false account statements, and misappropriated customer funds for personal use and to make returns of principal and purported profits to earlier investors in a manner akin to a Ponzi scheme. Under the terms of the consent order, the defendants are permanently enjoined from committing further violations of the Act and Commission regulations as charged; barred from any activity in the futures industry on behalf of themselves or others; and ordered to make additional restitution to their customers of $3.4 million, plus pre- and post-judgment interest. The receiver in this action has already gathered and returned approximately $4.5 million to defrauded investors pursuant to previous court orders. CFTC v. Bell, et al., No. 93-C-1022H, Consent Order of Permanent Injunction (N.D. Okla. entered December 11, 1998).

• In January 1999, the U.S. District Court for the Southern District of Florida entered a final order of disgorgement of $7,961,295 against Marc Stephen Wuensch in CFTC v. Trinity Financial Group, Inc. Wuensch was formerly the president of Carrington Financial Corp. Inc., and sales manager of Trinity Financial Group, Inc. Previously, in a September 29, 1997, order, the court found Carrington and Wuensch liable for "systematic and willful" violations of the antifraud and supervisory provisions of the Act and Commission regulations. In the September 29, 1997, order, the court also permanently enjoined Wuensch and Carrington from violating the Act�s antifraud and supervisory provisions, and permanently enjoined the remaining defendant, A. Francis Sidoti, from violating the registration provisions of the Act. The court also, in part, ordered defendants to disgorge all profits that Wuensch received from Carrington and Trinity; prohibited the transfer of assets; appointed a receiver; and ordered Carrington, and Wuensch to transfer all books and records to the receiver. The receiver immediately seized control of Carrington and terminated its operations. Subsequently, Commission staff worked with the receiver in the preparation of a report and recommendation for disgorgement to the court. In its January 22, 1999, order, the court stated that the Commission had proven "systematic and pervasive fraudulent conduct" and noted that "Wuensch encouraged, condoned, and participated in a pervasive fraud." The court adopted, in part, the receiver�s report and recommendation, and ordered Wuensch to disgorge $7,961,295. CFTC v. Trinity Financial Group, Inc., et al., No. 92-6832-CIV-UUB (S.D. Fla. entered January 22, 1999). In June 1999, the U.S. Court of Appeals for the Eleventh Circuit affirmed in part, vacated in part, and remanded the case. CFTC v. Sidoti, et al., 178 F.3d 1132 (11^th Cir. 1999).

• In February 1999, the U.S. District Court for the District of Minnesota entered a consent order against James M. Zoller and twenty-nine Tech-Comm Limited Partnerships (Tech-Comm pools) that were operated by Zoller. The court�s order was entered to settle this six-count civil injunctive action filed on November 21, 1997. The order found that the defendants, who had never been registered with the Commission, defrauded investors in a commodity pool and misappropriated pool funds. Specifically, the order found that, between August 1991 and October 13, 1997, Zoller solicited approximately $13 million from at least 219 pool participants for the purported purpose of trading commodity futures on their behalf but had in fact invested only a small amount of the investors� funds, $719,000. The defendants, in a manner the court likened to a Ponzi scheme, sent its customers account statements that falsely reported profits and returned approximately $9.2 million in principal and purported profits to investors. The order found that Zoller had misappropriated nearly $5 million of pool participants� funds. Under the terms of the consent order, the defendants are: permanently enjoined from committing further violations of the Act and Commission regulations as charged; barred from any activity in the futures industry on behalf of themselves or others; and ordered to make restitution of $4,914,784, plus pre- and post-judgment interest. In a related criminal action brought by the U.S. Attorney for the District of Minnesota, Zoller pled guilty in June 1998 to four counts of mail fraud and one count of embezzlement. Zoller was sentenced to 41 months in prison and is currently serving that sentence. CFTC v. Zoller, et al., No. 97-5691, Consent Order of Permanent Injunction (D.Minn. entered February 23, 1999).

• In February 1999, the Commission issued an order accepting an offer of settlement from International Futures Corporation (IFC), a registered IB, in connection with a complaint filed by the CFTC on August 13, 1998. In its order, the Commission found that IFC violated the anti-fraud provisions of the Act and Commission regulations by fraudulently soliciting clients to open accounts in its Hermes managed commodity futures trading account program. The Commission further found that IFC violated the Act and Commission regulations by acting as an unregistered CTA. The Commission also found that IFC fraudulently misrepresented in its radio advertisements, written promotional material, and oral representations to prospective clients that the program had between three and eight years of actual performance results when, in fact, all the performance results provided were hypothetical. According to the order, IFC customers who opened accounts lost approximately $400,000 trading pursuant to the program. IFC, without admitting or denying the findings, consented to the entry of the order directing it to cease and desist from further violations as charged and revoking its registration as an IB. In the order, the CFTC noted that orders of restitution and a civil monetary penalty against IFC would be appropriate in this case, but did not impose them based upon IFC�s demonstrated financial condition. The case continues as to the other respondent named in the CFTC complaint, LIT Division of First Options of Chicago (LIT). The August 1998 complaint alleges that LIT, the FCM that guaranteed IFC, is liable for IFC�s statutory and regulatory violations and that LIT failed to diligently supervise IFC as required by Commission regulations. In re International Futures Corp., et al., CFTC Docket No. 98-16, Order Making Findings and Imposing Remedial Sanctions (CFTC entered February 25, 1999).

• In March 1999, Dr. Richard E. Busch was ordered to pay over $45 million as part of an order of permanent injunction entered against him by default for his violations of the antifraud and registration provisions of the Act. The order directs Busch to make full restitution to investors of at least approximately $13 million, including prejudgment interest, and to pay a civil monetary penalty of over $32 million. In its order, the court found that Busch failed to answer or otherwise plead to the Commission�s complaint (filed in July 1998) and that all the allegations and facts in the complaint and other pleadings were deemed admitted as true. Based on the complaint and the court�s order, the court found that since approximately October 1996, Busch participated with other defendants in soliciting Alabama residents to invest at least $10.8 million in The Millennium Fund, an unregistered commodity pool. The court further found that, Busch, acting through co-defendant The ChateauForte Consortium, Inc., misappropriated investor funds, acted as an unregistered CPO, and failed to comply with commodity pool reporting and disclosure requirements. The court�s order enjoined Busch from violating the antifraud and registration provisions of the Act, as well as certain reporting and disclosure provisions, and from engaging in any commodity futures-related activity, including entering into any commodity futures transactions or accepting funds from investors for the purpose of trading commodity futures contracts. Furthermore, the order leaves in place the court�s July 7, 1998, order freezing assets, preserving records, and appointing a receiver over all named defendants, including Busch. CFTC v. ChateauForte, et al., No. CV-98-N-1755-S, Order of Permanent Injunction (N.D. Ala. entered March 5, 1999). In the pending portion of the litigation, the Commission seeks a court order permanently enjoining defendants The ChateauForte Consortium, Inc., WorldEx, S.A., John La Tourette, and William E. Amos from violations of the Act and requiring the defendants to make an accounting, to disgorge profits, to make restitution to defrauded customers, and to pay civil fines not exceeding $110,000 per violation or triple the defendants� monetary gain.

• In March 1999, the Commission issued an order accepting an offer of settlement from Allen Tsui in connection with a complaint filed by the CFTC on March 31, 1998. In its order, the Commission found that Tsui, a registered AP of CMB Capital Management Corp. (CMB), a registered guaranteed IB, committed fraud by failing to adequately disclose to potential and existing customers the risks of futures trading, and by misrepresenting and omitting the reasons customers� accounts no longer would be maintained at a FCM. By those acts, Tsui violated the anti-fraud provisions of the Act and aided and abetted CMB�s violations of Commission regulations. Tsui, without admitting or denying the allegations in the complaint, consented to the entry of the order which states, among other things, that: Tsui shall cease and desist violating the provisions of the Act and Commission regulations as charged in the complaint; Tsui�s registration with the Commission as an AP is revoked; Tsui is prohibited, for a two-year period, from trading on or subject to the rules of any contract market, and all contract markets are directed to refuse Tsui privileges thereon; Tsui will liquidate all futures and commodity options positions held by him or on his behalf, or in which he has any beneficial interest; Tsui is prohibited from soliciting or accepting funds from any person in connection with the purchase or sale of any commodity futures contract, placing orders for others, giving advice or price quotations or other information in connection with the purchase or sale of commodity futures contracts, introducing customers to any other person engaged in the business of commodity futures trading, and issuing statements or reports to others concerning commodity futures trading; Tsui shall not have to pay a civil monetary penalty or restitution based upon his inability to pay; and Tsui shall not seek registration in any capacity under the Act and acting in any capacity for which registration with the Commission is required under the Act. In re Grace Hsu, et al., CFTC Docket No. 98-10, Order Making Findings and Imposing Remedial Sanctions as to Respondent Allen Tsui (CFTC entered March 10, 1999).

• In March 1999, the U.S. District Court for the Eastern District of California entered a Final Order of Permanent Injunction, Restitution, and Ancillary Relief against Everett Scott Hobbs (d/b/a Commodity Futures Investments). This four-count civil injunctive action was filed on August 13, 1996, and charged Hobbs with illegally acting as an unregistered CPO, commingling customer funds and fraudulently misrepresenting to customers that their losing accounts were profitable. The court, having granted the Division�s motion for summary judgment, ordered the defendant permanently enjoined from committing further violations of the Act and Commission regulations as charged, and banned from acting in any capacity for which registration with the Commission is required under the Act and from trading on or subject to the rules of any contract market. Hobbs was also ordered to make restitution to his customers of $327,241 plus pre- and post-judgment interest. CFTC v. Hobbs, d/b/a Commodity Futures Investments, No. CV-F-96-5946 SMS, Final Order of Permanent Injunction (E.D.Cal. entered March 25, 1999).

• In May 1999, the estate of Donald B. Chancey and Southeastern Venture Partners Group, Inc. (SVPG) were ordered to pay over $11.5 million as part of an order of default judgment entered against them for violations of the anti-fraud and registration provisions of the Act. The order bars Chancey�s estate and SVPG from soliciting new customers or customer funds in connection with commodities trading, and orders them to pay restitution to customers of over $2.9 million and a civil monetary penalty of over $8.8 million. The court�s action stems from a six-count civil injunctive complaint filed by the Commission on July 1, 1996, charging, among other things, that the defendants violated the anti-fraud provisions of the Act and Commission regulations. Specifically, the complaint alleged that SVPG, a CPO, and Donald B. Chancey, SVPG�s chief executive officer, fraudulently solicited at least 19 customers to invest more than $3 million in an unregistered commodity pool and that Chancey fled with customer funds and did not respond to the CFTC�s complaint. In addition, the complaint charged that Chancey and SVPG operated an unregistered commodity pool and violated numerous disclosure, reporting, and recordkeeping requirements. On the same day the complaint was filed, the court froze the defendants� assets, appointed a receiver to take charge of the business operations, and issued a Writ of Ne Exeat, a court order directing the U.S. Marshals Service to locate Chancey and hold him in custody until he posted a $3 million bond. As part of the effort to locate Chancey, the CFTC posted his photograph on its website and sought information on his whereabouts from members of the public. The Federal Bureau of Investigation (FBI) also indicted Chancey on October 22, 1997. In June 1998, Chancey�s body was found in a Louisiana cabin with a gunshot wound. The coroner for the State of Louisiana concluded that it was an apparent suicide. The court�s order of default judgment directs that all proceeds obtained from the defendants be distributed in accordance with a proposal submitted previously by the court-appointed receiver. CFTC v. Estate of Chancey, et al., No. 7-96-CV-61, Order of Default Judgment (M.D.Ga. entered May 17, 1999).

• In August 1999, the U.S. District Court for the Eastern District of New York entered a consent order of permanent injunction against Oscar A. Klitin and Klitin Associates II, L.P., a New York Limited Partnership operated by Klitin as a commodity pool. The court�s order stems from a three-count complaint filed by the CFTC on August 26, 1997. The complaint charged the defendants with, among other things, fraudulently operating a commodity pool by misappropriating more than $200,000 in customer funds and by misrepresenting the pool�s financial condition to pool participants. Without admitting or denying the charges in the complaint, the defendants consented to the entry of the order which, among other things: permanently enjoins them from further violations of the Act and Commission regulations; orders Klitin to disgorge $115,772.86 (including prejudgment interest totaling $31,983.17); prohibits the defendants from soliciting or accepting new clients or participants for commodity futures or options trading; and prohibits the defendants from trading on any contract market subject to Commission regulation. By entry of a previous consent order in March 1999, the district court appointed the National Futures Association (NFA) as the court�s monitor and directed it to make an interim distribution to the investors in Klitin Associates II, L.P., of the more than $100,000 that was frozen in an account by a court order issued on the filing of the Commission�s complaint. CFTC v. Klitin, et al., No. CV 97 4973 (SJ), Order of Permanent Injunction Against Oscar A. Klitin and Klitin Associates II, L.P. (E.D.N.Y. entered Aug. 4, 1999).

• In August 1999, the U.S. District Court for the Eastern District of Michigan entered a consent order permanently enjoining Thomas Lamar from, among other things, violating the anti-fraud, registration, disclosure, and reporting provisions of the Act and Commission regulations. The entry of the consent order of permanent injunction stems from a five-count complaint against Lamar filed on February 13, 1998, which alleged that Lamar defrauded at least 85 investors who had invested at least $2 million in the Lamar Investments Group (LIG), a commodity futures trading pool operated by Lamar. Specifically, the complaint alleged that, among other things, from approximately March 1989 through October 1996, Lamar made misrepresentations to investors concerning the status and performance of LIG, reported fictitious profits to customers through fraudulent monthly account statements, and misappropriated funds received from investors. Lamar was also charged with acting as a CPO and CTA without being registered as such with the Commission.

In the consent order, Lamar admits the allegations of the complaint and agrees to pay $2,838,169 as disgorgement and restitution to customers. In addition, Lamar agrees to be permanently enjoined from violating the Act and Commission regulations. Lamar also consents to be permanently banned from seeking registration with the Commission or acting in any capacity that requires registration or is exempt from registration, and to a permanent prohibition on trading commodity interests for himself or others, or otherwise engaging in any business activities relating to commodity interest trading. CFTC v. Lamar, No. 98-70169, Consent Order of Permanent Injunction and Other Equitable Relief against Defendant Thomas W. Lamar (E.D. Mich. entered Aug. 5, 1999). In addition, the day before the Commission filed its complaint, Lamar was indicted for fraud and money laundering violations in connection with the operation of the LIG pool. He pled guilty to one count of mail fraud and one count of fraud, false reporting, and deception in commodity futures trading. The court sentenced Lamar in May 1999, ordering that he pay restitution to pool customers in the amount of $2,838,169. The court�s order that Lamar pay restitution in the criminal proceeding will satisfy the restitution and disgorgement obligations of the consent order with the Commission.

• In August 1999, the U.S. District Court for the District of Utah entered separate consent orders of permanent injunction against Robert Moncur and Douglas Foster. The six-count complaint was filed by the CFTC on March 27, 1998, against Foster, Moncur, and six others. The complaint charged Foster and Moncur, among other defendants, with fraudulently soliciting investors, issuing false statements, and misappropriating customer funds in connection with three commodity pools, Capital Advantage Group II, L.L.C., Brighton Fund, L.L.C., and Augusta Fund, L.L.C. According to the complaint, 23 pool participants invested approximately $325,000 in these three pools. Foster was also charged with fraudulently soliciting investors in connection with a fourth commodity pool, Sunrise Fund, L.L.C. Sunrise Fund allegedly received approximately $127,000 from 18 investors. The investors in all four of the pools resided in Utah. Without admitting or denying the allegations in the complaint, Foster and Moncur consented to be, among other things: permanently enjoined from further violations of the Act and Commission regulations, as charged; prohibited from soliciting or accepting new clients or participants for commodity futures or options trading and seeking registration or exemption from registration in any capacity; and prohibited from trading any commodity futures contracts or options on commodity futures contracts for their own personal accounts or having any such contracts traded on their behalf for a 10-year period. In addition, the court ordered Moncur to disgorge $21,505, which represents his gross profits from the conduct alleged in the Commission�s complaint. The order acknowledges that Moncur has already satisfied this obligation. The case was filed as the result of a joint investigation with the State of Utah, Division of Securities. As a result of this investigation, over $850,000 was returned to victims of this fraudulent scheme and a related securities scheme. Litigation continues against the remaining defendants in the case. CFTC v. Schenk, No. 2:98CV00216J, Consent Order of Permanent Injunction and Other Equitable Relief Against Douglas Foster (D. Utah entered Aug. 18, 1999); CFTC v. Schenk, No. 2:98CV00216J, Consent Order of Permanent Injunction and Other Equitable Relief Against Robert Moncur (D. Utah entered Aug. 25, 1999).

Illegal Instruments

The Commission continues to address conduct involving the sale of illegal futures contracts. During the past year, activity in this area focused primarily on three types of instruments: hedge-to-arrive grain contracts; contracts involving the purported sale of physical commodities such as agricultural products; and contracts involving foreign currencies marketed to the general public. The cases filed in FY 1999 that generally involved sales of illegal futures contracts follow.

CFTC v. Noble Wealth Data Information Services, Inc., et al.

In October 1998, the Commission filed a four-count civil injunctive complaint against Noble Wealth Data Information Services, Inc. (Noble Wealth); International Advanced Investment, Inc. (IAI); Esfand Baragosh, who is a principal of both firms; and Currex International Corporation (Currex). The complaint was amended to add defendant Currex. The complaint alleged that, from August 1994 through the filing of the complaint, the defendants violated the anti-fraud provisions of the Act and Commission regulations by defrauding customers, offering and selling illegal off-exchange futures contracts on foreign currencies, misappropriating customer funds, and bucketing orders. Specifically, the complaint alleged that the defendants placed newspaper classified advertisements for "traders" who were given training and materials that made false claims regarding Noble Wealth and the potential of extraordinary profits from trading foreign currencies. The complaint further alleged that the "traders" were urged to open personal trading accounts with Noble Wealth and to solicit additional funds from friends and family. However, the customer funds so solicited were not used to invest in foreign currencies but were in fact misappropriated. CFTC v. Noble Wealth Data Information Services, Inc., et al., No. PJM 98-3316 (D.Md. filed October 1, 1998, amended October 21, 1998). On October 1, 1998, the court issued a statutory ex parte restraining order freezing the assets of defendants as well as the assets of two companies, Noble Wealth Development, Ltd., and Bull & Bears, Ltd., that are alleged affiliates of Noble Wealth and received funds traceable directly to the fraud. On October 26, 1998, the court entered an order of preliminary injunction against all defendants. CFTC v. Noble Wealth Data Information Services, Inc., et al., No. PJM 98-3316, Order of Preliminary Injunction (D.Md. entered October 26, 1998).

In re The Andersons, Inc.

In January 1999, the Commission issued an order instituting administrative proceedings and simultaneously accepting an offer of settlement from The Andersons, Inc. (Andersons), a grain merchandizing concern. The Commission found that Andersons offered to enter into and entered into illegal futures and option contracts in violation of the Act and Commission regulations. Specifically, the Commission found that from January 1, 1994, through December 31, 1995, Andersons� commercial grain marketing program included convertible hedge-to-arrive contracts (HTAs) that constituted illegal futures contracts because they were not traded on a designated contract market. In addition, according to the order, the contracts offered by Andersons included option features that under certain circumstances could result in additional grain delivery obligations. The Commission�s order found that these contracts were commodity options prohibited by the Act and regulations. Andersons, without admitting or denying the Commission�s findings, consented to the entry of the order that directed it to cease and desist from further violations of the Act and Commission regulations, and directed it to pay a $200,000 civil monetary penalty. Under the settlement, Andersons also agreed to maintain newly established procedures whereby a committee, co-chaired by the President of its Agricultural Group and the Vice President of its Grain Division, has the responsibility to review all new proposed types of HTA contracts and any type of contract involving option features for the legality of such contracts under the Act and regulations. In re The Andersons, Inc., CFTC Docket No. 99-5 (CFTC filed January 12, 1999).

In re Farmers Cooperative Co., et al.

In January 1999, the Commission filed a five-count administrative action against Farmers Cooperative Company (Farmers Co-op), a cooperative grain elevator, and three elevator employees, Richard Houge, John McPherson, and Larry Peterson. The complaint charged that Farmers Co-op, aided and abetted by Houge and Peterson, violated the Act by offering and entering into HTA grain contracts that constituted contracts for the purchase and sale of a commodity for future delivery, but which were not traded on a designated contract market. The complaint also charged that Farmers Co-op, aided and abetted by Houge and Peterson, further violated the Act and Commission regulations by offering and entering into illegal agricultural options contracts. The complaint further charged that Farmers Co-op, aided and abetted by Houge, McPherson, and Peterson, operated as an unregistered FCM in violation of the Act. Finally, the complaint charged that Farmers Co-op, aided and abetted by the three employees, failed to provide risk disclosure statements and monthly profit and loss statements to the farmers who were allowed to buy and sell exchange-traded futures and options contracts. In re Farmers Cooperative Co., et al., CFTC Docket No. 99-6 (CFTC filed January 12, 1999).

In re Cargill, Inc.

In August 1999, the Commission filed a one-count administrative complaint against Cargill, Inc. Cargill is an international marketer, processor, and distributor of agricultural, food, financial, and industrial products. Cargill operates grain elevators in at least 21 states and is a Delaware corporation with its headquarters in Minnesota. Cargill�s Grain Division purchases corn, soybeans, and wheat, among other agricultural products, from producers and sells or merchandises grain to processors. The complaint alleged that from January 1998 to the date the complaint was filed, Cargill�s commercial grain marketing program offered certain grain contracts, called Premium Offer Contracts (POCs), that operate as call options. The terms of Cargill�s POC are set forth in an addendum to Cargill�s standard grain contracts. Under the POC, Cargill pays to a producer a non-refundable premium, which is added to the nearby grain delivery price, in exchange for the producer�s "firm offer" to sell Cargill grain for deferred delivery if, at a specified date, the futures price is at or above a specified strike price. The complaint alleged that Cargill�s POC is an agricultural trade option that is prohibited by the Act and Commission regulations. In re Cargill, Inc., CFTC Docket No. 99-16 (CFTC filed Aug. 26, 1999).

CFTC v. Clairmont Capital Corp., et al.

In September 1999, the Commission filed a three-count injunctive complaint in the U.S. District Court for the District of Colorado against Clairmont Capital Corp. (Clairmont), a Colorado corporation with offices in Denver, and its principals: Geoffrey L. Mann, president, and Charles W. Trench, vice president. Mann is not registered currently with the Commission and Trench has never been registered with the Commission. According to the complaint, from July 1998 until its filing, Clairmont, Mann, and Trench, among other things, cheated, defrauded, and deceived customers by making misrepresentations of material fact regarding the likelihood of profit and the limited risk of loss in trading foreign currency option contracts; by failing to provide customers with material information concerning fees; and by failing to disclose to customers that Clairmont was the grantor of the options it recommended to customers. Specifically, the Commission charged that Clairmont represented to potential customers that they could earn as much as 100 to 200% trading options on Japanese Yen when, in fact, virtually all customers lost a substantial portion of their money investing with Clairmont. Clairmont was charged with omitting to tell customers that it routinely charges a $250 "mark up" on each option in addition to a $250 commission. The complaint also alleged that Clairmont offered to enter into, and entered into, commodity option transactions not conducted on, or subject to, the rules of a board of trade that has been designated by the Commission as a contract market. Mann and Trench were charged individually with violating the anti-fraud provisions of the Act and with being a controlling person responsible for Clairmont�s illegal acts under the Act. CFTC v. Clairmont Capital Corp., et al., No. 99-S-1874 (D. Colo. filed Sept. 27, 1999).

Illegal Futures and Options Contracts Case Results

During FY 1999, the Commission obtained the following enforcement results in cases involving the sale of illegal futures and options contracts to the public. See New York Forex Ex-Center Corp., et al., CFTC Docket No. 97-5, Order of Summary Affirmance (CFTC entered Jan. 12, 1999); Global Link Miami Corp., et al., CFTC Docket No. 98-1, Opinion and Order (CFTC entered May 24, 1999). The Commission also obtained results in the following cases:

• In February and December 1998, the U.S. District Court for the Central District of California entered consent orders of permanent injunction against defendants C.O.M. Consultants, d/b/a/ Golden State Bullion (Golden State); Richard David Otto, Golden State�s president and owner; Bruce Michael Paine, a Golden State telemarketer; and Linton Samaru, also a Golden State telemarketer. The court�s orders were entered to settle with the defendants a two-count civil injunctive action filed on June 18, 1998. While the defendants neither admitted nor denied the findings, the court found that they had engaged in fraudulent telemarketing of illegal, off-exchange futures contracts purportedly involving platinum, gold, silver, and palladium. Under the terms of the consent orders: Golden State, Otto, Paine, and Samaru are permanently enjoined from committing further violations of the Act as charged; Golden State is ordered to pay restitution in the amount of $10,300,000; Otto is ordered to pay restitution in the amount of $9,245 and an additional twenty-five percent of his taxable income for the years 1997 through 2001; and Golden State, Otto, Paine, and Samaru are barred permanently from ever seeking registration with the Commission. Previously, in December 1997, the court entered a default judgment against Golden State telemarketer Fred Roland Williams that permanently barred him from soliciting customers or funds in connection with futures trading and ordered him to pay restitution in the amount of $2,459,117. The amount of the monetary judgment against Samaru and the CFTC�s request for a monetary judgment against Paine are pending before the court. CFTC v. C.O.M. Consultants, Inc., d/b/a Golden State Bullion, Civ. No. 97-4443 WMB, Consent Orders Of Permanent Injunction (C.D.Cal. entered February 12, 1998, and December 16, 1998).

• In December 1998, the U.S. District Court for the Southern District of New York entered a final judgment and order against World Wide Currencies, Inc., (a/k/a/ World Wide Currencies, Inc., a/k/a World Wide Currencies Ltd.), United Currencies Corp. (a/k/a United Currencies, Inc.), and A+ Currencies Int�l, Inc. (d/b/a International Currencies, Inc.). The order is the culmination of this action, which began with the filing of a four-count civil injunctive complaint on October 16, 1996. The complaint alleged that the defendants violated the Act and Commission regulations by offering and selling illegal currency futures contracts, cheating and defrauding customers in connection with the offer and sale of such contracts, violating the CFTC�s registration requirements, and misappropriating customer funds. The court permanently enjoined the defendants from committing further violations of the Act and Commission regulations as charged; ordered the defendants, jointly and severally, to pay a civil monetary penalty of $7,142,394 and make restitution to customers of $2,380,798; and rescinded all contracts entered into by the defendants with their customers. CFTC v. World Wide Currencies, Inc., et al., No. 96 CIV. 7814 WK, Judgment and Order (S.D.N.Y. December 23, 1998).

• In December 1998, the Commission settled with two respondents in an earlier filed HTA case. In re Competitive Strategies for Agriculture, Ltd., et al., CFTC Docket No. 98-4, Order Making Findings and Imposing Remedial Sanctions as to Respondent William Eugene Arnold (CFTC entered December 12, 1998), and In re Competitive Strategies for Agriculture, Ltd., et al., CFTC Docket No. 98-4, Order Making Findings and Imposing Remedial Sanctions as to Respondent Jeffrey James Wichmann (CFTC entered December 18, 1998).

• In May 1999, the Commission obtained a final judgment against New York Currency Exchange Corp, New York Currency Research Corp., and Michael T. Matejka, president of both corporations, ordering the defendants jointly and severally to pay $2,701,486 in restitution to customers and a civil monetary penalty of $8,104,458. The judgment also permanently enjoined the defendants from violating the provisions of the Act and Commission regulations alleged in the complaint and rescinded all contracts entered into by the defendants with their customers. CFTC v. New York Currency Research, No. 98 CIV 5588, Judgment and Order (S.D.N.Y. entered May 12, 1999). The judgment is a culmination of proceedings stemming from the August 1998 complaint, which alleged that the defendants violated the anti-fraud, registration, and various other provisions of the Act and Commission regulations by cheating and defrauding customers, offering and selling illegal foreign currency futures contracts, commingling and converting customer funds, bucketing customer orders, and operating as an unregistered FCM. Shortly after the complaint was filed, the court entered an ex parte order that, among other things, froze the defendants� assets and, subsequently, a preliminary injunction.

Quick Strike Cases

The Commission�s Division of Enforcement has continued to meet its commitment to respond quickly in investigations that uncover ongoing fraud. This "quick strike" ability enables the Commission to stop fraud soon after it is uncovered and to attempt to preserve customer funds. In addition, sanctions are imposed on wrongdoers in an expedited time period, sending a strong deterrent message to other potential wrongdoers. During FY 1999, for example, the Commission filed the following "quick strike" cases within four months of the opening of an underlying investigation.

CFTC v. Swartz, et al.

In November 1998, the Commission filed a three-count civil injunctive complaint against Ronald J. Swartz and Vertrix, Inc., a dissolved corporation of which Swartz was president. The complaint alleged that, from at least August 1997 through the filing of the complaint, the defendants defrauded investors of $165,000 in their solicitation for and operation of a fictitious commodity pool and defrauded other investors of $80,000 in connection with discretionary commodity trading accounts in which Swartz was a joint owner. Specifically, the complaint alleged that the defendants violated the anti-fraud provisions of the Act by, among other things: fraudulently misrepresenting their trading track record; falsely representing that the pool was highly profitable; preparing and distributing a false disclosure document; misappropriating investor funds; and preparing and distributing to investors false account statements. On the same date that the complaint was filed, the court issued a statutory ex parte restraining order against the defendants and on December 16, 1998, the court entered a consent order of preliminary injunction. On January 20, 1999, upon the defendants� failure to file an answer, despite the court�s grant of an extension of time for them to do so, the court granted the Commission�s request to enter a default. On May 27, 1999, the court entered an order of default judgment for permanent injunction that, among other things, ordered defendants to pay $330,482 in restitution, $330,482 as a civil monetary penalty, and the Commission�s costs and fees. CFTC v. Swartz, et al., No. 98C 7505 (N.D.Ill. filed November 23, 1998).

CFTC v. Colton

In December 1998, the Commission filed a six-count civil injunctive complaint against Michael Colton, individually and doing business as Future-Comm Trading (Future-Comm). The complaint alleged that Colton, from January 1997 through the filing of the complaint, defrauded commodity pool investors of at least $650,000. Specifically, the complaint alleged that Colton, through an Internet site, brochures, and in-person presentations, fraudulently solicited investors with false claims regarding trading profitability and risks. The complaint further alleged that the defendant falsely represented that Future-Comm was a registered CPO; acted as an unregistered CPO and CTA; and mishandled customer funds by, among other things, accepting funds in his own name, commingling, and misappropriating these pool funds. On the same date that the complaint was filed, the court issued a statutory ex parte restraining order freezing the assets of the defendant; appointing a temporary receiver; prohibiting the defendant from destroying any of his books and records; and requiring him to make his books and records available for inspection and copying by the CFTC. CFTC v. Colton, No. 98-2575-CIV-T-26C (M.D.Fla. filed December 16, 1998).

In March 1999, the court entered a preliminary injunction against Colton. In April 1999, the court entered an order of default judgment against Colton who, the court found, had failed to respond to the Commission�s complaint. Among other things, the court: permanently enjoined Colton from violating the Act and Commission regulations, as charged in the complaint; permanently enjoined him from acting in any capacity as an FCM, CPO, CTA, IB, FB, FT, or AP of any registrant, from seeking registration with the Commission and from soliciting or accepting new customers in connection with commodity futures or options trading; and ordered him to pay restitution in the amount of $523,950.54, disgorgement of $523,950.54, and a civil money penalty of $1,571,851.60, as well as costs and pre- and post-judgment interest. CFTC v. Colton, No. 98-2575-CIV-T-26C, Order of Default Judgment (M.D.Fla. entered April 5, 1999).

CFTC v. Chulik

In March 1999, the Commission filed a six-count civil injunctive action against Mark E. Chulik, a registered CTA. The complaint charged that Chulik operated as an unregistered CPO, violated the anti-fraud provisions of the Act and Commission regulations, misappropriated and commingled pool participants� funds, and failed to provide required CPO disclosure documents and reports to pool participants. Specifically, the complaint alleged that Chulik, doing business as Westgate Partners, MEC Management, and MEC Capital Management, obtained since May 1997 in excess of $750,000 from at least seven participants and pooled these funds for the purpose of trading commodity futures contracts. The complaint further alleged that Chulik reported fictitious profits to pool participants when, in fact, his trading resulted not in profits but in significant losses, including 1998 losses in excess of $500,000. Finally, the complaint alleged that in individual customer accounts, where Chulik directed trading as a CTA, he fraudulently exaggerated the actual balance in such accounts. On March 11, 1999, the court entered a statutory and temporary restraining order, and on March 24, 1999, the court entered a consent order of preliminary injunction. The consent order restrains the defendant from committing further violations of the Act and Commission regulations as charged, freezes the defendant�s assets, prohibits the defendant from destroying any of his books and records, and prohibits him from further soliciting clients or customers or accepting funds from them. CFTC v. Chulik, No. 99-02412 (C.D.Cal. filed March 9, 1999).

CFTC v. James, et al.

In April 1999, the Commission filed an eight-count injunctive action against Donald E. James and Donald James, Inc. (James, Inc.). The complaint alleged that the defendants defrauded investors in two commodity pools the defendants operated under the names of Franklin Thomas & Company and Franklin Thomas Investments, L.P. Specifically, the complaint alleged that the two pools received more than $5 million from at least 25 investors and that James and James, Inc., misappropriated funds of newer investors in the pools to pay principal and purported profits to earlier investors in a manner akin to a Ponzi scheme. The complaint charged, among other things, that James and James, Inc., defrauded investors by: misrepresenting to investors that all their funds were going to be used to trade commodity futures, when they were not; misrepresenting James�s trading success and promising profits while claiming to be able to limit risks; misrepresenting to investors that their funds were "frozen" at a brokerage firm in Chicago; misrepresenting to investors that they could withdraw their funds at any time after appropriate notice; and misrepresenting to investors, orally and in written statements, profits from trading and the value of each investor�s share of the pool. Additionally, the complaint charged that James acted as a CPO and CTA and that James, Inc., acted as a CTA, all without required registration with the Commission. Finally, the complaint alleged that James failed to provide required risk disclosure documents and accurate account statements to investors and that he illegally commingled investors� funds with his own funds and the funds of others. The complaint named Franklin Thomas Investments, L.P., as a relief defendant and sought to recover funds that are traceable to the fraud of the defendants. One day after the filing of the complaint, the court entered a statutory restraining order against James and James, Inc. In its order, the court appointed a temporary receiver, enjoined the defendants from further violations of the CEA, froze the defendants� assets, prohibited the destruction of books and records, and banned the defendants from any activity in the commodity futures industry. CFTC v. James, et al., 99-Civ-0967 (N.D.Ga. filed April 15, 1999).

CFTC v. Sheldon

In April 1999, the Commission filed a five-count injunctive action against Edwin Jay Sheldon, Applied Capital Management, LLC (ACM), and Charles Edward Powell. The complaint alleged that the defendants fraudulently solicited at least 30 individuals in Tennessee to invest more than $500,000 in Fair Haven Futures Fund, LLC (FHFF), a commodity pool operated by ACM. ACM is registered with the Commission as a CPO and CTA, Sheldon is registered as an AP and a principal of ACM, and Powell has never been registered with the Commission. Specifically, the complaint alleged that the defendants misrepresented the profit potential of commodity futures transactions; misrepresented the amount of investor funds that would be invested in commodity futures contracts; sent false account statements and reports to investors that reported profits when, in fact, defendants lost almost all of their investors� money; violated the disclosure and reporting provisions of the Act applicable to commodity pools; and made false statements in reports filed under the Act. On the same day the complaint was filed, the court entered a statutory restraining order freezing the defendants� assets, prohibiting the destruction of books and records, and requiring that books and records be made available to the Commission for inspection. CFTC v. Sheldon, No. 1:99-CV-138 (E.D.Tenn. filed April 28, 1999).

CFTC v. EuroPacific Equity and Capital Management, Ltd., et al.

In May 1999, the Commission filed a five-count civil injunctive action against EuroPacific Equity and Capital Management, Ltd. (EuroPacific); Tortola Corporation Company, Ltd. (Tortola); International Investment Group, Ltd. (IIG); David Michael Loyd; and Richard Tichy. The complaint alleged that EuroPacific, Tortola, IIG, Loyd, and Tichy fraudulently solicited at least 10 individuals from the United States and Canada to invest over $800,000 in a commodity pool called the EuroPacific or IIG Fund. According to the complaint, the vast majority of investor funds were misappropriated by transferring them to persons and entities unrelated to any commodity pool and by using them to pay for personal expenses. The complaint also alleged that the defendants violated the antifraud, registration, and disclosure and reporting requirements of the Act and Commission regulations. The fraudulent conduct with which the defendants were charged included: misappropriating investor funds; misrepresenting the profit potential of commodity futures transactions; misrepresenting the amount of investor funds that would be invested in commodity futures contracts; and sending false account statements and reports of profits to investors when, in fact, the defendants lost or misappropriated almost all the investors� money. On the day the complaint was filed, the court entered a statutory restraining order against EuroPacific, Tortola, IIG, Loyd, and Tichy, freezing the defendants� assets, prohibiting the destruction of books and records, requiring that books and records be made available for inspection and copying, and appointing a temporary receiver. Nine days later, the court entered consent orders of preliminary injunction enjoining the defendants from, among other things, engaging in any commodity futures-related activity, and continuing the terms and conditions of the earlier freeze order. CFTC v. EuroPacific Equity and Capital Management, Ltd., et al., No. 99-6506 (S.D.Fla. filed May 5, 1999).

CFTC v. Berzins

In August 1999, the Commission filed a civil injunctive action against Peter Berzins. The complaint alleged that Berzins violated anti-fraud provisions of the Act and Commission regulations by fraudulently soliciting and accepting from investors in excess of $500,000 to participate in a commodity pool to trade commodity futures contracts and options on futures contracts. Specifically, the complaint alleged that, in order to induce additional investments, Berzins misrepresented to prospective investors the performance record of the pool he had been trading and provided investors with written statements which falsely represented that investors were making significant monthly profits. The complaint further alleged that Berzins represented continuously to investors that their investments were earning double-digit returns when, in fact, Berzins� trading accounts all lost money in 1995-1998. The complaint alleged that Berzins minimized the risk of investing in the commodity pool when soliciting investors. Further, in March 1998, Berzins represented to investors that their investments, and the profits purportedly earned earlier, had been lost in trading the previous month and provided one or more investors with falsified documents that reflected a purported margin call from a FCM to support the claim of recent large trading losses. No such margin call was ever made. The complaint also alleged that Berzins failed to register as a CPO; failed to provide investors with periodic account statements; commingled investor funds with his own funds; failed to operate the commodity pool as an entity separate from himself; and accepted trading funds in his own name, in violation of the Act and Commission regulations. Two days after the complaint was filed, the Federal district court entered an ex parte statutory restraining order against Berzins prohibiting him, among other things, from altering or destroying books, records, and documents and from transferring assets. CFTC v. Berzins, No. 3:99cv592 (E.D. Va. entered Aug. 26, 1999). On September 17, 1999, the Federal court entered a preliminary injunction against Berzins, enjoining him, among other things, from violating the Act and regulations; soliciting or accepting funds from prospective and current investors in connection with commodity futures or options; and trading commodity futures contracts or options on any exchange. CFTC v. Berzins, No. 3:99cv592 (E.D. Va. entered Sept. 17, 1999).

CFTC v. Princeton Global Management Ltd., et al.

In September 1999, the Commission filed a three-count civil injunctive action against Princeton Economics International, Ltd. (PEI), its wholly owned subsidiary, Princeton Global Management, Ltd. (PGM), and their chairman Martin A. Armstrong. The complaint alleged that the defendants defrauded customers by misrepresenting the value of customer interests in a commodity pool in connection with an investment scheme involving the trading of commodity futures and the operation and management of the commodity pool. Specifically, the complaint alleged that from at least 1996 to the filing of the complaint, the defendants sold billions of dollars worth of fixed-term promissory notes issued by PEI and its subsidiaries to companies located in Japan. The complaint also alleged that the principal amount of the notes has been used to fund the purchase of derivative instruments, bonds and/or currencies, including futures contracts and options (collectively, the Fund). Armstrong is the Fund�s primary trading advisor. Further, the assets of the Fund were held at an FCM in sub-accounts for the purpose of trading futures contracts and options. Since 1996, Armstrong allegedly arranged for the FCM to issue over 200 letters to PGM, which inflated the net asset value of the assets held in those sub-accounts; Armstrong and PGM then reported the inflated value to customers in Japan. The complaint alleged that the current principal amount of outstanding notes is approximately one billion dollars while the assets currently in the Fund total no more than approximately $46 million dollars. CFTC v. Princeton Global Management Ltd., et al., No. 99CIV9669 (S.D.N.Y. filed Sept. 13, 1999).

The same day the action was filed, the court entered a temporary restraining order freezing all of the defendants� assets pending a hearing on the request for a preliminary injunction. The court order also appoints a temporary receiver with the power to, among other things, take immediate possession, custody, and control of all assets and property and the books and records of PEI and PGM, and take all steps necessary to secure and protect the assets and property of PEI and PGM. CFTC v. Princeton Global Management Ltd., et al., No. 99CIV9669 (S.D.N.Y. entered Sept. 13, 1999). The Commission coordinated its enforcement efforts in this matter with the Securities and Exchange Commission (SEC) and the Department of Justice, both of which also filed related actions, and the Japanese Financial Supervisory Authority.

Supervision, Compliance and/or Audit Cases

During FY 1999, the Commission continued its efforts to enforce the important requirement that firms handling customer business supervise diligently their employees and other agents and maintain the customer protection benefits of sound supervisory systems. To that end, the Commission continues to investigate and take action against registrants for failing to supervise diligently the handling of customer accounts and for failing to establish adequate compliance systems. The Commission also investigates and takes action against auditors who fail to adhere to the requirements of Commission regulations, including the requirement, where applicable, to adhere to Generally Accepted Auditing Standards (GAAS). During FY 1999, the Division pursued a number of actions.

In re Osadchy

In October 1998, the Commission issued an order simultaneously instituting administrative proceedings and accepting an offer of settlement from Anatoly Osadchy a/k/a/ Anthony Osadchy, a certified public accountant. The order finds that Osadchy engaged in "improper unprofessional conduct" and permanently denies him the privilege of appearing or practicing before the Commission. Osadchy agreed to the order without admitting or denying the findings therein and has agreed never to apply for reinstatement. Specifically, the order finds that Osadchy engaged in improper, unprofessional conduct in performing an audit of the financial statements of a registered IB and filing a report of its audit which represented that the financial statements were audited in accordance with GAAS and Commission regulations. The order found, among other things, that Osadchy: failed to maintain his required professional independence, failed to obtain sufficient competent evidential matter, lacked adequate training and proficiency, failed to plan adequately, and failed to exercise due professional care. The order finds that, as a result of these GAAS and regulatory failures, Osadchy engaged in "improper unprofessional conduct" within the meaning of Section 14.8(c) of the Commission�s regulations. In re Osadchy, CFTC Docket No. 99-2 (CFTC filed October 29, 1998).

In re Refco, Inc.

In May 1999, the Commission issued an order, simultaneously instituting and settling an administrative proceeding naming Refco, Inc. (Refco), a registered FCM. The CFTC ordered the company to cease and desist from further violations of those provisions of the Act and to pay a total of $7 million, of which $6 million will be paid immediately as a civil monetary penalty. The remaining $1 million will be used to fund a study of issues associated with: order transmission and entry procedures for exchange-traded futures and options and the diligent supervision of the order transmission and entry process by commodity professionals. Representatives of the NFA and the Futures Industry Institute, among others, will oversee the study, the first of its kind in the futures industry. The order also requires Refco to conduct an internal study of its compliance policies and procedures on the handling of trades by its trading floor and back office personnel. As part of the study, Refco is also required to make any necessary recommendations to conform such procedures to the requirements of the Act, the Commission regulations, and exchange rules and to prevent recurrence of the type of conduct discussed in the order.

The order states that, from at least January 1995 through December 1995, a registered IB placed orders for thousands of Treasury bond futures and options contracts per day for his customers through Refco and placed a substantial number of such orders without providing account identification to Refco. After the orders were executed, the IB assigned those trades to customer accounts, directing positions as the IB chose, and sometimes moved trades between accounts after trades had been assigned and cleared. The order found that Refco failed to comply with Commission regulations regarding order taking and recordkeeping in handling customer orders, to administer a proper supervisory system, and to investigate indications of improper handling of trades. Refco consented to issuance of the order without admitting or denying the findings. In re Refco, Inc., CFTC Docket No. 99-12 (CFTC filed May 24, 1999).

In re Wolcott & Lincoln Futures, L.L.C. f/k/a Wolcott & Lincoln Futures, Inc., et al.

In August 1999, the Commission issued an order simultaneously instituting and settling an administrative proceeding against Wolcott & Lincoln Futures, L.L.C, a FCM, and David Gibson, Wolcott & Lincoln�s manager. The CFTC order finds that Wolcott & Lincoln, formerly known as Wolcott & Lincoln Futures, Inc., mishandled customer funds; willfully filed inaccurate and improperly executed reports with the CFTC; violated CFTC recordkeeping requirements; and breached its duty to supervise diligently the handling of customer funds. The order also finds Gibson liable for Wolcott & Lincoln�s violations. The Commission�s order, among other things, directs both respondents to cease and desist from further violations of the Act and Commission regulations; orders them to pay jointly and severally a civil monetary penalty in the amount of $50,000; revokes Wolcott & Lincoln�s FCM registration, and requires Gibson to comply with extensive undertakings. The respondents consented to the issuance of the order without admitting or denying the findings. In re Wolcott & Lincoln Futures, L.L.C. f/k/a Wolcott & Lincoln Futures, Inc., et al., CFTC Docket No. 99-14 (CFTC filed Aug. 9, 1999).

Supervision and Compliance Case Results

During FY 1999, the Commission obtained final results in several cases involving supervision and compliance issues. See In re Henry & Horne, PLC, CFTC Docket No. 98-11, Order Making Findings and Imposing Remedial Sanctions (entered October 21, 1998); In re Reifler Trading Corp., et al., CFTC Docket No. 98-2, Order Making Findings and Imposing Sanctions against Respondents Reifler Trading Corp. and Bradley C. Reifler (CFTC entered January 22, 1999); In re First Commercial Financial Group, Inc., et al., CFTC Docket No. 95-10, Order Making Findings and Imposing Sanctions (CFTC May 20, 1999); and In re Reifler Trading Corp., et al., CFTC Docket No. 98-2, Default Judgment (as to Respondents Hany Labib, Syed Hussain, and Liberty Futures, Inc.) (ALJ entered May 28, 1999). Because the ALJ�s decision was not appealed, it became a final Commission order on July 1, 1999.

Recordkeeping Violations

Recordkeeping cases involve registrants� failure to maintain or produce records as required by the Commission�s statutory and regulatory inspection powers. These cases demonstrate that the Commission takes seriously violations of these requirements, particularly when they impede the ability of the Division of Enforcement to investigate possible wrongdoing.

In re First Options of Chicago, Inc.

In December 1998, the Commission filed a one-count administrative complaint against First Options of Chicago, Inc., a registered FCM. The complaint alleged that the defendant failed to retain and promptly produce the carbon copies and originals of certain floor order tickets requested by the Division in connection with an alleged trade allocation investigation. The complaint alleged that the respondent was requested repeatedly to search for the requested order tickets, and took fourteen months to complete its search and produce the original tickets it did have. The complaint also charges that the respondent failed to maintain records, including some of the original order tickets and virtually all of the copies of the order tickets. In re First Options of Chicago, Inc., CFTC Docket No. 99-3 (CFTC filed December 22, 1998)

Recordkeeping Violation Case Results

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Statutory Disqualifications

Although the Commission has now delegated the bulk of the responsibility for handling statutory disqualification matters to the NFA, the Commission still expects to address these matters directly in some circumstances. This year, the Division brought the following cases.

In re Varner

In January 1999, the Commission filed a Notice of Intent to Revoke, Suspend or Restrict Registration against Michael H. Varner, a registered FB who is a member of the New York Cotton Exchange (NYCE), which is now part of the Board of Trade of New York. The Notice alleged that, between 1987 and 1997, Varner was charged by the NYCE in 35 disciplinary actions, three of which involved serious charges, such as trading ahead, prearranged trading, and accommodation trading. The disciplinary actions resulted in cumulative sanctions of $36,250 in fines, two cease and desist orders, and a 30-day suspension. The Notice alleged that the disciplinary actions, and the facts underlying those actions, constitute good cause under section 8a(3)(M) of the Act to revoke, suspend, or restrict Varner�s FB registration as authorized under section 8a(4) of the CEA. In re Varner, CFTC Docket No. SD 99-1 (CFTC filed January 27, 1999). In June 1999, Varner submitted an offer of settlement that the Commission determined to accept. Varner, without admitting or denying the charges in the Notice, consented to the entry of a Commission order which restricted his registration for two years, during which time, among other things, he will be prohibited from trading directly or indirectly on behalf of customers, and be required to have a sponsor. In re Varner, CFTC Docket No. SD 99-1, Opinion and Order Accepting Offer of Settlement of Michael Varner (CFTC entered June 4, 1999).

In re Myskowski

In January 1999, the Commission filed a Notice of Intent to Suspend, Revoke or Restrict Registration against Anthony Myskowski, a registered FB who is a member of the CSCE, and simultaneously accepted Myskowski�s offer of settlement. The Notice alleged that Myskowski was charged by the CSCE in 14 disciplinary actions, two of which alleged serious violations, including trading ahead of an active customer buy order, misallocating a customer order, and engaging in noncompetitive and prearranged trading. The two serious violations resulted in $15,500 in sanctions. The Notice further alleged that the disciplinary proceedings constitute good cause under section 8a(3)(M) of the Act to revoke, suspend, or restrict Myskowski�s FB registration as authorized under section 8a(4) of the CEA. Myskowski, without admitting or denying the charges in the Notice, consented to the entry of a Commission order which restricted his registration for two years, during which time, among other things, he will be prohibited from trading directly or indirectly on behalf of customers and be required to have a sponsor. In re Myskowski, CFTC Docket No. SD 99-2 (CFTC filed January 27, 1999).

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In re Barbarino, et al.

In February 1999, the Commission filed a Notice of Intent to Suspend, Revoke or Restrict Registration against Frank Barbarino and Frank D�Amato, two registered FBs who traded on the NYMEX. The notice alleged that on January 9, 1991, Barbarino traded ahead of executable customer orders. The notice further alleged that on that date Barbarino�s and D�Amato�s employees intentionally and negligently misallocated customer orders and failed to relay executable customer orders to Barbarino in a timely manner, which resulted in Barbarino trading for his personal account ahead of these orders. Finally, the notice alleged that Barbarino and D�Amato settled the two NYMEX disciplinary actions that arose from these incidents resulting in cumulative sanctions of $40,000 in fines plus $15,500 in restitution. In re Barbarino, et al., CFTC Docket No. SD 99-3 (CFTC filed February 3, 1999).

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In re Atwood Commodities, LLC

In March 1999, the Commission filed a Notice of Intent to Suspend, Revoke or Restrict Registration against Atwood Commodities, L.L.C. (Atwood) and simultaneously accepted Atwood�s offer of settlement. Atwood is a registered FCM and the settlement, made without Atwood admitting or denying the allegations contained in the Notice, placed restrictions on its registration for a period of four years. The registration action resulted from a previous criminal conviction of Atwood�s principal, ConAgra, Inc. (ConAgra). The Notice alleged that ConAgra pled guilty to and was convicted of wire fraud as a result of an alleged scheme to defraud buyers of grain by misweighing and misgrading grain within ConAgra�s Peavey Grain division. Among other things, the Commission�s order accepting Atwood�s settlement prohibits Atwood from ever employing any person involved in any of the conduct or activities underlying the ConAgra criminal information and, for a period of four years, prohibits Atwood from employing any person who simultaneously has management responsibilities for the operation of the Peavey Grain division of ConAgra. The order further requires Atwood for the next four years to give heightened review to ConAgra�s orders to ensure that they are handled and processed in accordance with the Act and Commission regulations and to report any problems to the Commission. In re Atwood Commodities, LLC, CFTC Docket No. SD 99-4 (CFTC filed March 30, 1999).

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In re Pedersen

In May 1999, the Commission simultaneously filed a Notice of Intent to Suspend, Revoke or Restrict Registration against Earl A. Pedersen and accepted Pedersen�s offer of settlement. The Notice alleged that Pedersen, a registered FB who is a member of the CSCE, was charged by the CSCE in 11 disciplinary actions, two of which alleged the serious violations of trading ahead of an active customer sell order and misallocating a customer order. The two serious violations resulted in total fines of $7,500. The Notice further alleged that the disciplinary proceedings and the misconduct underlying the two actions constitute a basis by which Pedersen�s FB registration may be conditioned, suspended, revoked, or restricted under the Act. Without admitting or denying the charges in the Notice, Pedersen consented to the entry of a Commission order that restricted his registration for two years, during which time, among other things, he will be prohibited from trading directly or indirectly on behalf of customers and be required to have a sponsor. In re Pedersen, CFTC Docket No. SD 99-5 (CFTC filed May 3, 1999).

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In re Berry, et al.

In June 1999, the Commission filed a Notice of Intent to Suspend, Revoke or Restrict Registrations against Felix A. Berry and BFC Commodities, Inc. (BFCC) and accepted simultaneously their offer of settlement. BFCC has been registered as a CPO, CTA, and IB. Berry is a principal and registered AP of BFCC. The Notice alleged that on January 28, 1998, the Illinois Secretary of State issued a consent order of prohibition against Berry that included findings of fact that Berry had made false or misleading statements to purchasers of securities in Berry�s Financial Corporation which violated various state securities statute anti-fraud provisions. The Notice further alleged that the consent order of prohibition constitutes grounds for statutory disqualification of Berry from registration under Section 8a(2)(E) of the Act. Berry, on behalf of himself and BFCC, without admitting or denying the charges in the Notice, consented to the entry of a Commission order that revoked Berry�s AP registration; revoked BFCC�s CPO, CTA, and IB registrations; and ordered Berry and BFCC to comply with their undertakings to never reapply for registration or act in a capacity requiring registration. In re Berry, et al., CFTC Docket No. SD 99-6 (CFTC filed June 2, 1999).

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In re Connelly

In July 1999, the Commission filed a Notice of Intent to Suspend, Revoke or Restrict Registration against James L. Connelly and simultaneously accepted his offer of settlement. Connelly has been a member of the Index and Options Market division of the Chicago Mercantile Exchange (CME) and has been registered as an FB. During the relevant time period, June 1992 to June 1993, Connelly was a member of the Linnco Futures Group, Inc., Broker Association. The notice alleged that on eight instances Connelly allocated profitable customer trades to his own trading account and then, to fill the customer order and offset the position taken into his personal account, bucketed his customer�s order against another FT or broker. The notice further alleged that he violated recordkeeping rules in connection with the preparation and time stamping of his customer orders. Finally, the notice alleged that Connelly settled the CME disciplinary action that arose from these incidents resulting in cumulative sanctions of $25,000 in fines, $7,952 in restitution, and a six-month suspension. Connelly, without admitting or denying the allegations in the notice, consented to the entry of a Commission order that imposed a lifetime dual-trading restriction on his FB registration. In re Connelly, CFTC Docket No. SD 99-7 (CFTC filed July 29, 1999).

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In re Rhee, et al.

In September 1999, the Commission filed a Notice of Intent to Suspend, Revoke or Restrict Registration against Andrew David Rhee and Reflex Asset Management Corporation (Reflex). Reflex has been registered as a CPO and CTA. Rhee is a principal, sole owner, and AP of Reflex. On July 23, 1998, the U.S. Attorney�s Office for the Southern District of New York filed a criminal information against Rhee and Thomas Edmund Kelly charging that they conspired to commit wire fraud by misappropriating confidential proprietary information from John W. Henry & Co. (JWH), a registered CPO and CTA, and used that information to place commodity futures trades ahead of JWH�s futures trades for the benefit of Rhee, Reflex and Kelly and to JWH�s detriment. The same day, Rhee pled guilty in Federal district court to the felony charge of conspiring to commit wire fraud. In December 1998, a judgment order of conviction was entered against Rhee concerning the felony charge in the U.S. District Court for the Southern District of New York. On July 23, 1998, the Commission filed a two-count civil injunctive complaint in the same court against Rhee, Reflex, and Kelly charging them with fraud under the Act in connection with their scheme to trade ahead of JWH�s futures orders. On November 3, 1998, the U.S. District Court for the Southern District of New York entered a consent order of permanent injunction against Rhee and Reflex in the civil action that permanently enjoins them from, among other things, directly or indirectly engaging in or continuing activity involving fraud and activity involving transactions in or advice concerning contracts of sale of a commodity for future delivery. The September 1999 Notice alleged that the facts set forth in the criminal and civil cases constitute grounds for disqualifying Rhee from registration under Sections 8a(2)(C) and (D) of the Act. In addition, according to the Notice, the facts constitute grounds for the statutory disqualification of Reflex from registration under Sections 8a(2)(C) and (H). In re Rhee, et al., CFTC Docket No. SD 99-8 (CFTC filed September 20, 1999).

Statutory Disqualification Case Results

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Internet Activities

The Division maintains an Internet surveillance program to monitor commodity option and futures-related websites as well as messages posted on Internet bulletin boards and newsgroups. Internet monitoring has generated dozens of enforcement inquiries concerning possible registration violations, misrepresentations of the success of trading programs, and offers of potentially illegal futures and option products. In addition to its usual surveillance program, the Division also participated in an "Internet Surf Day" with the Federal Trade Commission, the North American Securities Administrators Association, the National Association of Securities Dealers, Inc., and 30 state securities regulators on November 12, 1998. On that day, Division staff, in conjunction with staff from the other participating agencies and organizations, conducted a comprehensive search of Internet web pages and newsgroups for bogus claims and illegal representations about investment opportunities. The surf results indicate that investors are being sought for both traditional and exotic investment opportunities, including foreign currency, films, restaurants, Internet-related and off-shore investments, and public and private stock offerings.

The Division also uses the Internet to disseminate information to the general public. For example, in November 1998, the Commission released its Consumer Advisory on "Sales Pitches Based on Seasonal Demand and Other Public Information." Consumers were warned about firms that lure consumers to buy commodity futures or options through claims that they can make a lot of money with little risk based on predictable seasonal demands, published reports, or well-known current events. This advisory is currently posted on the Division�s page on the CFTC�s Internet website, www.cftc.gov. In addition, in March 1999, the Commission put a posting on various bulletin boards regarding unsolicited bulk e-mail or "spam" messages. In In re Dunhill Financial Group, Inc., et al., CFTC Docket No. 99-7, customers were solicited over the Internet by "spam" messages. The CFTC�s posting warned consumers about firms that used these marketing techniques to attract new business.

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Cooperative Enforcement

Domestic

Cooperative enforcement efforts enhance the Division of Enforcement�s ability to promote compliance with, and to deter violations of, Federal commodities laws. During FY 1999, 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. The Division�s cooperation with law enforcement agencies has also resulted in the filing of criminal charges by those agencies. Examples of this type of domestic cooperative effort during FY 1999 follow.

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United States v. Thomas Edward Kelly and Andrew David Rhee

In July 1998, following a cooperative investigative effort by the Commission, the Department of Justice, and the U.S. Postal Inspection Service, both the U.S. Attorney�s Office for the Southern District of New York and the CFTC filed actions against Kelly and Rhee. The U.S. Attorney�s Office filed a criminal information captioned United States v. Thomas Edmund Kelly and Andrew David Rhee, No. 98 CR 789 (RPP)(S.D.N.Y. filed July 23, 1998), charging that Rhee and Kelly conspired to commit wire fraud. Rhee and Kelly pled guilty to the criminal felony conspiracy to commit wire fraud charge and, on December 7, 1998, were each sentenced to 33 months in prison. The same day the criminal information was filed, the CFTC filed a two-count civil injunctive action in the same Federal district court charging Rhee, Kelly, and Reflex Asset Management Corporation (Reflex) with fraud under the Act. In November 1998, Rhee, Reflex, and Kelly consented to the entry of a permanent injunction against them in the CFTC�s civil action that, among other things, required disgorgement of more than $2 million and permanently barred Rhee, Kelly, and Reflex from the futures industry. CFTC v. Rhee, et al., Consent Order of Permanent Injunction (S.D.N.Y. entered November 3, 1998). The cases are discussed in more detail on page 32.

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CFTC v. Noble Wealth Data Information Services, Inc., et al.

In October 1998, the Commission filed a four-count civil injunctive complaint against Noble Wealth Data Information Services, Inc. (Noble Wealth); International Advanced Investment, Inc. (IAI); Esfand Baragosh, who is a principal of both firms; and Currex International Corporation (Currex). The complaint was amended to add defendant Currex. The complaint alleged that, from August 1994 through the filing of the complaint, the defendants violated the anti-fraud provisions of the Act and Commission regulations by defrauding customers, offering and selling illegal off-exchange futures contracts on foreign currencies, misappropriating customer funds, and bucketing orders. CFTC v. Noble Wealth Data Information Services, Inc., et al., No. PJM 98-3316 (D.Md. filed October 1, 1998, amended October 21, 1998). The Maryland Division of Securities provided valuable assistance to the Commission during the investigation of this matter. For a more complete case description, see page 40.

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CFTC v. Swartz, et al.

In November 1998, the Commission filed a three-count civil injunctive complaint against Ronald J. Swartz and Vertrix, Inc., a dissolved corporation of which Swartz was president. The complaint alleged that, from at least August 1997 through the filing of the complaint, the defendants defrauded investors of $165,000 in their solicitation for and operation of a fictitious commodity pool and defrauded other investors of $80,000 in connection with discretionary commodity trading accounts in which Swartz was a joint owner. The Commission received assistance in its investigation from the FBI and the NFA. CFTC v. Swartz, et al., No. 98C 7505 (N.D.Ill. filed November 23, 1998). For a more complete case description, see page 45.

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United States v. Robert C. Rossi, Steven G. Soule, and Kyler F. Lunman II

The Commission and the Department of Justice worked closely in investigating and bringing charges against Kyler F. Lunman II, his company, Hold-Trade, Inc. (a/k/a Hold Trade, Ltd.) (Hold-Trade) and Steven G. Soule, a former employee of Coastal Corporation (Coastal). In December 1998, the Commission filed a three-count administrative complaint against Hold-Trade and Soule. The Commission amended its complaint in February 1999 to add as a respondent Robert C. Rossi, the principal owner and manager of Refined Energy Executions, Inc., and Refine Executions, Inc. (collectively, Refined), which provided Coastal with FB services on the NYMEX. The amended complaint alleged that, from September 1993 through December 1994, the respondents defrauded Coastal by misappropriating its energy futures trades and wrongfully allocating them to accounts they controlled. In February 1999, a Federal grand jury sitting in Houston, Texas, returned an 18-count indictment against Rossi, Soule, and Lunman, charging them with conspiracy, commodity fraud, wire fraud, and money laundering in connection with the scheme. United States v. Robert C. Rossi, Steven G. Soule, and Kyler F. Lunman II, No. H-99-0-40 (S.D. Tex. filed Feb. 4, 1999). In re Soule, et al., CFTC Docket No. 99-4 (CFTC filed December 22, 1998, amended February 4, 1999). For a more complete case description, see page 20.

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United States v. Gary B. Anderson

In February 1999, a Federal grand jury in Chicago returned a 13-count criminal indictment against Gary B. Anderson. In addition to mail fraud and the filing of false tax documents, the indictment charges Anderson with counts of conversion and fraud under the Act. The indictment also charges Anderson with perjury during a deposition conducted by Commission staff and obstruction of justice in connection with a Commission investigation. United States v. Gary B. Anderson, No 99 CR 128 (N.D.Ill. filed February 24, 1999). The indictment was the result of the Commission�s cooperation with the U.S. Attorney for the Northern District of Illinois and follows the Commission�s own case against Anderson, filed in September 1995, involving allegations of fraud in the solicitation of money from investors to trade commodity futures. CFTC v. Anderson, et al., No. 95 C 5422 (N.D.Ill. filed September 22, 1995). The Commission�s action was settled with a consent order of permanent injunction that permanently restricted Anderson�s activities in the futures industry and required restitution of $460,000 plus interest, a figure representing the total net loss to investors.

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United States v. Edward Collins

In April 1999, a Federal grand jury in Chicago returned a 23-count criminal indictment against Edward Collins. The indictment included charges of fraud in connection with the solicitation and receipt of funds for investment in commodity futures contracts, as well as charges of mail fraud and money laundering. United States v. Edward Collins, No 99 CR 0311 (N.D.Ill. filed April 28, 1999). The criminal indictment resulted from the cooperation of the Commission with the U.S. Attorney for the Northern District of Illinois, and followed the Commission�s own injunctive action against Collins and others. CFTC v. Collins, et al., No. 94 C 4375 (N.D.Ill. filed July 19, 1994).

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United States v. Edward W. Schroeder and Carl Hermans

In July 1999, the U.S. Attorney�s Office for the Central District of California indicted commodities trader Edward W. Schroeder on 26 counts of mail fraud, contempt of court, and money laundering. Carl Hermans was also indicted on 11 counts of mail fraud and money laundering. Hermans is an ex-financial advisor and insurance agent who solicited investors for Schroeder. The indictment alleged that Schroeder and Hermans solicited people to invest in a "managed spread program" that purportedly invested in Treasury bond futures. Schroeder told investors that he would purchase futures in different types of bonds to take advantage of "price-yield disparities" that would guarantee profits to the investors. Schroeder claimed that his investment program had never had a losing month and that it generated returns of up to 36% a year. In fact, Schroeder lost more than $1.5 million of his investors� money. Schroeder and Hermans operated a Ponzi scheme, and Schroeder allegedly also siphoned off funds for his own benefit. The CFTC sued Schroeder in 1996. As a result of that suit, Schroeder was, among other things, barred from trading commodities for two years. The indictment alleged that during the CFTC�s investigation and lawsuit, Schroeder continued to engage in illegal trading by laundering money through hidden accounts set up with Hermans� assistance. United States v. Edward W. Schroeder and Carl Hermans, No. Cr 99-742 ABC (C.D. Cal. filed July 22, 1999). The CFTC also filed a related action against Hermans in 1997, and obtained a default judgment against him. CFTC v. Schroeder, et al., No. 96-4563 HLH (CTx), Judgment (C.D. Cal. entered August 19, 1997); CFTC v. Schroeder, et al., No. 96-4563 HLH (CTx), Order of Appointment of Receiver (C.D. Cal. entered November 10, 1997); and CFTC v. Hermans, No. 97-0777 HLH (CTx), Judgment by Default for Permanent Injunction, Ancillary and Monetary Relief (C.D. Cal. entered June 24, 1997).

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United States v. Martin A. Armstrong

In September 1999, the U.S. Attorney�s Office for the Southern District of New York unsealed a 14-count indictment charging Martin A. Armstrong, the founder and chairman of Princeton Economics International, Ltd. (PEI), with conspiracy, securities fraud, and wire fraud in connection with the sales of approximately $3 billion of so-called "Princeton Notes" to foreign investors. The indictment also charges that at least $1 billion or more of "Princeton Notes" were sold while Armstrong concealed the fact that he had suffered hundreds of millions of dollars in trading losses. United States v. Martin A. Armstrong, No. 99 Cr 997 (S.D.N.Y. filed Sept. 30, 1999). The criminal action is related to the Commission�s case CFTC v. Princeton Global Management Ltd., et al., No. 99CIV9669 (S.D.N.Y. filed Sept. 13, 1999). For a more complete case description, see page 49. The Commission coordinated its enforcement efforts with the Department of Justice, the SEC (which has filed a related action), and the Japanese Financial Supervisory Authority.

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CFTC v. Berzins

In August 1999, the Commission filed an injunctive complaint against Peter Berzins alleging that he violated anti-fraud provisions of the Act and Commission regulations by fraudulently soliciting and accepting from investors in excess of $500,000 to participate in a commodity pool to trade commodity futures contracts and options on futures contracts. CFTC v. Berzins, No. 3:99cv592 (E.D. Va. filed Aug. 24, 1999). The CFTC�s action against Berzins arose from a referral by the State Securities Board of the State of Texas. This case is discussed in detail on page 48.

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Other U.S. Initiatives

The Division also plays a role in other domestic initiatives designed to promote cooperation among U.S. authorities. The Asset Forfeiture-Money Laundering Section of the Criminal Division of the Department of Justice and the Financial Crimes Enforcement Network (FinCEN) of the Department of Treasury chair the Money Laundering Working Group (MLWG). The U.S. law enforcement authorities and financial regulators of the MLWG meet on a quarterly basis and discuss the prevention, detection and prosecution of money laundering through financial markets. At these meetings Division staff are apprised of domestic and international initiatives undertaken by Federal agencies and international organizations that may have relevance to the CFTC�s regulatory and enforcement programs. During the fiscal year, Commission staff conferred with FinCEN regarding proposed amendments to Bank Secrecy Act Regulations concerning money services businesses. In the context of the MLWG, Commission staff lent advice to FinCEN on certain initiatives of the Financial Action Task Force (FATF), an international organization created by the G-7 to formulate recommendations for combating money laundering. Commission staff also consulted with the Department of Treasury throughout Treasury�s preparation of its National Money Laundering Strategy released in September 1999.

Another initiative designed to promote cooperation among U.S. authorities is the International Crime Control Strategy (ICCS). The ICCS was developed at the request of the White House by the U.S Departments of Justice, State and Treasury and sets forth a comprehensive national strategy to combat international crime. The program calls for Federal law enforcement agencies and intelligence officials to better coordinate their bilateral, regional, and global efforts to combat international crime, including international financial crime. The Commission participates in a Financial Crime Sub-Group comprised of Division staff and representatives from approximately 15 Federal agencies.

In addition, the Division has participated in the following domestic, cooperative enforcement efforts:

• Telemarketing and Internet Fraud Working Group. Representatives from state and Federal regulatory and criminal authorities serve on the Telemarketing and Internet Fraud Working Group. At the working group�s quarterly meetings, members discuss all aspects of telemarketing and Internet fraud, including issues such as new scams, new uses of technology, geographical hotspots for certain types of fraudulent activity, effective enforcement techniques, and recent cases that establish relevant precedent in the area. In the past, the working group served as a vehicle to introduce authorities to, and train them to use, the Consumer Sentinel Database, a clearinghouse for consumer complaints relating to, among other things, telemarketing and Internet fraud. The Commission has participated in the working group since its inception.

• Telemarketing Fraud Initiative. The Commission�s efforts participated in the December 1998 announcement of a major initiative by Federal and state agencies targeting telemarketing fraud. The Department of Justice�s initiative, named "Senior Sentinel II � Double Barrel," began in June 1996. As part of the announcement, participating agencies, including the Commission, described their efforts to combat telemarketing fraud during the last two and a half years. During that time, the CFTC filed a total of 21 civil injunctive and administrative actions involving telemarketing fraud and released two Consumer Advisories warning the public of the prevalence of fraudulent schemes marketing futures. Operation Double Barrel was a cooperative effort involving the Commission, the Department of Justice, the FBI, the Postal Inspection Service, the Federal Trade Commission, and the SEC.

• Securities and Commodities Fraud Working Group. The Securities and Commodities Fraud Working Group provides a vehicle for public and private sector participants to discuss current trends in financial crime in the securities, futures, and options industries and to exchange ideas about enforcement techniques. The group, organized by the Fraud Division of the Department of Justice, meets on a quarterly basis and its members include criminal and regulatory authorities from state and Federal agencies as well as representatives from various exchanges and other self-regulatory organizations. The Division hosted the most recent meeting of the group, in Washington in September 1999, which included a presentation concerning the recent Princeton/Armstrong cooperative enforcement action, as well as an update on retail foreign exchange fraud.

• Bank Secrecy Act Advisory Group. The U.S. Treasury�s Bank Secrecy Act Advisory Group (BSAAG) recently invited the Commission to provide a representative to the group, and an Enforcement program staff member has been serving in this capacity since November 1998. Former U.S. Treasury Secretary Lloyd Bentsen formed the BSAAG in 1994, in order to provide a forum for law enforcement and financial regulators to discuss with members of the private sector practical ways to enhance government money laundering programs.

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International

The enforcement efforts of the Division extend internationally. As the number of financial transactions that cross national borders has continued to grow, the Division and its foreign counterparts have found it necessary to obtain documents and testimony from foreign sources. In FY 1999, the Enforcement Division made 22 requests for assistance to 12 foreign authorities. In addition, the Division received 26 requests from 17 authorities in foreign jurisdictions. The information exchanged between the Commission and foreign authorities has included registration and disciplinary histories 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 existing files.

• Wilton Park Conference. The Division�s cooperative efforts include participation in international organizations and contribution to several international initiatives. In May 1999, the Division attended the Wilton Park Conference, an annual international gathering of futures and securities regulators hosted by Her Majesty�s Treasury in the United Kingdom. The conference focused on, among other things, legal challenges to international enforcement cooperation, freedom of information, and measuring effectiveness and accountability in enforcement programs.

• Working Party on Enforcement and Information-Sharing. During FY 1999 the Division continued to participate in the Working Party on Enforcement and Information-Sharing (Working Party 4) of the International Organisation of Securities Commissions� (IOSCO) Technical Committee. Working Party 4 considers issues and formulates recommendations relating to international assistance in the detection, investigation, and prosecution of securities and futures violations. In the course of the year, the group continued its work on mandates concerning manipulation of prices in securities, futures, and cash markets, and ways to improve cross-border cooperation between securities and futures regulators and criminal law enforcement authorities.

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Table 1

ENFORCEMENT CASES FILED DURING FY 1999

LISTED BY PROGRAM AREA

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