UNITED STATES OF AMERICA
COMMODITY FUTURES TRADING COMMISSION
|In the Matter of:||)||CFTC Docket No. 00-21|
|Timothy M. Bengson||)||ORDER MAKING FINDINGS AND|
|11924 Charter House Lane||)||IMPOSING REMEDIAL SANCTIONS|
|St. Louis, Missouri 63146,||)||AS TO RESPONDENT TIMOTHY|
On June 27, 2000, the Commodity Futures Trading Commission ("Commission") issued a Complaint and Notice of Hearing against Timothy M. Bengson ("Bengson"). The Complaint charges, inter alia, that Bengson violated Sections 4b(a)(i) and (iii) of the Commodity Exchange Act, as amended ("Act"), 7 U.S.C. §§ 6b(a)(i) and (iii) (1994).
Bengson has submitted an Offer of Settlement ("Offer") which the Commission has determined to accept. Bengson acknowledges service of this Order Making Findings and Imposing Remedial Sanctions ("Order"). Bengson admits the findings herein and consents to the use of the findings contained in this Order in this proceeding and in any other proceeding brought by the Commission or to which the Commission is a party.1
The Commission finds the following:
At various times between June 1995 and February 1997, Bengson, an associated person ("AP") of a registered futures commission merchant ("FCM"), defrauded customers of the FCM by fraudulently allocating trades among customer accounts, an account he opened in the name of his girlfriend and his error account. Accordingly, Bengson cheated, defrauded and deceived customers of the FCM in violation of Sections 4b(a)(i) and (iii) of the Act.
B. SETTLING RESPONDENT
Timothy Michael Bengson, age 38, resides at 11924 Charter House Lane, St. Louis, Missouri 63146. Bengson was registered with the Commission as an AP of a registered FCM pursuant to Section 4k of the Commodity Exchange Act, as amended (the "Act"), 7 U.S.C. § 6k (1994), from November 17, 1992 to May 9, 1997. On May 9, 1997, the FCM terminated Bengson's employment. In addition to his AP registration, from at least February 21, 1997 to at least May 1, 1998, Bengson was the president of Pro Trader, Inc., a commodity trading advisor that was registered with the Commission pursuant to Section 4m of the Act, 7 U.S.C. § 6m (1994). Bengson is not currently registered with the Commission in any capacity.
In June 1995, Bengson opened a commodity interest account at the FCM in the name of his then girlfriend ("the account" or "the girlfriend's account"). Bengson was the AP on the account and, although the account was non-discretionary, made the trading decisions for the account. In September or October 1995, Bengson and his girlfriend ended their relationship and the girlfriend relocated. Bengson, without his girlfriend's knowledge, continued to trade the account. In addition, Bengson changed the accountholder's address on the FCM's records causing the FCM to send account statements and disbursement checks from the account to a mailbox maintained by Bengson. Upon receiving the disbursement checks, Bengson signed his girlfriend's name to the checks and deposited the funds into a personal account. Bengson made 142 round-turn trades in the girlfriend's account between June 1995 and February 1997, 134, or 94% percent, of which were profitable. Profits in that account totaled approximately $50,000.
During this time, Bengson fraudulently allocated at least twenty-one (21) trades among the girlfriend's account, his error account and customer accounts for which Bengson was the AP. In each instance, Bengson either moved a financially beneficial trade from a customer's account to the girlfriend's account or his error account, or moved an unfavorable trade from the girlfriend's account or his error account to a customer's account.
Bengson accomplished the fraudulent allocation by:
a) changing or causing to be changed the account identification on original floor and/or office order tickets after the trades were executed but before they were placed in customer accounts, the girlfriend's account or Bengson's error account; and
b) changing or causing to be changed the account identification on the trades after the trades were executed and assigned to customer accounts or the girlfriend's account through an instruction to the FCM's back office.
D. LEGAL DISCUSSION
Section 4b(a)(i) of the Act prohibits any person from cheating and defrauding other persons in connection with commodity futures trading. Section 4b(a)(iii) of the Act prohibits the willful deception of any person in connection with the disposition or execution of an order. Bengson's intentional misappropriation and allocation of trades violated Section 4b of the Act. In the Matter of Nikkhah, 2000 WL 622872 (CFTC May 12, 2000) (broker's fraudulent allocation of trades among discretionary accounts violated Section 4b); In re GNP Commodities Inc., [1990-1992 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 25,360 at 39,215 (CFTC Aug. 11, 1992), aff'd sub nom, Monieson v. CFTC, 996 F.2d 852 (7th Cir. 1993) (directing profitable fills to favored accounts violated Section 4b); In the Matter of Lincolnwood Commodities Inc., [1982-1984 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 21,986 at 28,243 (CFTC Jan. 31, 1984) (fraudulent allocation whereby respondents allocated profitable day trades to accounts under their control while allocating unprofitable trades to customers violated Section 4b); Parciasepe v. Shearson, Hayden, Stone Inc., [1984-1986 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 22,464 at 30,068 (CFTC Jan. 2, 1985) (AP's failure to disclose to customers that he was entering trades for customer accounts by placing orders to the floor without completing office orders and allocating trades at his discretion violated 4b).
To establish a violation of Section 4b, it must be established that the respondent acted with scienter. To establish scienter, Bengson's allocation of trades must be shown to have been committed "intentionally or with reckless disregard to his [obligations] under the Act." Hammond v. Smith Barney, Harris, Upham & Co., [1987-1990 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 24,617 at 36,659 (CFTC March 1, 1990). A determination of intentional wrongdoing may be supported by inferences from circumstantial evidence. See In re JCC Inc., [1992-1994 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 26,080 at 42,579 (CFTC May 12, 1994), aff'd, 63 F. 3rd 1557 (11th Cir. 1995) (inferences from circumstantial evidence can be the basis for a finding of culpability); see also In re Buckwalter, [1990-1992 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 24,995 at 37,684 n.34 (CFTC Jan. 29, 1991) ("We reject any suggestion that the Division cannot fulfill its burden under the weight of the evidence standard unless it produces direct evidence of the factual elements of a trade practice violation. Reliable circumstantial evidence is not only sufficient, it is the only evidence that is likely to exist in most cases."). Therefore, Bengson's intent to defraud may be inferred from the evidence that establishes the fraudulent allocation, including the evidence of the cross-outs and account changes on the 21 specific instances of fraudulent allocation and the 94% success rate in the account under his control and from which he benefited.
Accordingly, the evidence establishes that at various times between June 1995 and February 1997, Bengson, while an AP of an FCM, fraudulently allocated trades between customer accounts and accounts in which he had a financial interest, in violation of Sections 4b(a)(i) and (iii) of the Act.
OFFER OF SETTLEMENT
Bengson has submitted an Offer of Settlement in which he, subject to the foregoing: acknowledges service of the Complaint and receipt of this Order; admits the jurisdiction of the Commission with respect to the matters set forth in the Complaint and Order; waives a hearing, all post-hearing procedures, judicial review by any court, any objection to the staff's participation in the Commission's consideration of the Offer, any claim of double jeopardy based upon the institution of this proceeding or the entry in this proceeding of any order imposing a civil monetary penalty or any other relief, and all claims which he may possess under the Equal Access to Justice Act, 5 U.S.C. § 504 (1994) and 28 U.S.C. § 2412 (1994), as amended by Pub. L. No. 104-121, §§ 231-32, 110 Stat. 862-63, and Part 148 of the Commission Regulations, 17 C.F.R. §§ 148.1, et seq. (2000), relating to, or arising from this action.
Bengson stipulates that the record basis on which this Order is entered consists solely of the Complaint and the findings consented to in the Offer which are incorporated in this Order, and consents to the Commission's issuance of this Order, which makes findings, as set forth above, and orders that Bengson cease and desist from violating the provisions of the Act he has been found to have violated, that Bengson be permanently prohibited from trading on or subject to the rules of any contract market and all contract markets refuse Bengson trading privileges, beginning the third Monday after the date of this Order; Bengson pay a contingent civil monetary penalty of up to $110,000 pursuant to a ten year payment plan; and that Bengson comply with his undertakings as set forth in his Offer and incorporated in this Order.
FINDING OF VIOLATIONS
Solely on the basis of Bengson's consent, as evidenced by the Offer, and prior to any adjudication on the merits, the Commission finds that Bengson violated Sections 4b(a)(i) and (iii) of the Act, 7 U.S.C. §§ 6b(i)(i) and (iii)(1994).
Accordingly, IT IS HEREBY ORDERED THAT:
1. Bengson shall cease and desist from violating Sections 4b(a)(i) and (iii) of the Act, 7 U.S.C. §§ 6b(a)(i) and (iii) (1994);
2. Beginning on the third Monday after the date of the Order, Bengson shall be permanently prohibited from trading on any contract market, and all contract markets shall refuse Bengson trading privileges thereon;
3. Bengson shall liquidate all futures and options positions held by him or on his behalf, or in which he has any beneficial interest, before the commencement of the denial of his trading privileges;
4. Bengson shall pay a contingent civil monetary penalty in the amount of up to one hundred ten thousand dollars ($110,000) pursuant to a payment plan. Bengson shall make an annual civil monetary penalty payment ("Annual CMP Payment") as directed by a monitor designated by the Commission ("the Monitor") on or before July 31 of each calendar year, starting in calendar year 2001 and continuing for ten years (or until the civil monetary penalty is paid in full, if that happens first).2 Bengson shall make each such Annual CMP Payment by U.S. postal money order, certified check, bank cashier's check, or bank money order, made payable to the Commodity Futures Trading Commission, and addressed to Dennese Posey, or her successor, Division of Trading and Markets, Commodity Futures Trading Commission, 1155 21st Street, N.W., Washington D.C. 20581 under cover of a letter that identifies Bengson and the name and docket number of the proceeding. A copy of the cover letter and the form of payment shall be simultaneously transmitted to Phyllis J. Cela, Acting Director, Division of Enforcement, Commodity Futures Trading Commission, or her successor at 1155 21st Street, N.W., Washington, D.C. 20581.
The amount of Bengson's Annual CMP Payment shall consist of a portion of (1) the adjusted gross income (as defined by the Internal Revenue Code) earned or received by Bengson during the course of the preceding calendar year, plus (2) all other net cash receipts, net cash entitlements or net proceeds of non-cash assets received by Bengson during the course of the preceding calendar year. The Annual CMP Payment will be determined as follows:
|Where Adjusted Gross Income plus Net Cash Receipts Total:||Percent of Total to be paid by Bengson is:|
|Up to $25,000||0%|
|$25,000 - $50,000||20% of the amount above $25,000|
|$50,000- $100,000||20% of the amount between $25,000 and $50,000 plus 30% of the amount between $50,000 and $100,000;|
|Above-$100,000||20% of the amount between $25,000 and $50,000 plus 30% of the amount between $50,000 and $100,000 plus 40% of the amount over $100,000; and|
5. In the event that Bengson does not make payments as directed in paragraph 4, above, the Commission may bring a proceeding or an action to enforce compliance with this Order and at its option may seek payment of the unpaid Annual CMP payment(s) or immediate payment of the entire amount of the civil monetary penalty required by paragraph 4. The only issue Bengson may raise in defense of such enforcement action is whether Bengson has made the Annual CMP Payment(s) as directed by the Monitor. Any action or proceeding brought by the Commission compelling payment of the Annual CMP Payments, due and owing pursuant to paragraph 4, above, or any portion thereof, or any acceptance by the Commission of partial payment of the Annual CMP Payments made by Bengson, shall not be deemed a waiver of Bengson's obligation to make further payments pursuant to the payment plan, or a waiver of the Commission's right to seek to compel payments of the remaining balance of the civil monetary penalty assessed against Bengson.
6. The Commission notes that an order requiring immediate payment of the civil monetary penalty against Bengson would be appropriate in this case, but does not impose it based upon Bengson's financial condition. Bengson acknowledges that the Commission's acceptance of the Offer is conditioned upon the accuracy and completeness of the sworn Financial Statement and other evidence Bengson has provided regarding his financial condition. Bengson consents that if at any time following entry of this Order, The Division of Enforcement ("Division") of the Commission obtains information indicating that Bengson's representations concerning his financial condition were fraudulent, misleading, inaccurate or incomplete in any material respect at the time they were made, the Division may, at any time following the entry of this Order, petition the Commission to: (1) reopen this matter to consider whether Bengson provided accurate and complete financial information at the time such representations were made; (2) require immediate payment of the full amount of the civil monetary penalty required in paragraph 4 above; and (3) seek any additional remedies that the Commission would be authorized to impose in this proceeding if Bengson's Offer had not been accepted. No other issues shall be considered in connection with this petition other than whether the financial information provided by Bengson was fraudulent, misleading, inaccurate or incomplete in any material respect, and whether any additional remedies should be imposed. Bengson may not, by way of defense to any such petition, contest the validity of or, or the findings in, this Order, assert that payment of a civil monetary penalty should not be ordered, or contest the amount of the civil monetary penalty to be paid. If in such proceeding, the Division petitions for, and the Commission orders, payment of less than the full amount of the civil monetary penalty, such petition shall not be deemed a waiver of Bengson's obligation to pay the remaining balance of the civil monetary penalty assessed against him, pursuant to the payment plan; and
7. Bengson shall comply with the following undertakings as set forth in his Offer:
A. Reporting/Disclosure Requirements to be Reviewed by Monitor. Bengson shall provide his sworn financial statement to the Monitor on June 30 and December 31 of each calendar year, starting on December 31, 2001, and continuing through and including June 30, 2011. The financial statement shall provide:
i. a true and complete itemization of all of Bengson's rights, title and interest in (or claimed in) any asset, wherever, however and by whomever held;
ii. an itemization, description and explanation of all transfers of assets with a value of $1,000 or more made by or on behalf of Bengson over the preceding six-month interval; and
iii. a detailed description of the source and amount of all of Bengson' income or earnings, however generated.
Bengson shall also provide the Monitor with complete copies of his signed federal income tax return, including all schedules and attachments thereto (e.g., IRS Forms W-2 and Forms 1099), as well as any filings he is required to submit to any state tax or revenue authority, on or before June 30 of each calendar year or as soon thereafter as the same are filed. In the event Bengson moves his residence at any time, he shall provide written notice of his new address to the Monitor and the Commission within ten (10) calendar days thereof.
B. Cooperation. Bengson shall cooperate fully and expeditiously with the Monitor and the Commission in carrying out all aspects of his Annual Payment. He shall cooperate fully with the Monitor and the Commission in explaining his financial income and earnings, status of assets, financial statements, asset transfers, tax returns, and shall provide any information concerning himself as may be required by the Commission. Furthermore, Bengson shall provide such additional information and documents with respect thereto as may be requested by the Monitor or the Commission.
C. Fraudulent Transfers. Bengson shall not transfer or cause others to transfer funds or other property to the custody, possession, or control of any member of Bengson' family or any other person for the purpose of concealing such funds or property from the Monitor or the Commission.
D. Registration With The Commission. Bengson shall never apply for registration or seek exemption from registration with the Commission in any capacity, and shall never engage in any activity requiring registration or exemption from registration, except as provided for in Section 4.14(a)(9) of the Commission's Regulations, 17 C.F.R. § 4.14(a)(9), or act as a principal, agent, officer or employee of any person registered, required to be registered, or exempted from registration, unless such exemption is pursuant to Section 4.14(a)(9) of the Commission's Regulations, 17 C.F.R. § 4.14(a)(9); and
E. Bengson shall not, beginning on the date of the Order:
1. directly or indirectly act as a principal, partner, officer, or branch office manager of any entity registered or required to be registered with the Commission; and
2. directly or indirectly act in any supervisory capacity over anyone registered or required to be registered with the Commission.
F. By admitting the allegations of the Complaint, Bengson agrees that neither Bengson nor any of his agents or employees under his authority or control shall take any action or make any public statement denying, directly or indirectly, any allegations in the Complaint or findings or conclusions in the Order or creating, or tending to create, the impression that the Complaint or the Order is without a factual basis; provided, however, that nothing in this provision affects Bengson's: (i) testimonial obligations; or (ii) right to take legal positions in other proceedings to which the Commission is not a party. Bengson will undertake all steps necessary to assure that all of his agents and employees under his authority or control understand and comply with this agreement.
Unless otherwise specified, the provisions of this Order shall be effective on this date.
|By the Commission.|
|Dated: October 2, 2000||______________________|
|Jean A. Webb|
|Secretary to the Commission|
Commodity Futures Trading Commission
1 Bengson does not consent to the use of the Offer, the findings consented to in the Offer or this Order as the sole basis for any other proceeding brought by the Commission, other than a proceeding brought to enforce the terms of this Order. Nor does he consent to the use of the Offer, the findings consented to in the Offer or this Order by any other party in any other proceeding.
2 Bengson's ten-year CMP period shall run from January 1, 2001 through December 31, 2010. Annual CMP payments for a calendar year shall take place by July 31 of the following year. Therefore, the final Annual CMP payment for the year 2010 will occur on or before July 31, 2011.