UNITED STATES OF AMERICA
COMMODITY FUTURES TRADING COMMISSION
|In the Matter of:||)||CFTC Docket No. 00-29|
|George Heffernan, d/b/a||)||ORDER INSTITUTING PROCEEDINGS|
|Accutrader and Accutrader Day Trading School||)||PURSUANT TO SECTIONS 6(c) AND 6(d)|
|608 Fox Hunt Lane||)||OF THE COMMODITY EXCHANGE ACT,|
|Evans, Georgia, 30809||)||MAKING FINDINGS AND IMPOSING|
The Commodity Futures Trading Commission ("Commission") has reason to believe that George Heffernan, doing business as Accutrader and Accutrader Day Trading School (Heffernan), has violated Sections 4b(a)(i) and (iii) and 4o(1) of the Commodity Exchange Act, as amended (the "Act"), 7 U.S.C. §§ 6b(a)(i) and (iii) and 6o(1) (1994), and Section 4.41(a) of the regulations promulgated under the Act (hereafter the "Regulation"), 17 C.F.R. § 4.41(a) (2000). Therefore, the Commission deems it appropriate and in the public interest that public administrative proceedings be, and they hereby are, instituted to determine whether Heffernan engaged in the violations set forth herein and to determine whether any order should be issued imposing remedial sanctions.
In anticipation of the institution of these administrative proceedings, Heffernan has submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept. Without admitting or denying the findings of fact or conclusions of law herein, Heffernan acknowledges service of this Order Instituting Proceedings Pursuant to Sections 6(c) and 6(d) of the Act, Making Findings and Imposing Remedial Sanctions ("Order"). Heffernan 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:
Heffernan has advertised an S & P commodity futures day trading system and course of instruction on the internet, in which he solicits customers by falsely claiming, among other things, that his system is 85% accurate and generates a profit of $12,570 per contract "after slippage and commissions." Heffernan also has made statements suggesting that he himself traded futures according to his system, when he did not. Heffernan also made inadequate risk disclosures on his web site. Finally, Heffernan has falsely suggested that he personally used this trading system, when, in fact, he did no trading.2
Heffernan resides at 608 Fox Hunt Lane, Evans, GA 30809. Heffernan has never been registered with the Commission in any capacity.
From at least June 1999 through April 2000, Heffernan, through the names "Accutrader" and "Accutrader Day Trading School," used the internet to advertise a commodity futures trading system and day trading school by which he purported to teach customers to "day trade the S & P futures for a living." Heffernan offered both the trading system and the course of instruction on his web site, www.accutrader.com. He described his method as "a simple mechanical technique based on price patterns" that is 85% accurate and generates a $12,570 profit per contract "after slippage and commissions." He included on the web site an "Accutrader Day Trading Performance" table supposedly reflecting system trading results for 25 days during June and July 1998. The table claims that "all of the trades were identified while using real-time data."
Further, Heffernan provided inadequate risk disclosure on his web site, stating only: "I am required by law to give you the following disclaimer. Past results are not indicative of future results. There is risk in futures trading." Heffernan also misrepresented risk by advertising his system as "a very low risk/high reward day trading technique."
Finally, Heffernan falsely suggested that he personally used this trading system, stating: "I use M. I. T. orders (market if touched) because you can get better fills." In fact, however, he never traded futures for his own account.
VIOLATIONS OF THE ACT AND COMMISSION REGULATIONS
1. Respondent Heffernan's Violated Sections 4b(a)(i) and (iii) of the Act
Sections 4b(a) of the Act provide that it shall be unlawful, in or in connection with any order to make or the making of a futures contract, for or on behalf of any other person, (i) to cheat or defraud, or attempt to cheat or defraud, such other person, or (iii) willfully to deceive or attempt to deceive such other person by any means whatsoever in regard to any such order or contract or the disposition or execution of any such order or contract, or in regard to any act of agency performed with respect to such order or contract for such person.
Misrepresentations and omissions of material facts made with scienter regarding futures transactions constitute fraud under Section 4b(a) of the Act.3 Additionally, Sections 4b(a)(i) and (iii) require that the material misrepresentations and omissions of material facts be made "in connection" with futures transactions.4
Respondent knew that his trading system was not 85% accurate and did not yield profits of $12,570 per trade. He also knew that he did not trade futures, and therefore was not a futures trader who had successfully used his own trading methodology. In the Matter of R&W Technical Services, Ltd., [Current Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶27,582 at 47,742 (CFTC Mar. 16, 1999) (falsely claiming profitable trading through respondents' own use of the trading system constitutes fraud; "[t]he use of a trading system by its developers is important to reasonable consumers because it reflects a meaningful vote of self-confidence and a sign of authenticity") aff'd in relevant part, R&W Technical Svcs, Ltd. v. CFTC, 205 F.3d 165, 169-70 (5th Cir. 2000).Also, Respondent downplayed and thus misrepresented the risks of trading futures. Id. ("mildly cautionary statements [concerning risk of futures trading] are insufficient to undo [respondent's] false promise of easy profits"). As such, respondent's representations constitute fraud in violation of Sections 4b(a)(i) and (iii), 6 U.S.C. §§ 6b(a)(i) and (iii) (1994).
2. Respondent Heffernan Violated Section 4o(1) of the Act and Section 4.41 of the Regulations
Section 4o(1) of the Act prohibits commodity trading advisors ("CTAs") from (a) employing any device, scheme or artifice to defraud any client or participant or prospective client or participant, or (b) engaging in any transaction, practice, or course of business which operates as a fraud or deceit upon any client or participant or prospective client or participant.
To establish a violation of Section 4o of the Act, the Division must prove that the respondent was (i) a CTA or, with respect to Section 4.41 of the Regulations, a principal thereof, and (ii) either (a) employed any device, scheme, or artifice to defraud any client or prospective client, or (b) engaged in any transaction, practice, or course of business which operates as a fraud or deceit upon any client or prospective client. Section 4o(1) of the Act, which also requires the use of the mails or any means or instrumentality of interstate commerce, prohibits both registered and unregistered CTAs from defrauding their clients.5 Section 4.41 of the Regulations also applies to all CTAs, regardless of whether those CTAs are required to be registered.
Under Section 1a(5)(A) of the Act, in order to establish that someone is a CTA, it must be shown that the person (i) advised another about the value or advisability of trading in futures contracts, (ii) "either directly or through publications, writings or electronic media," (iii) for compensation or profit. Section 1a(5) of the Act, 7 U.S.C. §§ 1a(5).6 Heffernan gave commodity futures trading advice for compensation or profit and, therefore, is a CTA.
Heffernan made his misrepresentations in the course of selling his trading system and soliciting students to take his trading course, whose object was to advise people how to trade futures.7 Customers paid to purchase the Accutrader trading system and to receive advice and instructions for the use of the methodology. Heffernan's furnishing of futures trading advice through his trading course and course materials was not "incidental to the conduct" of his business. Rather, providing futures trading advice and selling his trading system was his business. Thus, Heffernan fits squarely within the definition of a CTA under Section 1a(5)(A) of the Act.
Conduct that violates Section 4b also constitutes a violation of Section 4o(1) of the Act when committed by a person who was acting as a commodity trading advisor. In re R&W Technical Services, Comm. Fut. L. Rep. (CCH) ¶27,582 (CFTC March 16, 1999) ("Because we have found that [respondents] violated Section 4b(a) of the Act and that they acted as CTAs, further analysis is not needed to conclude that [respondents] also violated Section 4o(1) of the Act"), aff'd in relevant part, R&W Technical Svcs. Ltd. v. CFTC, 205 F.3d 165 (5th Cir. 2000). Therefore, Heffernan violated Section 4o(1) of the Act. Also, because Heffernan, while acting as a CTA, advertised in a fraudulent or misleading manner, his conduct violated Regulation 4.41(a).
OFFER OF SETTLEMENT
Heffernan has submitted an Offer in which he, without admitting or denying the findings herein: (1) admits the jurisdiction of the Commission with respect to the matters set forth herein; (2) waives notice of hearing, 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, all claims which Heffernan 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 (1996), and Part 148 of the Commission's Regulations, 17 C.F.R. §§ 148.1, et seq. (2000), relating to or arising from this action, and any claim of Double Jeopardy based upon institution of this proceeding or the entry of any order imposing a civil monetary penalty or any other relief; (3) stipulates that the record basis on which the Order may be entered shall consist solely of the Order and findings in the Order consented to in the Offer; and (4) consents to the Commission's issuance of this Order, which makes findings as set forth below and, as to Heffernan (a) orders Heffernan to cease and desist from violating the provisions of the Act and Regulations that he has been found to have violated; (b) orders Heffernan not to take any action or make any public statement denying the Commission's Order; and (c) orders Heffernan to comply with his undertakings as set forth in the Order.
FINDINGS OF VIOLATIONS
Solely on the basis of the consent evidenced by the Offer, and without any adjudication on the merits, the Commission finds that Heffernan violated Sections 4b(a)(i) and (iii) and 4o(1)(A) and (B) of the Act, 7 U.S.C. §§ 4b(a)(i) and (iii) and 6o(1)(A) and (B), and Section 4.41(a) of the Commission's Regulations, 17 C.F.R. § 4.41(a).
Accordingly, it is hereby ordered that Heffernan:
1. Shall cease and desist from further violations of Sections 4b(a)(i) and (iii) and 4o(1)(A) and (B) of the Act, 7 U.S.C. §§ 4b(a)(i) and (iii), 6o(1)(A) and (B), and Section 4.41(a) of the Commission's Regulations;
2. The Commission notes the appropriateness of a civil monetary penalty based on Heffernan's conduct, but waives assessment of a civil monetary penalty based on sworn financial statements submitted by Heffernan. Heffernan has submitted a sworn Financial Disclosure Statement and has provided other evidence regarding his financial condition and has asserted financial inability to pay a civil monetary penalty. Heffernan acknowledges that the Commission's acceptance of this offer is conditioned on the accuracy and completeness of the sworn financial Disclosure Statement and other evidence he has provided regarding his financial condition. Heffernan consents that if any time following the Order, the Division of Enforcement obtains information indicating that Heffernan's representations concerning his financial condition were fraudulent, misleading, inaccurate, or incomplete in any material respect at the time they were made, the Division of Enforcement may, at any time following the entry of the Order, petition the Commission to: (1) reopen this matter to consider whether Heffernan provided complete and accurate financial information at the time such representations were made; (2) determine the amount of civil penalty to be imposed; and (3) seek any additional remedies that the Commission would be authorized to impose in this proceeding if Heffernan's Offer had not been accepted. No other issue shall be considered in connection with this petition other than whether the financial information provided by Heffernan was fraudulent, misleading, inaccurate or incomplete in any material respect, the amount of civil penalty to be imposed, and whether any additional remedies should be imposed. Heffernan may not, by way of defense to any such petition, contest the validity of, or the findings in, the Order or assert that payment of a civil penalty should not be ordered; and
3. Heffernan shall comply with the following undertakings:
(a) Heffernan shall misrepresent, expressly or by implication:
(i) the performance, profits or results achieved by, or the results that can be achieved by, users, including him/herself, of any commodity futures or options trading system or advisory service; and
(ii) the risks associated with trading pursuant to any commodity futures or options trading system or advisory service;
(b) Heffernan shall not present the performance of any simulated or hypothetical commodity interest account, transaction in a commodity interest or series of transactions in a commodity interest unless such performance is accompanied by the following statement, as required by 17 C.F.R. § 4.41(b):
Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not actually been executed, the results may have under- or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown.
In doing so, Heffernan shall clearly identify those hypothetical or simulated performance results which were based, in whole or in part, on hypothetical trading results;
(c) Heffernan shall not make any representation of financial benefits associated with any commodity futures or options trading system or advisory service without first disclosing, prominently and conspicuously, that futures trading involves high risks with the potential for substantial losses; and
(d) Heffernan shall not represent, expressly or by implication:
(i) the performance, profits or results achieved by, or the results that can be achieved by, users, including him/herself, of any commodity futures or options trading system or advisory service;
(ii) the risks associated with trading using any commodity futures or options trading system or advisory service; and
(iii) that the experience represented by any user, testimonial or endorsement of the commodity futures or options trading system or advisory service represents the typical or ordinary experience of members of the public who use the system or advisory service; unless: (a) Heffernan possesses and relies upon a reasonable basis substantiating the representation at the time it is made; and (b) for two (2) years after the last date of the dissemination of any such representation, Heffernan maintains all advertisements and promotional materials containing such representation and all materials that were relied upon or that otherwise substantiated such representation at the time it was made, and makes such materials immediately available to the Division of Enforcement for inspection and copying upon request; and
(e) By neither admitting nor denying the findings of fact or conclusions of law, Heffernan agrees that neither he 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 findings or conclusions in the Order, or creating, or tending to create, the impression that the Order is without factual basis; provided, however, that nothing in this provision affects Martin's (i) testimonial obligations; or (ii) right to take legal positions in other proceedings in which the Commission is not a party. Heffernan will undertake all steps necessary to assure that all of his agents and employees under his authority and control understand and comply with this agreement.
|By the Commission.|
|Dated: September 6, 2000||______________________|
|Jean A. Webb|
|Secretary to the Commission|
Commodity Futures Trading Commission
1 Heffernan does not consent to the use of his Offer, this Order, or the findings in this Order consented to in his Offer, as the sole basis for any other proceeding brought by the Commission, other than a proceeding brought to enforce the terms of this Order. Heffernan also does not consent to the use of his Offer, this Order, or the findings in this Order by any other person or entity in this or in any other proceeding. The findings made in this Order are not binding on any other person or entity named as a defendant or respondent in this or any other proceeding.
2 The Internet is a highly beneficial medium that facilitates the dissemination of information, but which also enables potential violators to reach millions of people worldwide quickly and at very low cost. By this proceeding and the other proceedings being filed contemporaneously, as well as the ten proceedings brought on May 1, 2000, the Commission is addressing fraud committed on the Internet in order to promote the integrity of promotions made on the Web concerning commodity futures and options trading systems.
3 In the Matter of R&W Technical Services, Inc., [Current Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶27,582 at 47,740-47,741 (CFTC Mar. 16, 1999), aff'd in relevant part, R&W Technical Svcs., Ltd. v. CFTC, 205 F.3d 165 (5th Cir. 2000). See, e.g., Saxe v. E.F. Hutton, 789 F.2d 105, 110 (2d Cir. 1986); Kelley v. Carr, 442 F. Supp. 346, 351-54 (W.D. Mich. 1977), aff'd in part, rev'd in part, 691 F.2d 800 (6th Cir. 1980); CFTC v. J.S. Love Associates Options, Ltd., 422 F. Supp. 652, 655 (S.D.N.Y. 1976).
4 Fraudulent statements that induce members of the public to purchase software that generates specific buy and sell signals for commodity futures trading satisfy the "in connection with" requirement of Section 4b(a). R&W Technical Svcs., 205 F.3d at 173. See also Hirk v. Agri-Research Council, Inc., 561 F.2d 96 (7th Cir. 1977) (noting that the "in or in connection with" requirement should be interpreted flexibly to include deceptive conduct that occurs prior to the opening of an actual commodity trading account).
5 CFTC v. Savage, 611 F.2d 270, 281 (9th Cir. 1979) (enforcement action charging defendant with making false reports to customers, engaging in "wash" trades and holding himself out to the public as a CTA without being registered with the Commission).
6 Section 1a(5)(A) specifically excludes from the definition of a CTA anyone who is "the publisher or producer of any print or electronic data of general and regular dissemination, including its employees" if such publisher's or producer's provision of commodity future trading advice is "solely incidental to the conduct of their business or profession." Thus, Section 4o and Section 4.41 of the Regulations do not apply to such persons. This exemption is designed to protect incidental publishers of advice, such as general magazines and newspapers, not publishers who specifically concentrate on commodities advice. R&W Technical Svcs., 205 F.3d at 174.
7 See CFTC v. British American Commodity Options Corp., 560 F.2d 135, 141 (2d Cir. 1977), cert. denied, 438 U.S. 905 (1978)(a firm that "offer[ed] opinions and advice, and issued analyses and reports concerning the value of commodities" to customers, was a CTA under the Act.); Gaudette v. Panos, 644 F. Supp. 826, 839 (D. Mass. 1986) (defendants who represented their advisory skills to be exemplary, suggested that plaintiffs open a commodity account and then recommended certain futures contracts for investment were CTAs).