UNITED STATES OF AMERICA
Before the
COMMODITY FUTURES TRADING COMMISSION

________________________________________________
)
In the Matter of: ) CFTC Docket No. 00-24
)
Seungho Kim )
970 Bunkerhill # 128 )
Houston, Texas 77024, )
) ORDER INSTITUTING PROCEEDINGS
John Ki Park ) PURSUANT TO SECTIONS 6(c), 6(d)
727 Bunkerhill #68 ) AND 8a(4) OF THE COMMODITY
Houston, Texas 77024, and ) EXCHANGE ACT, MAKING FINDINGS
) AND IMPOSING REMEDIAL SANCTIONS
Houston System Trading, LLC )
970 Bunkerhill # 128 )
Houston, Texas 77024, )
)

Respondents.

)
________________________________________________ )

I.

The Commodity Futures Trading Commission (the "Commission") has reason to believe that Seungho Kim ("Kim") and Houston System Trading, LLC ("HST") have violated, and John Ki Park ("Park") aided and abetted the violations of, 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) and (b) of the Commission's Regulations ("Regulations"), 17 C.F.R. 4.41(a) and (b) (1999). The Commission also has reason to believe that Kim and HST violated Sections 4k, 4m(1), and 4n(4) of the Act, 7 U.S.C. 6k, 6m(1) and 6n(4) (1994), and Sections 3.12, 4.20, 4.21, 4.22, 4.23, 4.31 and 4.33 of the Regulations, 17 C.F.R. 3.12, 4.20, 4.21, 4.22, 4.23, 4.31 and 4.33 (1999). Therefore, the Commission deems it appropriate and in the public interest that public administrative proceedings be, and they hereby are, instituted to determine whether Respondents engaged in the violations set forth herein, and to determine whether any order should be issued imposing remedial sanctions.

II.

In anticipation of the institution of an administrative proceeding, the Respondents have submitted Offers of Settlement (the "Offers"), which the Commission has determined to accept. Without admitting or denying the findings of fact in this Order, the Respondents acknowledge service of this Order Instituting Proceedings Pursuant to Sections 6(c), 6(d) and 8a(4) of the Commodity Exchange Act, Making Findings and Imposing Remedial Sanctions ("Order"). Each of the respondents consents to the use of the findings in this Order in this proceeding and in any other proceeding brought by the Commission or to which the Commission is a party.1

III.

The Commission finds the following:

A. SUMMARY

Since in or about October 1997 and continuing to at least March 1998, HST and Kim solicited investors to participate in three commodity pools, which were trading commodity futures contracts. HST and Kim also solicited people to open commodity futures trading accounts to be managed by HST and Kim. Neither HST nor Kim was registered with the Commission in any capacity.

As part of the solicitation of investors, HST and Kim misrepresented, among other things, the track record of the HST trading program (the "HST Program") and Kim's and HST's trading record pursuant to the program. Kim also guaranteed that investor losses would be limited to twenty percent of their investment. In fact, from November 1997 to March 1998, the HST commodity pools lost fifty-three percent of their value, and, with the exception of one account, the managed accounts lost between thirty-seven and one hundred percent of their value.

HST also mishandled investor funds by commingling those funds with Kim's personal funds and other business funds, and failed to maintain books and records. HST and Kim failed to maintain any books or records to identify and distinguish funds received from investors in each commodity pool from funds in the other pools, personal funds and funds from other business ventures. HST and Kim also failed to maintain the records required by Commission Regulations 4.23 and 4.33 concerning the commodity pool participants and the managed account clients.

The HST commodity pools and managed accounts were introduced by J.K. Park, Ltd. ("JKP"), a registered introducing broker ("IB"), to registered futures commission merchants ("FCMs"). Park, the sole principal and registered associated person ("AP") of JKP, permitted Kim to use JKP's office for HST's commodity futures trading business. Several of Kim's prospective clients opened commodity futures trading accounts which JKP introduced to an FCM after talking with Kim and Park about the HST Program. Park knew about Kim's fraudulent representations and, on at least one occasion, Park confirmed Kim's guarantee against losses. Park, therefore, aided and abetted the fraud committed by HST and Kim.

B. RESPONDENTS

Seungho Kim, who resides at 970 Bunkerhill #128, Houston, Texas, has never been registered with the Commission in any capacity. Kim is the President of HST.

Houston System Trading, LLC, a Texas corporation with its last known business address at 7500 San Felipe, Suite 880, Houston, Texas, has never been registered with the Commission in any capacity.

John Ki Park, who resides at 727 Bunkerhill #68, Houston, Texas, was previously registered as an AP of JKP, a registered IB and commodity pool operator ("CPO"), from June 1997 to September 1999, and as an AP of Lind-Waldock Financial Partners, Inc., a registered CPO, from June 1997 to August 1999. Park has been a registered AP of Paradigm Securities, Inc., a registered commodity trading advisor ("CTA"), since December 1999.

C. FACTS

1. The Formation of HST

Kim formed HST in October 1997 to trade commodity futures contracts. HST opened a commodity futures trading account, introduced by JKP to an FCM, in October 1997. Park was the sole principal of JKP. Park and Kim had previously been partners in businesses unrelated to commodity futures trading.

Kim received the assistance of Park in forming HST and filling out the account opening documents to trade commodity futures. Park also permitted Kim to use a portion of JKP's office space to set up a working area for HST's commodity business, and JKP and HST shared office equipment. The only business indicated on the front door, however, was that of JKP. Kim would answer the phone for JKP on occasion, and Park would answer the phone for HST. It was, thus, difficult for visitors to the office to identify JKP and HST as two separately owned and unrelated business entities. In fact, some of HST's customers believed that Kim and Park were partners in the commodity business.

2. The HST Commodity Pools

Beginning in at least October 1997, HST and Kim solicited pool participants to invest in three separate commodity pools operated by HST, entitled Match, Austin and JKP ("HST pools"). HST and Kim obtained at least nineteen participants in the Match account and at least sixteen participants in the Austin account.2 Investors supposedly participated in the pool in units of $10,000 to fund that investment. HST and Kim represented to investors that HST would obtain a bank loan for $10,000 for each investor. Pursuant to the Advisory Agreement ("Agreement") that Kim had investors sign, participants in each of the pools were to make monthly payments of $600 for a period of eighteen months, for a total investment of $10,800 per investor. The $600 payments would repay the loan obtained by HST, with the remaining $800 to be paid by investors to HST as interest on the loan. Each pool was to have approximately 20 investors, and a total investment of $200,000 on the first day of trading.

HST opened a single trading account at an FCM,3 which account was introduced to the FCM by JKP, and then had the account broken down into four sub-accounts: one for cash, and one for each of the pools. The cash account did not trade, and was used to cover the cash requirements of the other pool accounts. Kim guaranteed the prospective pool participants orally and in the Agreement that pool losses would be limited to twenty percent of the investment.

3. The HST Managed Accounts

HST and Kim also solicited investors to open managed accounts, and at least six people did so. Each managed account was to be traded pursuant to the HST Program, and clients signed the same Agreement signed by HST pool participants, including the provision which guaranteed that losses would be limited to 20 percent of the investment. Each HST managed account client gave written trading authority to Kim to trade the account.4

4. Fraudulent Representations to HST Investors

HST and Kim solicited investors through oral representations, flyers, seminars, at least one newspaper article, and a disclosure document. In the course of soliciting investors, HST and Kim misrepresented the nature of the HST Program and the track record of HST and Kim. HST and Kim also guaranteed that investors' losses would be limited to 20 percent of their investment. Park repeated these misrepresentations concerning the track record of the HST trading program to several investors who came to the JKP office. Park knew that HST and Kim were making guarantees of limited trading losses to prospective investors, and, on at least one occasion, repeated the guarantee to two investors.

a. Misrepresentation Concerning the Trading Program

Kim told prospective investors that his brother had developed a very effective computer commodity futures trading program, and that he (Kim) had made very good money trading pursuant to the trading program. Kim invited prospective investors to visit the office to see the computer system and witness the success of the HST trading program. Several investors who did not speak Korean could not communicate well with Kim, and Park explained the HST Program to those investors. In fact, the HST computer program was a commercially available system that generates buy and sell signals according to market movements, not a proprietary program developed by Kim's brother.

b. Misrepresentations Concerning HST's and Kim's Track Record

Kim represented to prospective investors that both he and HST had traded successfully using the HST trading program. In fact, HST had no previous trading experience, and Kim's previous trading using the HST Program had resulted in net trading losses. Kim traded pursuant to the HST Program for his individual commodity futures account from March 1997 through May 1997, and lost more than $17,000. He traded a joint account with his brother pursuant to the HST Program, from May 1997 until September 1997, and lost more than $50,000.

HST and Kim further misrepresented the track record of the HST Program by leading investors to believe that hypothetical trading results were actual trading results. HST and Kim provided to some investors a Disclosure Document containing a section entitled "Intra day/Real time test," with several pages entitled "Program Performance detail Jan. 97- Dec.97." The performance appears to be actual trading results of the HST Program for the period January 1997 through December 1997, broken down into three-month periods. The performance results show very profitable trading, reflecting profits for each three-month period. The 1997 year-end figures reflect a return on the account of "969%." The purported performance and its support are misleading because the results shown are hypothetical back-tested results, not actual trading results. The misleading nature of the performance disclosures is exacerbated by several pages of charts showing the supposed buy and sell signals for each month of 1997 which purportedly generated the profits disclosed on the previous pages. These trading signals were not actually followed by HST.

Park first saw the Disclosure Document in January or February of 1998 when an HST customer showed it to him. Park realized that the data provided in the Disclosure Document was hypothetical trading results, but did nothing to correct the misrepresentations and continued to accept commissions generated by these accounts for at least another three months. Moreover, despite the fact that Park knew that the Disclosure Document contained hypothetical trading results, he told Kim to add to the Disclosure Document the statement that "[p]ast performance is not necessarily indicative of future results,"5 further implying that the performance disclosed was actual trading results.

c. False Guarantee Against Losses

HST and Kim represented to prospective investors that losses would be limited to 20 percent of their investment, and the Agreement and Disclosure Document repeated this guarantee. One investor gave Park a copy of the Agreement containing the guarantee, seeking to obtain Park's opinion of the Agreement before signing it. Park reviewed the Agreement and told the investor that he could sign the document. Park also confirmed on one occasion, to at least two other investors, that Kim could fulfill the guarantee, telling one investor specifically that Kim was a wealthy man and had sufficient resources to protect the investor's investment.

HST and Kim, however, did not comply with the Agreement. They did not stop trading or close out positions when the accounts lost 20 percent, and investor losses ultimately substantially exceeded 20 percent.

d. Misrepresentations Concerning Level of Participation in the Pool

HST and Kim represented to investors that HST would obtain a bank loan for $10,000 for each investor, and that each pool was to have approximately 20 investors and a total investment of $200,000 on the first day of trading. HST, however, did not obtain a bank loan as represented, and HST did not deposit into the pool account $10,000 for each pool investor. In fact, the total funds received in the trading accounts for all three pools combined were only $163,300, comprised of approximately $52,000 attributable to investors and substantial funds which belonged to Kim.

The Agreement also represented that HST would send a monthly performance statement to each pool participant reporting the trading profits and losses of the respective pool. However, HST sent only one performance statement to pool participants in the Match pool, and no other performance statements were ever sent to any participant in any of the pools. By March 1998, several investors became concerned about not having received any performance reports. They soon learned that HST lost more than 20 percent of the pools' funds, and requested to withdraw from the pools. Kim signed a letter again promising that he would repay those investors their losses in excess of 20 percent of their investment, but has not done so.

D. LEGAL DISCUSSION

1. HST and Kim Made Fraudulent Misrepresentations of Material Facts in Violation of Section 4b(a)(i) and (iii) of the Act

Section 4b(a)(i) and (iii) of the Act prohibit any person from cheating, defrauding, or willfully deceiving, or attempting to cheat, defraud, or willfully deceive, other persons in, or in connection with, the purchase and sale of commodity futures contracts. The mere attempt to defraud or deceive violates Section 4b(a) of the Act. Hirk v. Agri-Research Council, Inc., 561 F.2d 96, 103-104 (7th Cir. 1977). Fraudulent conduct can occur during the solicitation of commodity accounts. Saxe v. E.F. Hutton & Co. Inc., 789 F.2d 105, 109-11 (2d Cir. 1986).

The misrepresentation or omission must be of a material fact. See Saxe, 789 F.2d at 110-11; Hammond v. Smith Barney Harris Upham & Co., [1987-1990 Transfer Binder] Comm. Fut. L. Rep. (CCH) 24,617 at 36,657-59 (CFTC Mar. 1, 1990). A statement is material if it is substantially likely that a reasonable investor would consider the matter important in making an investment decision. TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976); Sudol v. Shearson Loeb Rhoades, Inc., [1984-1986 Transfer Binder] Comm. Fut. L. Rep. (CCH) 22,748, at 31,119 (CFTC Sept. 30, 1985). In general, all manner of omissions and misrepresentations of material fact regarding futures transactions violate the antifraud provisions of the Act, including omissions and representations concerning the likelihood of profit and other matters that a reasonable investor would consider material to his investment decisions. See, e.g., First Nat. Monetary Corp. v. Weinberger, 819 F.2d 1334 (6th Cir. 1987); CFTC v. US Metals Depository Co., 468 F. Supp. 1149 (S.D.N.Y. 1979); CFTC v. Crown Colony Commodity Options Ltd., 434 F. Supp. 911 (S.D.N.Y. 1977). The misrepresentation or omission must be made with scienter. See Drexel Burnham Lambert, Inc. v. CFTC, 850 F.2d 742, 748 (D.C. Cir. 1988).

HST and Kim violated this antifraud provision in several ways. HST and Kim repeatedly misrepresented to prospective investors that the HST Program had been successful and that Kim had made money trading in commodity futures with the HST Program. CFTC v. Commonwealth Financial Group, Inc., 874 F. Supp. 1345, 1353-54 (S.D. Fla. 1994) (misrepresentations regarding the trading record of a firm or broker are fraudulent because past success and experience are material factors to reasonable investors). HST and Kim further defrauded investors by presenting hypothetical trading results for the HST Program in documents, indicating substantial profits for a period of one year, when, in fact, no such actual trading had occurred and the hypothetical results were not identified as such. R&W Technical Services LTD v. CFTC, 205 F.3d 165 (5th Cir. 2000) (advertising performance based on real-time paper trades, not actual trades, was a material omission in violation of Section 4b of the Act); CFTC v. Skorupskas, 605 F. Supp. 923, 933 (E.D. Mich. 1985) (misrepresenting hypothetical performance tables as being actual trading results violated Section 4b of the Act). The trading results of the system and the fact that the results disseminated in the Disclosure Documents were hypothetical rather than actual trading results are material facts. Muniz v. Lassila, [1990-1992 Transfer Binder] Comm. Fut. L. Rep. (CCH) 25,225 at 38,650 (CFTC Jan. 17, 1992) (misrepresenting a theoretical, untested, approach to trading as an established, successful trading program is material and was a violation of Section 4b of the Act). HST and Kim also falsely told prospective investors that they would not lose more than twenty percent of their investment, and further defrauded investors by falsely representing that the pools would obtain loans and each pool would have $200,000 available for trading on the first day of the investment.

HST and Kim knew that these statements were false when they made them. This conscious and knowing disregard for the truth amounts to intentional conduct or, at a minimum, recklessness sufficient to demonstrate scienter. Hammond, 24, 617 at 36,659. Reckless conduct "departs so far from the standards of ordinary care that it is very difficult to believe that [actor] was not aware of what he was doing." Drexel Burnham Lambert, 850 F.2d at 748-49.

Accordingly, HST and Kim defrauded investors in violation of Section 4b(a)(i) and (iii) of the Act by misrepresenting and omitting material facts while soliciting and accepting funds for investing in commodity futures.

2. HST, While Acting as a CPO and CTA, and Kim, While Acting as an AP of a CPO and CTA, Violated

Section 4o(1) of the Act and Regulation 4.41(a) & (b)

a. HST and Kim Defrauded Investors in Violation of Section 4o(1) of the Act and Regulation 4.41(a)

Section 4o(1)(A) of the Act makes it unlawful for a CPO or CTA, or an AP of a CPO or CTA, to directly or indirectly employ any device, scheme or artifice to defraud any participant or client. Section 4o(1)(B) of the Act makes it unlawful for a CPO or CTA, or an AP of a CPO or CTA, to engage in any transaction, practice or course of business that operates as a fraud or deceit upon any participant or client. Although Section 4o(1)(A) of the Act requires proof of scienter, Section 4o(1)(B) does not, so long as the conduct operated as a fraud. In re Kolter, [1994-1996 Transfer Binder] Comm. Fut. L. Rep. (CCH) 26,262 at 42,198 (CFTC Nov. 8, 1994) (citing Messer v. E.F. Hutton & Co., 847 F.2d 673, 678-79 (11th Cir. 1988)).

Regulation 4.41(a) prohibits fraudulent advertising by CPOs and CTAs, and principals thereof. Regulation 4.41(a) prohibits CPOs and CTAs, and principals thereof, from advertising "in a manner which: (1) [e]mploys any device, scheme or artifice to defraud any participant or client or prospective participant or client; or (2) [i]nvolves any transaction, practice or course of business which operates as a fraud or deceit upon any participant or client or any prospective participant or client." The same conduct by HST and Kim that violated Section 4b(a) of the Act also violated Section 4o(1) of the Act and Regulation 4.41(a) because they engaged in that conduct in their capacities as a CTA/ CPO and an AP of a CTA/CPO, respectively. Skorupskas, 605 F. Supp. at 932-33 (the same conduct that violates Section 4b can violate Section 4o(1)).

b. HST and Kim Presented Hypothetical Performance Results Without the Required Cautionary Statement in Violation of Regulation 4.41(b)

Regulation 4.41(b) requires that any advertisement presenting hypothetical performance results of a CTA or CPO must prominently display a cautionary statement alerting clients to the limitations inherent in hypothetical performance results. The cautionary statement set forth in Regulation 4.41(b) itself or the similar cautionary statement drafted by the NFA must be used to satisfy this requirement. Regulation 4.41(c) provides that the cautionary statement requirement applies to all forms of promotional material.

HST and Kim violated Regulation 4.41(b) by using a Disclosure Document containing hypothetical performance without including the necessary cautionary statement, which misled investors into believing that the hypothetical results shown were actual results achieved by the HST Program. Skorupskas, 605 F. Supp. at 933 n.21 (performance tables presenting hypothetical and perhaps fictitious performance results were in violation of Regulation 4.41(b) because they were not accompanied by the required cautionary statement).

3. HST, By Acting as a CPO Without the Required Registration, Violated Section 4m(1) of the Act

Section 4m(1) of the Act provides that it is unlawful for any CPO, unless registered under the Act, to make use of the mails or any means or instrumentality of interstate commerce in connection with his business as a CPO. Section 1a(4) of the Act defines a commodity pool operator as any person engaged in a business that is of the nature of an investment trust, syndicate, or similar form of enterprise, and who, in connection therewith, solicits, accepts or receives from others, funds, securities, or property, either directly or through capital contributions, the sale of stock or other forms of securities, or otherwise, for the purpose of trading in any commodity for future delivery on or subject to the rules of any contract market.

From 1997 through 1998, HST solicited and received funds to pool in the Match, Austin and JKP commodity pools to trade commodity futures contracts. HST was a CPO within the definition of Section 1a(4) of the Act. HST received funds through mail and wire transfers for the purpose of investing in the pools. HST thus violated Section 4m(1) of the Act because it used the mail and other means of interstate commerce in connection with its business as a CPO, while failing to register with the Commission as such.

4. HST, By Acting as a CTA Without the Required Registration, Violated Section 4m(1) of the Act

Section 4m(1) of the Act provides in relevant part that it shall be unlawful for any CTA, unless registered under the Act, to make use of the mails or any means or instrumentality of interstate commerce in connection with his business as such CTA. Section 1a(5) of the Act defines a CTA as any person who for compensation or profit, engages in the business of advising others, either directly or through publications, writings or electronic media, as to the value or advisability of trading in futures contracts on or subject to the rules of a contract market.

HST was a CTA within the definition of Section 1a(5) of the Act. From 1997 through 1998, HST advised individual investors, by trading discretionary accounts, how to trade in commodity futures contracts. HST was to receive a monthly management fee based on profits for the trading advice. HST received and delivered communications through telephone, mail, and electronic mail in connection with its business as a CTA. HST thus violated Section 4m(1) of the Act because it used the mail and other means of interstate commerce in connection with its business as a CTA, while failing to register with the Commission as such.

5. Kim, While Acting as an AP of a CPO and CTA Without the Required Registration, Violated Section 4k of the Act and Regulation 3.12(a)

Section 4k of the Act and Section 3.12(a) of the Regulations provide in relevant part that it shall be unlawful for any person to be associated with an introducing broker, commodity pool operator, or commodity trading advisor as a partner, officer, employee, or agent in any capacity that involves the solicitation or acceptance of customer orders unless such person is registered as an associated person of such introducing broker, commodity pool operator or commodity trading advisor.

From 1997 through 1998, Kim solicited participants for the Match, Austin and JKP commodity pools to be operated by HST, a CPO, and also solicited clients for discretionary accounts to be traded or directed by HST, a CTA. Thus, Kim violated Section 4k of the Act and Regulation 3.12 by acting as an AP of a CPO and CTA while failing to register as such.

6. HST Mishandled Funds in Violation of Regulation 4.20

Section 4.20(a) of the Regulations provides that a CPO must operate its pool as an entity cognizable as a legal entity separate from that of the pool operator. Section 4.20(b) of the Regulations provides that all funds, securities or other property received by a CPO from an existing or prospective pool participant for the purchase of an interest in a pool that it operates or that it intends to operate must be received in the pool's name. Section 4.20(c) of the Regulations provides that no CPO may commingle the property of any pool that it operates or that it intends to operate with the property of any other person.

HST violated Regulation 4.20(a)-(c) because it received funds from pool participants in the name of the CPO, HST, and not in the name of the pool, deposited the funds into accounts in the name of the CPO, and commingled the property of the pools with other funds, including those of the other pools, Kim's personal funds, and Kim's and HST's funds from other business activities.

7. HST Failed to Deliver the Required Disclosure Document In Violation of Regulations 4.21 and 4.31

Section 4.21 of the Regulations requires all CPOs registered or required to be registered to deliver to prospective pool participants a Disclosure Document containing the information set forth in Section 4.24 prior to soliciting prospective participants or accepting funds from participants, and to obtain signed acknowledgments of receipt of the Disclosure Document prior

to accepting funds from pool participants. Section 4.31 of the Regulations requires all CTAs registered or required to be registered to deliver to prospective clients a Disclosure Document containing the information set forth in Sections 4.34 and 4.35 of the Regulations.

HST failed to deliver a Disclosure Document to all prospective pool participants and prospective clients; and the Disclosure Document that some investors did receive did not contain the information required by Sections 4.24, 4.34, and 4.35 of the Regulations. HST therefore violated Sections 4.21 and 4.31 of the Regulations.

8. HST Failed to Make Periodic Reports to Participants in Violation of Section 4n(4) of the Act and Regulation 4.22

Section 4n(4) of the Act requires all CPOs to regularly furnish statements of account to each pool participant. Sections 4.22 of the Regulations provides that each CPO must furnish annual, quarterly, and/or monthly statements to each pool participant. HST violated Section 4n(4) of the Act and Section 4.22 of the Regulations by failing to provide periodic statements of account to the pool participants.

9. HST Failed to Make and Keep Books and Records in Violation of Regulations 4.23 and 4.33

Section 4.23 of the Regulations requires all CPOs registered or required to be registered to make and keep certain books and records concerning the commodity pool and participants. Section 4.33 of the Regulations requires all CTAs registered or required to be registered to make and keep certain books and records concerning the CTA and the clients and subscribers of the CTA. HST violated Sections 4.23 and 4.33 of the Regulations by failing to keep the required books and records.

10. Park is Liable for Aiding and Abetting the Fraud of HST and Kim

To be liable as an aider and abettor under Section 13(a) of the Act, a person "must knowingly associate himself with an unlawful venture, participate in it as something he wishes to bring about and seek by his actions to make it succeed." In re Commodities International Corp., [Current Transfer Binder] Comm. Fut. L. Rep. (CCH) 26,943 at 44,564 (CFTC Jan. 14, 1997); In re Richardson Securities, Inc., [1980-1982 Transfer Binder] Comm. Fut. L. Rep. (CCH) 21,145 at 24,646 (CFTC Jan. 27, 1981). Knowing conduct for purposes of establishing aiding and abetting liability can be inferred from the attendant facts and circumstances. In re Lincolnwood Commodities, Inc., [1982-1984 Transfer Binder] Comm. Fut. L. Rep. (CCH) 21,986 (CFTC Jan. 31, 1984).

Park aided and abetted the fraud committed by HST and Kim. Park knew that HST and Kim were making misrepresentations concerning the success of the HST Program and presenting hypothetical trading results as actual trading results, and he knew that HST and Kim were guaranteeing that investors would not lose more than 20 percent of their investment. Park knew that the Disclosure Document and the HST Agreement contained the fraudulent misrepresentations. Park also repeated to a few investors that the HST Program was working well and that Kim had the resources to make good on his guarantee, when, in fact, he had no basis for these confirmatory representations. Finally, despite Park's knowledge that Kim made these misrepresentations, Park continued to receive commissions generated by the accounts that HST and Kim had fraudulently solicited. Park is therefore liable for the fraud committed by HST and Kim pursuant to Section 13(a) of the Act. See Commodities International Corp., supra; Richardson, supra.

11. Kim is Liable As a Controlling Person of HST

Section 13(b) of the Act imposes liability upon "[a]ny person who, directly or indirectly, controls any person who has violated any provision" of the Act or Regulations. "A fundamental purpose of Section 13(b) is to allow the Commission to reach behind the business entity to the controlling individual and to impose liability for violations of the Act directly on such individual as well as on the entity itself." In re Glass, [Current Transfer Binder] Comm. Fut. L. Rep. (CCH) 27,337 at 46,561-4 (CFTC April 27, 1998); see also In re Apache Trading Corp., [1990-1992 Transfer Binder] Comm. Fut. L. Rep. (CCH) 25,251 at 38,794 (CFTC March 11, 1992).

Controlling person liability attaches if a person possesses the ability to control the activities upon which the primary liability is predicated, even if that ability was not exercised. See Monieson v. CFTC, 996 F.2d 852, 859 (7th Cir. 1993). In addition, Section 13(b) of the Act requires that the controlling person "did not act in good faith or knowingly induced, directly or indirectly, the act or acts constituting the violation." All that is required to constitute "knowing inducement" under Section 13(b) of the Act is that the controlling person "had actual or constructive knowledge of the core activities that constitute the violation at issue and allowed them to continue." In re Spiegel, [1987-1990 Transfer Binder] Comm. Fut. L. Rep. (CCH) 24,103 at 34,767 (CFTC Jan. 12, 1988).

Kim had the requisite power and control over HST. Kim was the President of HST and the sole person responsible for the day-to-day activities of HST. Kim also had actual knowledge of the fraudulent and violative conduct of HST. Kim (1) solicited investors on behalf of HST, making the misrepresentations about the trading program and the guarantee against losses; (2) prepared and disseminated the materials containing misrepresentations about the trading program; (3) prepared and filed the HST account opening documents; and (4) accepted and deposited funds for HST. Kim, as a controlling person, is responsible for HST's violations of Sections 4m(1) and 4n(4) of the Act and Sections 4.20, 4.21, 4.22, 4.23, 4.31 and 4.33 of the Regulations.

12. HST is Liable for Kim's Violations

Section 2(a)(1)(A)(iii) of the Act provides that "the act, omission, or failure of any official, agent, or other person acting for any individual, association, partnership, corporation, or trust within the scope of his employment or office shall be deemed the act, omission, or failure of such individual, association, partnership, corporation, or trust, as well as of such official, agent, or other person."

Kim committed fraud while acting within the scope of his employment at HST. HST, therefore, is liable under Section 2(a)(1)(A)(iii) of the Act and Section 1.2 of the Regulations for Kim's violations of Sections 4b(a)(i) and (iii) and 4o(1) of the Act and Section 4.41 of the Regulations.

IV.

OFFERS OF SETTLEMENT

The Respondents have submitted Offers of Settlement in which each neither admits nor denies the findings in the Order. Subject to the foregoing, each of the Respondents: acknowledges service of this Order and admits the jurisdiction of the Commission with respect to the matters set forth in this Order; waives: (1) the service and filing of a complaint and notice of hearing; (2) a hearing and all post-hearing procedures; (3) judicial review by any court; (4) any objection to the staff's participation in the Commission's consideration of the Offers; (5) all claims which they may possess under the Equal Access to Justice Act, 5U.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 Regulations, 17 C.F.R. 148.1, et seq., relating to or arising from this action; and (6) 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.

The Respondents stipulate that the record basis on which this Order is entered consists of the Order and the findings to which each has consented in the respective Offers, which are incorporated in this Order. The Respondents consent to the Commission's issuance of this Order, which makes findings as set forth herein, and orders that each of the Respondents (1) cease and desist from violating the provisions of the Act and the Regulations they are found to have violated; and (2) comply with their undertakings as set forth in the respective Offers and incorporated in this Order; and orders that Kim and HST shall be permanently prohibited from trading on or subject to the rules of any contract market; and orders that Kim (1) pay restitution in an amount of up to eighty-six thousand, four hundred and ninety-eight dollars ($86,498), plus pre-judgment interest thereon of up to fourteen thousand dollars ($14,000), pursuant to a ten-year payment plan ("payment plan"); and (2) pay a contingent civil monetary penalty in an amount of up to fifty thousand dollars ($50,000), also pursuant to the payment plan; and orders that Park (1) be prohibited from trading on or subject to the rules of any contract market for a period of six (6) months; (2) be suspended from registration as an associated person for a period of six (6) months; (3) pay restitution in an amount of up to thirty-five thousand dollars ($35,000), plus pre-judgment interest thereon of up to six thousand two hundred dollars ($6,200), pursuant to the payment plan; and (4) pay a contingent civil monetary penalty in an amount of up to thirty-five thousand dollars ($35,000), also pursuant to the payment plan.

V.

FINDINGS OF VIOLATIONS

Solely on the basis of the consents evidenced by the Offers, and prior to any adjudication on the merits, the Commission finds that Respondents Kim and HST violated, and Respondent Park aided and abetted violations of, Sections 4b(a)(i) and (iii) and 4o(1) of the Act and Section 4.41(a) and (b) of the Regulations; and that Respondents Kim and HST violated Sections 4k, 4m(1), and 4n(4) of the Act and Sections 3.12, 4.20, 4.21, 4.22, 4.23, 4.31, and 4.33 of the Regulations.

VI.

ORDER

Accordingly, IT IS HEREBY ORDERED THAT:

A. Kim, Park and HST shall cease and desist from violating Sections 4b(a)(i) and (iii) and 4o(1) of the Act and Section 4.41(a) and (b) of the Regulations;

B. Kim and HST shall cease and desist from violating Sections 4k, 4m(1), and 4n(4) of the Act and Sections 3.12, 4.20, 4.21, 4.22, 4.23, 4.31, and 4.33 of the Regulations;

C. Kim and HST shall be permanently prohibited from trading on or subject to the rules of any contract market, and all contract markets are directed to refuse Kim and HST trading privileges thereon, beginning on the third Monday after the date of this Order;

D. Park shall be prohibited from trading on or subject to the rules of any contract market, and all contract markets are directed to refuse Park trading privileges thereon, for six (6) months beginning on the third Monday after the date of this Order;

E. Park is suspended from registration as an associated person for a period of six (6) months beginning on the third Monday after the date of this Order;

F. Kim shall pay restitution in an amount of up to eighty-six thousand, four hundred and ninety-eight dollars ($86,498), plus pre-judgment interest thereon of up to fourteen thousand dollars ($14,000), pursuant to a payment plan, as provided below, to those persons identified as investors and listed in Attachment A to the Offer. Those persons are (1) managed account clients of Kim and/or HST during the period October 1997 through March 1998; and (2) pool participants in the Match, Austin and JKP pools during the period October 1997 through March 1998. Kim shall make an annual payment to an account designated by a monitor designated by the Commission (the "Monitor") on or before July 31 of each calendar year (the "Annual Restitution Payment"), starting in calendar year 2001 and continuing for ten years6 (or until full restitution is made, if that happens first). Such funds shall be distributed annually as restitution payments to those persons in Attachment A to the Offers, in the amounts calculated by the Monitor, unless, based upon the amount of funds available for distribution, the Monitor decides to defer distribution. If, at the end of the ten year payment period, any amount of the Annual Restitution Payments has not been distributed, that amount shall instead be paid and applied as a payment to the civil monetary penalty obligation, as provided in paragraph G below. Kim's restitution obligation shall be offset by any restitution payments made by Park and distributed to customers by the Monitor, pursuant to Paragraph H below, up to thirty-five thousand dollars ($35,000). In any event, Kim and Park together shall not pay total restitution of more than eighty-six thousand, four hundred and ninety-eight dollars ($86,498) plus pre-judgment interest;

G. Kim shall pay a contingent civil monetary penalty in an amount of up to fifty thousand dollars ($50,000) pursuant to the payment plan, commencing upon Kim's fulfillment of his restitution obligation as set forth in paragraph F above. Kim shall make an annual civil monetary penalty payment ("Annual CMP Payment") following Kim's satisfaction of his restitution obligation, and continuing until December 31, 2009 (or until the civil monetary penalty is paid in full, if that happens first). Kim shall make each such Annual CMP payment by electronic funds transfer, or 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 sent to Dennese Posey, Division of Trading and Markets, Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, N.W., Washington, D.C. 20581, under cover of a letter that identifies Kim and the name and docket number of the proceeding; Kim shall simultaneously transmit a copy of the cover letter and the form of payment to the Monitor and to the Director, Division of Enforcement, Commodity Futures Trading Commission, at the following address: 1155 21st Street, NW, Washington, D.C. 20581;

H. Park shall pay restitution in an amount of up to thirty-five thousand dollars ($35,000), plus pre-judgment interest thereon of up to six thousand two hundred dollars ($6,200), pursuant to a payment plan, as provided below, to those persons identified as investors and listed in Attachment A to the Offers. Those persons are (1) managed account clients of Seungho Kim and/or Houston System trading during the period October 1997 through March 1998 and (2) pool participants of Seungho Kim and/or Houston System Trading (collectively "customers") during the period October 1997 through March 1998. Park shall make the Annual Restitution Payment to an account designated by the Monitor in the same manner as described in paragraph F above. Such funds shall be distributed annually as restitution payments to those persons in Attachment A to the Offers, in the amounts calculated by the Monitor, unless, based upon the amount of funds available for distribution, the Monitor decides to defer distribution. If, at the end of the ten year payment period, any of the Annual Restitution Payments have not been distributed, the Monitor shall either distribute the funds in the account or make a recommendation to the Commission that the funds instead be paid and applied as a payment to Park's civil monetary penalty obligation, as provided in paragraph I below. In the event that the Commission rejects the Monitor's recommendation, the funds shall be distributed as restitution;

I. Park shall pay a contingent civil monetary penalty in an amount of up to thirty-five thousand dollars ($35,000), pursuant to a payment plan, as provided below, commencing upon Park's fulfillment of his restitution obligation as set forth in paragraph H above. Park shall make an Annual CMP Payment following Park's satisfaction of his restitution obligation, and continuing until December 31, 2009 (or until the civil monetary penalty is paid in full, if that happens first). Park shall make each such Annual CMP payment in the same manner as described in paragraph G above. In accordance with Section 6(e)(2) of the Act, 7 U.S.C. 9a(2) (1994), if Park fails to pay the full amount of his Annual CMP Payment within fifteen (15) days of the due date, he shall be automatically prohibited from trading on all contract markets and, if he is registered with the Commission, such registration shall be automatically suspended until he shows to the satisfaction of the Commission that payment of the full amount of the Annual CMP Payment with interest thereon to the date of payment has been made;

J. The amount of Kim's Annual Payment shall consist of a portion of (1) the adjusted gross income (as defined by the Internal Revenue Code) earned or received by Kim during the course of the preceding calendar year, plus (2) the adjusted gross income (as defined by the Internal Revenue Code) earned or received by HST during the course of the preceding calendar year, plus (3) all other net cash receipts, net cash entitlements or net proceeds of non-cash assets (collectively "Net Cash Receipts") received by Kim and/or HST during the course of the preceding calendar year.

The amount of Park's Annual Payment shall consist of a portion of (1) the adjusted gross income (as defined by the Internal Revenue Code) earned or received by Park 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 (collectively "Net Cash Receipts") received by Park during the course of the preceding calendar year.

The Annual Payment will be determined as follows:

Where Adjusted Gross Income Plus Net Cash Receipts Total: Percent of Total to be Paid by Park and Kim Each is:
Up to $50,000 0%
$50,000-$100,000 30% of the amount above $50,000
Above $100,000 $15,000 (30% of the amount between $50,000 and $100,000) plus 40% of the amount above $100,000.

K. In the event that Respondents do not make payments as directed in paragraphs F, G, H, I, and J, supra, 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 Restitution and/or Annual CMP Payments, or immediate payment of the entire amount of restitution and civil monetary penalty required by paragraphs F, G, H and I, supra. The only issue that Respondents may raise in defense of such enforcement action is whether they have made the Annual Restitution and/or Annual CMP Payments as directed by the Monitor. Any action or proceeding brought by the Commission compelling payment of the Annual Restitution and/or Annual CMP Payments, due and owing pursuant to paragraphs F, G, H, I and J, above, or any portion thereof, or any acceptance by the Commission of partial payment of the Annual Restitution and/or Annual CMP Payments made by Respondents, shall not be deemed a waiver of Respondents' obligation to make further payments pursuant to the payment plans, or a waiver of the Commission's right to seek to compel payment of the remaining balance of the restitution and/or civil monetary penalty assessed against Respondents;

L. The Commission notes that an order requiring immediate payment of a civil monetary penalty and restitution against each of the Respondents would be appropriate in this case, but does not impose it based upon each Respondent's financial condition. Respondents acknowledge that the Commission's acceptance of the Offers is conditioned upon the accuracy and completeness of the sworn Financial Statements and other evidence they have provided regarding their financial condition. Respondents consent that if at any time following the entry of this Order, the Division obtains information indicating that any Respondent's representations concerning their 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 the Order, petition the Commission to: (1) reopen this matter to consider whether the Respondent provided accurate and complete financial information at the time such representations were made; (2) require immediate payment of the full amount of the restitution award and immediate payment of the full amount of the civil monetary penalty, required by paragraphs F, G, H, I and J; and (3) seek any additional remedies that the Commission would be authorized to impose in this proceeding if the Respondents' Offers had not been accepted. No other issues shall be considered in connection with this petition other than whether the financial information provided by the Respondent was fraudulent, misleading, inaccurate, or incomplete in any material respect, and whether any additional remedies should be imposed. The Respondents may not, by way of defense to any such petition, contest the validity of, or the findings in, the Order, assert that payment of a civil monetary penalty or restitution should not be ordered, or contest the amount of the civil monetary penalty or restitution to be paid. If in such proceeding, the Division petitions for, and the Commission orders, payment of less than the full amount of the restitution award or of the full amount of the civil monetary penalty, such petition shall not be deemed a waiver of the Respondents' obligation to pay the remaining balance of the restitution or civil monetary penalty assessed against Respondents, pursuant to the payment plans;

M. Park may be entitled to receive from the commodity trading advisor ("CTA") for which he is currently registered as an associated person ("AP") a portion of the fees, if any, which the CTA receives as a result of managing accounts solicited by Park during the period of time he has been registered as an AP of the CTA (trailing commissions"). The Commission will allow Park to receive such trailing commissions during the time that he is suspended from registration as an AP; and

N. Each Respondent shall comply with his undertakings, as set forth in their respective Offers:

1. Respondents shall provide their sworn financial statement to the Monitor7 on June 30 and December 31 of each calendar year, starting June 30, 2000, and continuing through and including December 31, 2009. The financial statement shall provide:

a. a true and complete itemization of the respondent's rights, title and interest in (or claimed in) any asset, wherever, however and by whomever held;

b. an itemization, description and explanation of all transfers of assets with a value of $1,000 or more made by or on behalf of the respondent over the preceding six-month interval; and

c. a detailed description of the source and amount of all of the respondent's income or earnings, however generated.

Kim shall also provide the Monitor with complete copies of the signed federal income tax returns for himself and HST, and Park shall also provide the Monitor with complete copies of his signed federal income tax returns, including all schedules and attachments thereto (e.g., IRS Forms W-2) and Forms 1099, as well as any filings they are required to submit to any state tax or revenue authority, on or before June 30 of each calendar year, or as soon thereafter, beginning in 2001 and ending in 2010. If any respondent moves his residence or business at any time, he shall provide written notice of his new address to the Monitor and the Commission within ten (10) days thereof;

2. Respondents shall cooperate fully and expeditiously with the Monitor and the Commission in carrying out all aspects of their Annual Restitution and Annual CMP Payments. Respondents shall cooperate fully with the Monitor and the Commission in explaining their financial income and earnings, status of assets, financial statements, asset transfers, tax returns, and shall provide any information concerning themselves as may be required by the Commission. Furthermore, Respondents shall provide such additional information and documents with respect thereto as may be requested by the Monitor or the Commission;

3. Respondents shall not transfer or cause others to transfer funds or other property to the custody, possession, or control of any member of their respective families or any other person for the purpose of concealing such funds or property from the Monitor or the Commission;

4. Kim and HST shall never apply for registration or seek exemption from registration with the Commission in any capacity, and shall never engage in any activity requiring such registration or exemption from registration, or act as a principal, agent, officer or employee of any person registered, exempted from registration or required to be registered with the Commission; this includes, but is not limited to soliciting, accepting or receiving any funds, revenue, or other property from any person, giving advice for compensation, or soliciting prospective customers, related to the purchase or sale of any commodity futures or options on commodity futures contracts;

5. Park shall not apply for registration or seek exemption from registration with the Commission in any capacity, and shall not engage in any activity requiring such registration or exemption from registration, or act as a principal, agent, officer or employee of any person registered, exempted from registration or required to be registered with the Commission for six months, beginning on the date of this Order; this includes, but is not limited to soliciting, accepting or receiving any funds, revenue, or other property from any person, giving advice for compensation, or soliciting prospective customers, related to the purchase or sale of any commodity futures or options on commodity futures contracts;

6. Park shall not, for five years beginning on the date of this Order:

a. directly or indirectly act in as a principal, partner, officer, or branch office manager of any entity registered or required to be registered with the Commission; and

b. directly or indirectly act in any supervisory capacity over anyone registered or required to be registered with the Commission; and

7. None of the Respondents, nor any of their agents or employees under their authority or control, shall take any action or make any public statements denying, directly or indirectly, any finding in this Order, or creating, or tending to create, the impression that this Order is without a factual basis; provided, however, that nothing in this provision shall affect each Respondent's (i) testimonial obligations; or (ii) right to take legal positions in other proceedings to which the Commission is not a party.

The provisions of this Order shall be effective on this date.

By the Commission.
Dated: June 30, 2000 ______________________
Jean A. Webb
Secretary to the Commission

Commodity Futures Trading Commission


NOTES:

1 Respondents do not consent to the use of the Offers or this Order, or the findings to which they have consented in the Offers, as the sole basis for any other proceeding brought by the Commission other than a proceeding brought to enforce the terms of this Order. They do not consent to the use of the Offers or this Order, or the findings to which they have consented in their Offers, by any other person or entity in this or any other proceeding. The findings to which they have consented in the Offers, as contained in this Order, are not binding on any other person or entity named as a respondent or defendant in this or in any other proceeding.

2 Due to the failure of HST and Kim to maintain proper books and records, the number of participants in the JKP pool is unknown.

3 HST and Kim represented in the account opening documents that they provided to the first FCM that the funds in HST's account belonged to HST and were not customer funds. When the HST account was transferred to a second FCM, HST and Kim represented that HST was exempt from CPO registration. Both of these representations were false - - the funds in the HST trading accounts contained customer funds, and HST never filed for, nor did it qualify for, a CPO registration exemption.

4 Kim signed a CTA exemption letter with an FCM, representing that he was exempt from registration as a CTA under Section 4m of the Act, claiming that he had not furnished trading advice to more than 15 persons and had not held himself out as a CTA. The representation is false, however, as HST and Kim held HST out as a CTA by soliciting investors for the HST pools and HST managed accounts using flyers, seminars, a newspaper article, the Agreement and Disclosure Document.

5 Commission Regulations 4.25 and 4.35 require that all actual past performance disclosures be preceded with the statement, prominently displayed, "past performance is not necessarily indicative of future results."

6 The ten year restitution period shall run from January 1, 2000 through December 31, 2009. Restitution payments for a calendar year shall take place by July 31 of the following year. Therefore, the final restitution payment for the year 2009 will occur on or before July 31, 2010.

7 Kim and Park agree that the National Futures Association is hereby designated as the Monitor for a period of eleven years commencing January 1, 2000. Notice to the Monitor shall be made to Daniel A. Driscoll, Esq., Vice President, Compliance, or his successor, at the following address: National Futures Association, 200 West Madison Street, Chicago, IL 60606. For ten years, based on the information contained in Kim's and Park's sworn financial statements, tax returns and the other financial statements and records provided to the Monitor, the Monitor shall calculate the total amount of restitution or civil monetary penalty to be paid by Kim and Park for the year and the specific amounts payable to each person listed in Attachment A. On or before June 30 of each year and starting in calendar year 2001, the Monitor shall also send written notice to Kim and Park with instructions to pay no later than July 31 of that year the amount of restitution to an account designated by the Monitor, or, if Kim's and/or Park's restitution obligation has been satisfied, the amount of civil monetary penalty to be paid in accordance with the payment instructions provided in paragraph J above.