UNITED STATES OF AMERICA
COMMODITY FUTURES TRADING COMMISSION
|In the Matter of:||)||CFTC Docket No. 99-17|
|CONSTANTINE MITSOPOULOS, et al.,||)||ORDER MAKING FINDINGS AND|
|)||IMPOSING REMEDIAL SANCTIONS|
|)||AS TO RESPONDENT CONSTANTINE|
On September 30, 1999, the Commodity Futures Trading Commission ("Commission") filed a Complaint and Notice of Hearing ("Complaint") against Constantine Mitsopoulos ("Mitsopoulos") and others. The Complaint charges that Mitsopoulos violated Sections 4b(a)(i) and (iii), 4c(b) and 4g of the Commodity Exchange Act, as amended ("Act"), 7 U.S.C. §§ 6b(a)(i) and (iii), 6c(b), and 6g (1994), and Commission Regulations ("Regulations") 1.35(a-1)(2), 33.10(a), and 166.3, 17 C.F.R. §§ 1.35(a-1)(2), 33.10(a), and 166.3 (1999), and aided and abetted violations of Section 4g of the Act and Regulation 1.35(a-1)(1) and (2), 17 C.F.R. § 1.35(a-1)(1) and (2) (1999), pursuant to Section 13(a) of the Act, 7 U.S.C. § 13c(a) (1994).
In order to dispose of the allegations and issues raised in the Complaint as to him, Respondent Mitsopoulos has submitted an Offer of Settlement ("Offer") which the Commission has determined to accept. Without admitting or denying any of the allegations of the Complaint or the findings herein, Mitsopoulos acknowledges service of this Order Making Findings and Imposing Remedial Sanctions ("Order"). Mitsopoulos 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 that:
From at least January 1994 to December 1995, S. Jay Goldinger ("Goldinger"), the owner, President, and associated person of Capital Insight Brokerage, Inc. ("Capital Insight"), a broker/dealer and registered introducing broker, fraudulently allocated trades among approximately seventy Refco, Inc. ("Refco") customer accounts, based upon the trades' profitability, by, among other things, delaying the assignment of customer account numbers until after trades had been executed, and directing Refco phone clerks to cause account numbers to be changed for trades previously executed.2
Mitsopoulos, the supervisor of the phone clerks at the Refco Desk that he oversaw in the Financial Room at the Chicago Board of Trade ("Refco Desk Clerks"), allowed Goldinger to enter orders through the Refco Desk without providing account identification at the time the trades were given, and allowed the Refco Desk Clerks under his supervision to routinely accept orders from Goldinger without immediately recording account identification on the floor order tickets. In addition, Mitsopoulos allowed the Refco Desk Clerks to help Goldinger change account numbers for trades already executed and for which Goldinger had already provided account numbers.
Mitsopoulos, a registered floor broker and member of a contract market, therefore violated Section 4g of the Act and Regulation 1.35(a-1)(2) by failing to obtain account identification at the time orders were received, and by allowing the Refco Desk Clerks to (1) receive orders without immediately recording account identification; (2) fill in account identification on orders already executed without such identification; and (3) change account identification on orders already executed. Mitsopoulos also aided and abetted Refco's violations of Section 4g of the Act and Regulation 1.35(a-1)(1) and (2) by this same conduct. Mitsopoulos also failed to supervise diligently the Refco Desk Clerks so as to ensure compliance with the CFTC's recordkeeping requirements in violation of Regulation 166.3.
Constantine Mitsopoulos, who resides at 1300 North Waukegan Road, Lake Forest, Illinois 60045, was registered with the Commission as a floor broker from May 16, 1985 to December 29, 1996. Mitsopoulos was a member of the Chicago Board of Trade from March 17, 1982 to November 29, 1996.
From at least January 1994 through December 1995, Goldinger had discretionary authority to trade Treasury bond ("T-bond") futures contracts and options on Treasury bond futures contracts ("T-bond options") for approximately seventy Refco customer accounts and traded approximately 22,000 T-bond futures contracts and T-bond options for these customer accounts. Handling Goldinger's orders constituted most of Mitsopoulos' business.
Goldinger operated a fraudulent trade allocation scheme in which he would allocate profitable trades to certain customer accounts and allocate losing trades to other customer accounts. Sometime after his orders were executed without account identification, Goldinger allocated profitable and losing trades among the customers by providing Mitsopoulos or the Refco Desk Clerks with the account numbers for the executed trades. In addition, at Goldinger's request, the Refco Desk Clerks sometimes caused account identification to be changed on trades already executed and assigned to other accounts.
Goldinger would not have been able to implement his fraudulent trade allocation scheme if Mitsopoulos and the Refco Desk Clerks had required Goldinger to provide account identification at the time he placed the orders. As a Commission registrant and member of a contract market, Mitsopoulos knew that account identification was required to be placed immediately on all order tickets at the time the orders were received. Nevertheless, Goldinger did not provide account numbers, and Mitsopoulos and the Refco Desk Clerks under Mitsopoulos' supervision did not obtain or record account identification for many of the thousands of trades placed by Goldinger until after the trades were executed.
In addition, Mitsopoulos had a duty to supervise diligently the activities of the Refco Desk Clerks who worked for him. Mitsopoulos knew that he and the Refco Desk Clerks routinely failed to obtain account identification from Goldinger until some time after the trades had been executed. Mitsopoulos also knew that, at Goldinger's request, the Refco Desk Clerks routinely caused the account numbers to be changed on orders previously executed. Mitsopoulos never took any steps to ensure that the Refco Desk Clerks followed proper recordkeeping procedures or to prevent future recordkeeping violations. As such, Mitsopoulos failed to supervise diligently the Refco Desk Clerks.
VI. VIOLATIONS OF THE ACT AND COMMISSION REGULATIONS
A. Direct Record Keeping Violations
Section 4g of the Act requires that futures commission merchants, introducing brokers, floor brokers, and floor traders make and produce records relating to their customers' transactions and positions as required by the Commission. Regulation 1.35(a-1)(2) requires every member of a contract market to prepare a written record of a customer order immediately upon receipt on the floor of an exchange, including the customer account identification and order number. Failing to place account identification on order tickets immediately upon receipt of orders "provide[s] an opportunity to direct profitable fills to favored accounts." In re GNP Commodities, Inc. [1990-1992 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 25,360 at 39,214 (CFTC August 11, 1992), aff'd sub nom. Monieson v. CFTC, 996 F.2d 852 (7th Cir. 1993).
As a Commission registrant and member of a contract market, Mitsopoulos was responsible under the Act and Regulations for properly preparing order tickets. Although he knew that account identification was required to be recorded on all order tickets immediately upon receipt of the orders, Mitsopoulos routinely accepted orders without recording account identification on the order tickets, in violation of Section 4g of the Act and Regulation 1.35(a-1)(2).
B. Aiding and Abetting Refco's record-keeping violations
Section 4g of the Act requires that FCMs, among others, make and produce records relating to their customers' transactions and positions as required by the Commission. Regulation 1.35(a-1)(1) requires FCMs, among others, to prepare a written record of a customer order immediately upon receipt, including the customer account identification and order number. Although these record keeping duties are imposed directly on FCMs, "APs. . . play a vital day-to-day role in the record keeping systems maintained by FCMs. Indeed, APs . . . are often delegated their employing FCM's responsibility for preparing the 'written record' of customers orders required by Rule 1.35(a-1). Such delegation does not impose a direct regulatory obligation on the AP. It does, however, create an opportunity for APs . . to aid and abet an FCM's failure to meet its regulatory responsibilities." In re Shahrokh Nikkhah, 2000 WL 622872 at *10 (CFTC May 12, 2000).
Liability as an aider and abettor requires proof that (1) the Act was violated, (2) the named respondent had knowledge of the wrongdoing underlying the violation, and (3) the named respondent intentionally assisted the primary wrongdoer. Id.
Mitsopoulos, as a Commission registrant and as an FCM employee, did not properly and completely prepare the written records of customer orders required of an FCM by Regulation 1.35(a-1)(1). He knew that specific account identification was required to be recorded on an office order ticket immediately upon receipt of the order from the customer; however, he routinely accepted orders from Goldinger without obtaining account identification. Mitsopoulos also knowingly allowed the Refco Desk Clerks, employees of Refco under his supervision, to routinely (1) accept orders from Goldinger without recording account identification; and (2) cause account numbers to be changed for orders previously executed and for which Goldinger had already supplied account numbers. As a result of the conduct of Mitsopoulos and the Refco Desk Clerks, Refco violated Section 4g of the Act and Regulation 1.35(a-1)(1). Mitsopoulos thus aided and abetted Refco's violations.
C. Failure to Supervise
Commission Regulation 166.3 imposes on registrants the duty to supervise diligently their employees and agents by (1) establishing an adequate supervisory structure and compliance program; and (2) carrying out diligently such programs. "The duty to supervise ... include[s] the broader goals of detection and deterrence of possible wrongdoing by [registrant's] agents." Lobb v. J.T. McKerr & Co., [1987-1990 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 24,568 at 36,444 (CFTC Dec. 14, 1989).
Mitsopoulos had a duty to supervise diligently the Refco Desk Clerks working for him by establishing supervisory structures and compliance programs and diligently enforcing such programs. However, from at least January 1994 to December 1995, Mitsopoulos failed to carry out the supervisory responsibilities imposed on him. He had no procedures in place to require the Refco Desk Clerks to obtain account identification upon receiving orders and no procedures regarding changing account numbers or otherwise helping to move trades from one account to another after the trades had been executed. In fact, Mitsopoulos allowed the Refco Desk Clerks to routinely ignore the record keeping requirements of the Act and Regulations. Mitsopoulos therefore violated Commission Regulation 166.3.
VII. OFFER OF SETTLEMENT
Mitsopoulos has submitted an Offer of Settlement in which he neither admits nor denies the allegations of the Complaint or the findings in this Order. Subject to the foregoing, Mitsopoulos: acknowledges service of the Complaint and this Order and admits the jurisdiction of the Commission with respect to the matters set forth in the Complaint and this Order; waives: (1) a hearing; (2) 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 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. 863, 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.
Mitsopoulos stipulates that the record basis on which this Order is entered consists of the Complaint, this Order and the findings to which he has consented in his Offer, which is incorporated in this Order. Mitsopoulos consents to the Commission's issuance of this Order, which makes findings as set forth herein, and orders Mitsopoulos to cease and desist from violating the provisions of the Act and the Regulations he is found to have violated; orders that Mitsopoulos shall be liable for payment of a civil monetary penalty of $1,000,000; and orders Mitsopoulos to comply with his undertakings as set forth in the Offer and this Order.
VIII. FINDINGS OF VIOLATIONS
Solely on the basis of the consent evidenced by the Offer, and prior to any adjudication on the merits, the Commission finds that Mitsopoulos violated Section 4g of the Act and Regulations 1.35(a-1)(2) and 166.3, and aided and abetted violations of Section 4g of the Act and Regulations 1.35(a-1)(1) and 1.35(a-1)(2) pursuant to Section 13(a) of the Act.
Accordingly, IT IS HEREBY ORDERED THAT:
A. Mitsopoulos shall cease and desist from violating Section 4g of the Act and Regulations 1.35(a-1)(1), 1.35(a-1)(2), and 166.3;
B. Mitsopoulos shall pay a civil monetary penalty in the amount of one million dollars ($1,000,000) within ten (10) days of the date of this Order. Mitsopoulos shall make such 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, 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 the Respondent 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 Director, Division of Enforcement, Commodity Futures Trading Commission at the following address: 1155 21st Street, N.W., Washington D.C. 20581; and
C. Mitsopoulos shall comply with his undertakings, as set forth in his Offer:
1. never to apply for registration or claim exemption from registration with the Commission in any capacity;
2. never to engage in any activity requiring such registration or exemption from registration;
3. never to act as a principal, officer or employee of any person registered, exempt from registration or required to be registered with the Commission;
4. never to act in any capacity, whether or not registration with the Commission is required, which involves the execution, allocation, writing, receipt or transmission of orders or completion or processing of order tickets for futures or options on futures contracts (other than for Mitsopoulos' own account); and
5. not to take any action or make any public statement denying, directly or indirectly, any finding in the Order, or creating, or tending to create, the impression that the Order is without a factual basis; provided, however, that nothing in this provision affects Mitsopoulos': (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: August 31, 2000||______________________|
|Jean A. Webb|
|Secretary to the Commission|
Commodity Futures Trading Commission
1 Respondent does not consent to the use of the Offer or this Order, or the findings to which he has consented in the 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. Nor does Mitsopoulos consent to the use of the Offer, this Order, or the findings consented to in the Offer by any other party in any other proceeding. The findings to which Mitsopoulos has consented in the Offer, 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 On November 12, 1999, the federal district court for the Central District of Los Angeles entered an "Order of Permanent Injunction and Other Equitable Relief" against Goldinger and Capital Insight, ordering them to disgorge $6,000,000 in ill-gotten gains and enjoining them from, inter alia, violating the Act and acting in any capacity for which registration with the Commission is required under the Act. On December 13, 1999, Goldinger pleaded guilty in federal district court to wire fraud for running the fraudulent allocation scheme. On May 24, 1999, the Commission issued an order instituting proceedings, making findings and imposing remedial sanctions against Refco, finding that, in connection with Goldinger's scheme, Refco violated Section 4g of the Act and Regulations 1.35(a-1)(2) and 166.3, 17 C.F.R. §§ 1.35(a-1)(1), 166.3 (1999) (CFTC docket #99-12). On April 10, 2000, the Commission issued an order making findings and imposing remedial sanctions against Margaret Dull and Richard Marisie, finding that in connection with Goldinger's fraudulent trade allocation scheme, Dull and Marisie violated Section 4g of the Act and Regulation 1.35(a-1)(2) and aided and abetted Refco's recordkeeping violations.