UNITED STATES OF AMERICA
COMMODITY FUTURES TRADING COMMISSION
|In the Matter of:||)||CFTC Docket No. 00-09|
|Oasis Publishing Corporation||)||ORDER INSTITUTING PROCEEDINGS|
2344 Valleyview Drive
|)||PURSUANT TO SECTIONS 6(c) AND 6(d)|
|Courtenay, BC||)||OF THE COMMODITY EXCHANGE ACT,|
|Canada V9N8s5||)||AS AMENDED, MAKING FINDINGS AND|
|Gordon J. White||)|
The Commodity Futures Trading Commission ("Commission") has reason to believe that Oasis Publishing Corporation ("Oasis") and Gordon J. White ("White") (collectively "Respondents"), have 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) and (b) of the Commission's Regulations, 17 C.F.R. § 4.41(a) and (b) (1999). Therefore, the Commission deems it appropriate and in the public interest that administrative proceedings be, and hereby are, instituted to determine whether Oasis and White engaged in the violations set forth in this Order and to determine whether any Order should be issued imposing remedial sanctions.
In anticipation of the institution of this administrative proceeding, Oasis and White have submitted a joint offer of settlement ("Offer"), which the Commission has determined to accept. Without admitting or denying the findings in this Order Instituting Proceedings Pursuant to Sections 6(c) and 6(d) of the Commodity Exchnage Act, as Amended, Making Findings and Imposing Sanctions ("Order"), and prior to any adjudication on the merits, Oasis and White acknowledge service of this Order. Oasis and White consent to the use of the findings in this Order in this or any other proceedings brought by the Commission or to which the Commission is a party.1
The Commission finds the following:
Oasis and White sell through an Internet website various advisory services on trading commodity futures. Through this website, Oasis and White claim that their advisory services have generated huge profits with little risk, and that White has personally made substantial profits through futures trading. White's trading using his system actually lost money. The trading results portrayed on the website as resulting from White's trading actually resulted from hypothetical trading. This fact was not disclosed to the public. Oasis's and White's activities in fraudulently advertising their advisory services violate Sections 4b(a)(i) and (iii) and 4o(1) of the Act, and Section 4.41(a) and (b) of the Commission's Regulations.2
Oasis Publishing Corporation is a Canadian corporation, formerly named OFG Trading Co., located at 2344 Valley View Drive, Courtenay, BC, Canada V9N-855. Oasis has been registered with the Commission as a Commodity Trading Advisor ("CTA") since January 1998.
Gordon J. White, who resides at 1625 Fitzgerald, Courtenay, BC, Canada V9J-1K8, has been listed with the Commission as a principal of Oasis since January 1998. He is the President of Oasis.
Services Sold Through The "pr-success" and "risktaker" Websites
Oasis and White sell various products and services to assist customers in on-line trading of futures contracts, and subscriptions to advisory services that provide specific trading recommendations. The website is located at two internet addresses, www.pr-success. com and www.risktaker.com. Oasis and White began selling their products and services in 1992.
Oasis provides several services: 1) training on the intricacies of technical trading in the commodity futures markets; 2) a daily educational market update over the Internet or by fax service; and 3) advisory services making specific trading recommendations. The advisory services include a thirty-day trial membership for $5.00 that give purchasers "Daily Market Reports," access to back issues of its newsletters, one-on-one access to White for questions on strategies and techniques, thirty-day free custom charts, an on-line mini-course, and an explanation of White's three basic strategies. After the thirty-day trial membership, the advisory service costs $69.95. Oasis and White also offer a three-month training course for $321, which includes the same services as the thirty-day trial membership, plus a real-time, real broker paper trading account, educational materials, on-line tutorials, and various unspecified industry discounts. Oasis and White offer trading advice on futures contracts on grains, livestock, foods and fibers, metals, energies, currencies and the stock indexes.
Claims Concerning Profits
Oasis's and White's website since at least 1996 has claimed that their advisory services can generate, and have generated, extraordinary profits. For instance, Oasis and White claimed:
· "If however you can prove discipline and follow a good system such as "The Half Hour Business" trend-following system, and you have sufficient capital to diversify and apply proper risk management techniques, you can reasonably expect consistent returns of 20% to 200% a year."
· "Gordon White began with a $2,000.00 account...that account grew to $10,000.00 in a couple of months."
· "Look over author/trader Gordon J. White and see how he consistently produces profitable returns."
The website also claims that "Commodity trading really isn't all that risky."
In addition, the website purports that White generated over $80,000 in profits trading his basic strategies in 1997. However, this claim is false; the only recent account that White traded actually lost $25,000 in 1998. In fact, all claims on the website about the profitability of White's trading are based on hypothetical trading, which fact was not disclosed to the public.
D. VIOLATIONS OF THE ACT AND COMMISSION REGULATIONS
1. Oasis and White Violated Sections 4b(a)(i) and (iii) of the Act.
Sections 4b(a)(i) and (iii) 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
Oasis and White have violated Sections 4b(a)(i) and (iii) by misrepresenting that recommendations generated by their advisory service could generate huge profits with minimal risk in trades. Respondents represented that their system had generated tremendous profits, notwithstanding their actual experience in losing money trading during the period in question using the strategies set forth in their system. The results portrayed as the results of actual trading were, in fact, the results of hypothetical trading. "Because simulated results inherently overstate the reliability and validity of an investment system, and because extravagant claims understate the inherent risks in commodities trading, a reasonable investor would find [such] fraudulent misrepresentations to be material." R&W Technical Svcs., 2000 WL at *3. See also CFTC v. Skorupskas, 605 F. Supp. 923, 933 (E.D. Mich. 1985) (misrepresenting performance tables as being actual trading results violated Section 4b of the Act).
2. Oasis and White Violated Section 4o(1) of the Act and Section 4.41 of the Regulations
Section 4o(1) of the Act prohibits 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. Section 4.41(a) of the Regulations prohibits a CTA or principal thereof from advertising in a fraudulent or misleading manner. Section 4.41(b) of the Regulations makes it unlawful for a CTA to fail to include the required warnings about the limitations of trading performance numbers based upon hypothetical or simulated data. 5
In order to establish a violation of Section 4o of the Act and Section 4.41 of the Regulations, 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.6 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) 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, unless that person 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 futures trading advice is "solely incidental to the conduct of [its] business or profession."7 Oasis and White gave commodity futures trading advice for compensation or profit and, therefore, are CTAs. 8 Further, Oasis is, in fact registered as a CTA.
The same conduct that constitutes violations of Section 4b can constitute violations of Section 4o(1). Skorupskas, 605 F. Supp. 923, 932-933. Oasis and White have violated Sections 4o(1) and Regulation 4.41 by misrepresenting that recommendations generated by their advisory service could generate huge profits with minimal risk in trades. Respondents represented that their system had generated tremendous profits, knowing that such claims were not based on actual trading, but rather on hypothetical trading.
Offer of Settlement
Oasis and White have submitted a Joint Offer of Settlement ("Offer") in which, without admitting or denying the findings herein, they: (1) admit the jurisdiction of the Commission with respect to all matters sets forth herein; (2) acknowledge service of this Order; (3) waive the filing and service of a Complaint and 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, any claim of Double Jeopardy based upon the institution of this proceeding or the entry of any order imposing a civil penalty or any other relief, and all claims that they 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. 847 and Part 148 of the Commission's Regulations, 17 C.F.R. § 148.1 et seq., relating to or arising from the Order; (4) stipulate that the record basis on which the Order maybe entered consists solely of the Order and the findings consented to in the Offer, which are incorporated in the Order; and (5) consent to the Commission's issuance of this Order, which makes findings and orders that: (a) Oasis and White to cease and desist from violating Sections 4b(a)(i) and (iii) and 4o(1) of the Commodity Exchange Act (the "Act"), as amended 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, 17 C.F.R. § 4.41 (1999); and Oasis and White comply with their undertakings as set forth herein.
Findings of Violations
Solely on the basis of the consent evidenced by the Offer, and prior to any adjudication of the merits by the Commission, the Commission finds that Oasis and White violated Sections 4b(a)(i) and (iii) and 4o(1), and Commission Regulation 4.41(a) and (b).
Accordingly, IT IS HEREBY ORDERED THAT:
1. Oasis and White 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 Commission's Regulations;
2. Based upon Oasis' and White's sworn representations in their Financial Disclosure Statement dated March 29, 2000 and other evidence provided by Oasis and White regarding their financial condition, the Commission is not ordering them to pay a civil monetary penalty. The determination not to impose a civil monetary penalty is based upon the accuracy and completeness of their Financial Disclosure Statement and other evidence provided by them regarding their financial condition. If at any time following the entry of this Order, the Division of Enforcement of the Commission obtains information indicating that representations concerning 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 this Order, petition the Commission to: (1) reopen this matter to consider whether Oasis and White provided accurate and complete 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 their Offer had not been accepted. No other issues shall be considered in connection with this petition other than whether the financial information provided by them 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. Oasis and White may not, by way of defense to any such petition, contest the validity of the findings in this Order, or assert that a civil penalty should not be ordered.
3. Oasis and White shall comply with the following undertakings:
A. Oasis and White shall not misrepresent, expressly or by implication:
1. 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
2. the risks associated with trading pursuant to any commodity futures or options trading system or advisory service;
B. Oasis and White 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, Oasis and White shall clearly identify those hypothetical or simulated performance results, which were based, in whole or in part, on hypothetical trading results.
C. Oasis and White shall not make any representation of financial benefits associated with any commodity futures options trading system or advisory service without first disclosing, prominently and conspicuously, that futures trading involves high risks with the potential for substantial losses.
D. Oasis and White shall not represent, expressly or by implication:
1. 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;
2. the risks associated with trading using any commodity futures or options trading system or advisory service;
3. 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: (i) Oasis and White possess and rely upon a reasonable basis substantiating the representation at the time it is made; and (ii) for two (2) years after the last date of the dissemination of any such representation, Oasis and White maintain 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.
E. By neither admitting nor denying the findings in this Order, Oasis and White agree not to take any action or make any public statement denying, directly or indirectly, any findings in this Order, or creating, or tending to create, the impression that the Order is without a factual basis; provided, however, that nothing in this provision shall affect Oasis' and White's (i) testimonial obligations, or (ii) right to take legal positions in other proceedings to which the Commission is not a party. Oasis and White understand and agree that the Commission's acceptance of their Offer is conditioned upon their compliance with this agreement. Oasis and White will undertake all steps necessary to assure that all of their agents and employees understand and comply with this agreement.
Unless otherwise specified, the provisions of this Order shall be effective on this date.
|Dated: May 1, 2000||BY THE COMMISSION|
|Secretary to the Commission|
|Commodity Futures Trading Commission|
1 Neither Oasis nor White consent to the use of the Offer or this Order, or the findings herein, as the sole basis for any other proceeding brought by the Commission other than a proceeding to enforce the terms of this Order. They do not consent to the use of the Offer or the Order, or the findings herein, by any other party in any other proceeding. The findings consented to in the Offer or made in the order are not binding on any other person or entity in any other proceeding before the Commission.
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 and other proceedings, the Commission is addressing fraud committed on the Internet to promote the integrity of promotions made concerning commodity futures and options trading systems on the web.
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., Inc. v. CFTC, 2000 WL 217498 (5th Cir. Feb. 24, 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., 2000 WL at 217498 . 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 Section 4.41(b) of the Regulations provides, in relevant part: "(1) No person may present the performance of any simulated or hypothetical commodity interest account, transaction in a commodity interest or a series of transactions in a commodity interest ... unless such performance is accompanied by one of the following: (i) The following statement: '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 the profits or losses similar to those shown'; or (ii) A statement prescribed pursuant to rules promulgated by a registered futures association pursuant to Section 17(j) of the Act; (2) If the presentation of such simulated or hypothetical performance is other than oral, the prescribed statement must be prominently displayed."
6 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).
7 Section 1a(5) of the Act, 7 U.S.C. § 1a(5). Section 4o(1) of the Act and Section 4.41 of the Regulations thus do not apply to a CTA who is "the publisher or producer of any print or electronic data of general and regular dissemination, including its employees" whose "furnishing of [advice] ... is solely incidental to the conduct of their business or profession." This exclusion 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., 2000 WL at *7.
8 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).