UNITED STATES OF AMERICA
COMMODITY FUTURES TRADING COMMISSION
|In the Matter of:||)||CFTC DOCKET NO. 00 - 19|
|HOWARD E. THOMPSON||)||ORDER INSTITUTING PROCEEDINGS|
|P.O. Box 29||)||PURSUANT TO SECTIONS 6(c) AND|
|Bassett, Nebraska 68714,||)||6(d) OF THE COMMODITY EXCHANGE|
|)||ACT AND FINDINGS AND ORDER|
|)||IMPOSING REMEDIAL SANCTIONS|
The Commodity Futures Trading Commission ("Commission") has reason to believe that Howard E. Thompson ("Thompson" or "Respondent") has violated Sections 4a(e), 4i and 6(c) of the Commodity Exchange Act, as amended ("Act"), 7 U.S.C. §§ 6(c)(e), 6i and 9 (1994), and Regulations 18.04(a)(5) and 18.04(d), 17 C.F.R. §§ 18.04(a)(5) (1999) and 18.04(d) (1996).1 Therefore, the Commission deems it appropriate and in the public interest that public administrative proceedings be, and they hereby are, instituted to determine whether Respondent engaged in the violations set forth herein and to determine whether any order should be issued imposing remedial sanctions.
In anticipation of the institution of these administrative proceedings, Respondent has submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept. Without admitting or denying the findings herein, Respondent acknowledges service of this Order Instituting Proceedings Pursuant to Sections 6(c) and 6(d) of the Act and Findings and Order Imposing Remedial Sanctions ("Order"). Respondent 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.2
The Commission finds the following:
3 During the period of August 7, 1995 through January 31, 1997 ("relevant period"), Thompson, a commodities trader with an account at a registered futures commission merchant ("FCM"), controlled trading of that account and another account at the same FCM in the name of Thompson's sister-in-law and her husband ("in-laws"). When aggregated, futures positions in the Thompson and the in-law accounts exceeded the position limits for frozen pork bellies at the Chicago Mercantile Exchange ("CME") on six trading days in August 1996. Thompson also filed a false report with the Commission that failed to disclose his control of all trading for the in-law account and he failed to update that false report, as required, during the relevant period.
Howard Thompson and his wife reside at Sunrise Circle, P.O. Box 29, Bassett, Nebraska 68714. During the relevant period, Thompson's principal occupation was that of a cattle buyer and seller. Thompson has never been registered with the Commission in any capacity.
1. Thompson's Aggregated Positions and the CME's Trading Limits
In approximately July 1995, Thompson approached his in-laws with a proposal that he wanted to make money for them by trading commodity futures on their behalf. Prior to July 1995, his in-laws had no commodity trading experience nor any particular knowledge about commodity trading. Thompson had traded commodities since approximately 1983. Subsequently, on or about August 7, 1995, the in-laws signed opening account documents for a commodity trading account carried at the same FCM where Thompson carried his account. They funded the account with an initial $500 check, but thereafter made no additional deposits to the account from their own funds. During the relevant period, Thompson made all other cash deposits to and withdrawals from the in-law account.
The in-laws never entered orders for their account. Thompson controlled and traded both the account in his name and the in-law account. He customarily entered the orders for these accounts through a registered associated person at a registered introducing broker in Nebraska. When aggregated, the Thompson and in-law accounts exceeded the CME's position limits for frozen pork bellies on six trading days in August 1996.3 The in-law account last traded on January 31, 1997 and was closed on approximately October 28, 1997.
2. Thompson's False Report with the Commission and His Failure to Update
On or about August 7, 1995, Thompson held or controlled a reportable position in frozen pork bellies in his account.4 Later, on or about September 18, 1995, Thompson signed A Statement of Reporting Trader ("Form 40") that was filed with the Commission on September 21, 1995, in which he recklessly and falsely stated that he did not control the futures trading of any other person.5 Thompson failed to update that Form 40 until May 1, 1998 to reflect his control of all trading for the in-law account, even though he held or controlled reportable positions. From September 23, 1995 through January 31, 1997, Thompson held or controlled a reportable position in frozen pork bellies in his and/or the in-law account on at least 300 trading days. During that same period, Thompson traded on at least 35 of the those 300 days, again without updating his Form 40.
D. VIOLATIONS OF THE ACT AND COMMISSION REGULATIONS
1. Thompson Exceeded Exchange Trading Limits
Section 4a(e) of the Act prohibits any person from violating a contract market's trading limits if the Commission has approved such limits. During the relevant period here, the CME had (and still has) Commission-approved trading limits on frozen pork belly futures as provided in CME Rule 1402.E. For purposes of evaluating a possible violation under Section 4a(e) of the Act, the aggregation provisions of Section 4a(a) of the Act are applicable. In re Volume Investors, [1990-1993 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 25,234 at 38,676-77 (CFTC Feb. 10, 1992). Section 4a(a) of the Act provides that in determining whether trading limits set by the Commission have been exceeded, all positions controlled by a person shall be included.6 Consequently, since Thompson controlled both his own account and the in-law account, the positions in both accounts must be aggregated for purposes of determining whether he exceeded CME trading limits for frozen pork bellies. Thompson exceeded those limits on six dates in August 1996 and, accordingly, violated Section 4a(e) of the Act.
2. Thompson Filed a False Report with the Commission
Regulation 18.04(a)(5) requires that a person completing a Form 40 include the name and address of each person whose trading the reporting trader controlled. On September 18, 1995, Thompson signed a Form 40 that was filed with the Commission that falsely stated that he did not control the futures trading of any other person. Section 6(c) of the Act authorizes administrative proceedings against anyone who willfully makes materially false and misleading statements or omissions in a report filed with the Commission. "Willfulness" includes acting with intentional or with reckless disregard of regulatory obligations. See In re Squadrito, [1990-1992 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 25,262 at 38,828 (CFTC March 27, 1992) ("knowing/reckless disregard" standard applied to determine whether registrant willfully made a false statement on a registration application). Additionally, Section 4i of the Act prohibits a person from entering into any futures trading or from holding open futures positions in excess of amounts fixed by the Commission unless he or she files accurate reports with the Commission. By recklessly and falsely stating that he did not control the futures trading of any other person, Thompson violated Sections 4i and 6(c) of the Act and Regulation 18.04(a)(5).
3. Thompson Failed to File an Update of His Inaccurate Form 40
Pursuant to Regulation 18.04(d), when holding or controlling a reportable position after filing his Form 40, dated September 18, 1995, Thompson had a duty to update inaccurate information on that Form 40 regarding the name and address of any person whose futures trading he controlled. Pursuant to Section 4i of the Act, Thomson was prohibited from entering into any futures trading or from holding open futures positions in excess of amounts fixed by the Commission unless he filed accurate reports with the Commission. From September 19, 1995 through January 31, 1997, Thompson never updated his inaccurate Form 40 even though he held or controlled a reportable position in frozen pork bellies in his and/or the in-law account on at least 300 trading days. During that same period, Thompson traded on at least 35 days that he also held or controlled a reportable position in frozen pork bellies in his and/or the in-law account. Accordingly, Thompson's failure to update his inaccurate Form 40 violated Regulation 18.04(d), 17 C.F.R. § 18.04(d) (1996), and Thompson's holding or controlling reportable positions and trading while holding or controlling such positions without updating the Form 40 violated Section 4i of the Act, 7 U.S.C. § 6i (1994).
OFFER OF SETTLEMENT
Respondent has submitted the Offer, in which, without admitting or denying the findings herein, he: (1) admits the jurisdiction of the Commission with respect to the matters set forth herein; (2) waives the filing 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, all claims which he may possess under the Equal Access to Justice Act, 5 U.S.C. § 504 (1994) and 28 U.S.C. § 2412 (1994), as amended by Pub. L. No. 104-121, §§ 231-32, 110 Stat. 862-63, and Part 148 of the Commission's Regulations, 17 C.F.R. §§ 148.1, et seq., relating to or arising from this action, and any claim of Double Jeopardy based upon institution of this proceeding or the entry of any order imposing a civil penalty or any other relief; (3) stipulates that the record basis on which the Order may be entered shall consist solely of the Order and findings in the Order consented to in the Offer; and (4) consents to the Commission's issuance of this Order, which makes findings as set forth below and orders him to: (a) cease and desist from violating the provisions of the Act and Regulations that he has been found to have violated; (b) pay a civil monetary penalty of $50,000 as set forth in Section VI.2 below; (c) not trade directly or indirectly on or subject to the rules of any contract market on behalf of himself or others for a period of sixty days commencing on the third Monday after entry of the Order; and (d) comply with an undertaking set forth in Section VI.4 below.
FINDINGS OF VIOLATIONS
Solely on the basis of the consents evidenced by the Offer, and without any adjudication on the merits, the Commission finds that Thompson violated Sections 4a(e), 4i and 6(c) of the Act, 7 U.S.C. §§ 6(c)(e), 6i and 9 (1994), and Regulations 18.04(a)(5) and 18.04(d), 17 C.F.R. §§ 18.04(a)(5) and 18.04(d) (1996).
Accordingly, it is hereby ordered that:
1. Thompson shall cease and desist from further violations of Sections 4a(e), 4i and 6(c) of the Act, 7 U.S.C. §§ 6(c)(e), 6i and 9 (1994), and Regulation 18.04(a)(5), 17 C.F.R. § 18.04(a)(5) (1999).
2. Thompson shall pay a civil monetary penalty in the amount of Fifty Thousand Dollars ($50,000) within ten (10) business days of the date of the Order and make such payment by electronic funds transfer to the account of the Commission at the United States Treasury or by certified check or bank cashier's check 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 Thompson and the name and docket number of this proceeding. A copy of the cover letter and of the form of payment shall be simultaneously transmitted to Phyllis J. Cela, Acting Director, Division of Enforcement, Commodity Futures Trading Commission, 1155 21st Street, N.W., Washington, D.C. 20581.
3. For a period of sixty (60) days commencing on the third Monday after entry of the Order, Thompson is prohibited from directly or indirectly trading on or subject to the rules of any contract market on behalf of himself or others and all contract markets shall refuse him all trading privileges thereon.
4. Thompson is directed to comply with his undertaking not to take any action or make any public statement denying, directly or indirectly, any finding in the Order or finding or allegation in any related Commission proceeding or creating, or tending to create, the impression that the Order or any related Commission proceeding is without a factual basis; provided, however, that nothing in this provision affects: (i) his testimonial obligations; or (ii) his right to take contrary factual or legal positions in any proceedings to which the Commission is not a party. Thompson understands and agrees that the Commission's acceptance of this Offer is conditioned upon his compliance with this agreement in statements made by him and by agents acting under his authority or control.
A copy of this Order shall be served upon the Respondent and upon the NFA and all contract markets.
|Dated: May 31, 2000||By the Commission.|
|Jean A. Webb|
|Secretary to the Commission|
|Commodity Futures Trading Commission|
1 During all times relevant to this Order, Commission Regulation 18.04(d) was in effect. The Commission rescinded Regulation 18.04(d) effective April 14, 1997. See 62 Fed. Reg. 6112 (Jan. 31, 1997).
2 Respondent does not consent to this use of his Offer or the findings in this Order, consented to in his Offer, as the sole basis for any other proceeding brought by the Commission, other than a proceeding brought to enforce the terms of this Order. Respondent also does not consent to the use of his Offer or the findings in the Order by any other person or entity in this or in any other proceeding. The findings made in the Order are not binding on any other person or entity named as a defendant or respondent in this or any other proceeding.
3 The CME, which is located at 30 South Wacker Drive, Chicago, Illinois, is, and was during the relevant period, a designated contract market for trading in frozen pork belly futures pursuant to Section 5 of the Act, 7 U.S.C. § 7 (1994). During the relevant period, CME Rule 1402.E provided that futures position limits for frozen pork bellies were:
1) 1,000 contracts net long or short in all contract months;
2) 800 contracts long or short in any contract month;
3) 200 contracts long or short in the May contract or 150 contracts long or short in any other expiring contract month as of the close of business on the first business day following the first Friday of the contract month; and
4) 150 contracts long or short in the May contract or 100 contracts long or short in any other expiring contract month as of the close of the business on the sixth business day following the first Friday of the contract month.
The Commission approved these limits on February 10, 1994.
4 During the relevant period, the Commission required that certain reports be filed for each commodity futures account with a "reportable position" as defined in Commission Regulations ("Regulations") 15.00(b)(1)(i) and 15.03, 17 C.F.R. §§ 15.00(b)(1)(i) and 15.03 (1996). Regulation 15.03 provided that the reportable position for any contract not specifically listed (which included frozen pork belly futures contracts) was twenty-five (25) contracts.
5 Pursuant to Regulation 18.04, 17 C.F.R. § 18.04 (1996), every trader who held or controlled a reportable position had to file Form 40 with the Commission not later than the tenth business day following the date the trader assumed the reportable position. Information required on the Form 40 included the name and address of each person whose trading the reporting trader controlled. Pursuant to Regulation 18.04(d), a trader who held or controlled a reportable position had a duty to update certain previously filed information that was no longer accurate, including the name and address of each person whose account the reporting trader controlled.
6 CME Rule 1402.F also explicitly states that in evaluating whether a person exceeded the trading limits, the positions of all accounts controlled by a person would be cumulated.