UNITED STATES DISTRICT COURT

MIDDLE DISTRICT OF FLORIDA

TAMPA DIVISION

___________________________________________________

)

COMMODITY FUTURES TRADING COMMISSION,

) Civ. 98-2575-CWT 26C

Plaintiff,

)
) Complaint for a Permanent

v.

) Injunction, Other Equitable
) Relief, and Civil Monetary
MICHAEL COLTON, individually and ) Penalties
doing business as FUTURE-COMM TRADING, )
Defendant. )

___________________________________________________

)

I.

SUMMARY

1. Since at least January 1997, defendant Michael Colton, individually and doing business as Future-Comm Trading ("Future-Comm"), has fraudulently solicited and accepted at least $650,000 from members of the public for participation interests in a commodity pool (the "Future-Comm pool" or the "pool"). Through an Internet site (www.futurecommtrading.net), brochures, and in-person sales presentations, Colton entices prospective investors by claiming that the Future-Comm pool has generated substantial profits, such as a 495 or 660 percent return in 1997, and that such astounding returns are accomplished with low risk. In reality, the Future-Comm pool has suffered considerable losses due to Colton's placement of losing trades on futures and options contracts and his routine misappropriation of pool funds.

2. Colton also claims that Future-Comm is a commodity pool operator ("CPO") registered with the Commodity Futures Trading Commission (the "Commission"), although neither Colton nor Future-Comm has ever been registered with the Commission in any capacity. Colton's activities, however, mandate that he be registered with the Commission as either a CPO or, since he provides commodity trading advice to members of the public, a commodity trading advisor ("CTA"). Colton also has mishandled customer funds by depositing them into his personal account, trading customers' funds in his own name rather than in the name of the Future-Comm pool, and failing to operate the pool as a separate legal entity.

3. Thus, Colton has engaged, is engaging, and is about to engage in acts and practices which violate Sections 4b(a)(i), 4h, 4m and 4o(1) of the Commodity Exchange Act, as amended ("Act"), 7 U.S.C. 6b(a)(i), 6h, 6m, 6o(1) (1994), and Sections 4.20 and 4.30 of the Commission's regulations, 17 C.F.R. 4.20, 4.30 (1998).

4. Accordingly, pursuant to Section 6c of the Act, 7 U.S.C. 13a-1 (1994), the Commission brings this action to enjoin such acts and practices, and to compel compliance with the provisions of the Act. In addition, the Commission seeks civil penalties and disgorgement, restitution, rescission and such other equitable relief as the Court may deem necessary or appropriate.

5. Given Colton's pattern of fraudulent activity, unless restrained and enjoined by this Court, he is likely to continue to engage in the acts and practices alleged in this Complaint, as more fully described below.

II.

JURISDICTION AND VENUE

6. The Act establishes a comprehensive system for regulating the purchase and sale of commodity futures contracts and options. This Court has jurisdiction over this action pursuant to Section 6c of the Act, 7 U.S.C. 13a-1 (1994), which authorizes the Commission to seek injunctive relief against any person whenever it shall appear to the Commission that such person has engaged, is engaging, or is about to engage in any act or practice constituting a violation of any provision of the Act or any rule, regulation or order thereunder.

7. Venue properly lies with this Court pursuant to Section 6c of the Act, 7 U.S.C. 13a-1(e) (1994), in that the defendant is found in, inhabits, or transacts business in this district, and the acts and practices in violation of the Act have occurred, are occurring, or are about to occur within this district.

III.

THE PARTIES

8. Plaintiff Commission is an independent federal regulatory agency charged with the responsibility for administering and enforcing the provisions of the Act, 7 U.S.C. 1 et seq. (1994), and the Regulations promulgated under it, 17 C.F.R. 1 et seq. (1998).

9. Defendant Colton resides at 2971 Estancia Boulevard, Dunedin, Florida 34621 and holds himself out to the public as the President and principal of Future-Comm Trading. Colton is not, and has never been, registered with the Commission in any capacity. The Future-Comm pool is not an entity cognizable as a legal entity separate from Colton. Future-Comm is not, and has never been, registered with the Commission in any capacity.

IV.

FACTS

A. Statutory Background

10. A commodity pool is defined in Commission Regulation 4.10(d)(1), 17 C.F.R. 4.10(d)(1), as any investment trust, syndicate or similar form of enterprise engaged in the business of investing its pooled funds in trading commodity futures and options.

11. A CPO is defined in Section 1a(4) of the Act, 7 U.S.C. 1(a)(4), 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.

12. A CTA is defined in Section 1a(5)(A) of the Act, 7 U.S.C. 1a(5)(A) (1994), as any person who for compensation or profit, engages in the business of advising others as to the value of or the advisability of trading in: (i) any contract of sale of a commodity for future delivery made or to be made on or subject to the rules of a contract market; (ii) any commodity option authorized under Section 4c of the Act, 7 U.S.C. 6c (1994); or (iii) any leverage transaction authorized under Section 19 of the Act, 7 U.S.C. 23 (1994); or a person who for compensation or profit, and as part of a regular business, issues or promulgates analyses or reports concerning any of the activities referred to above.

B. The Commodity Pool Scheme

13. From at least January 1997 and continuing through the present, Colton has solicited members of the public to invest in the Future-Comm pool by posting solicitation materials on an Internet site, distributing promotional brochures, and making in-person sales presentations. Initial customer investments range between $1,500 and $15,000.

14. Colton claims that Future-Comm is a registered CPO which was created in order to combine small investors into one pool that could compete with large investors and institutional traders. Colton represents that pool funds are traded using Future-Comm's proprietary system, which supposedly has undergone over twenty-five years of historical testing and thousands of hours of system programming. This trading system supposedly generates trades with "low risk and high probability of success." Using this proprietary trading system, Colton claims, the Future-Comm pool buys and sells S&P 500 futures contracts and options contracts.

15. Colton claims that by using this proprietary trading system, the Future-Comm pool has achieved astounding profits. For instance, Colton claims that:

(a) investors in the Future-Comm pool made a 495 percent or 660 profit in 1997;

(b) $7,500 invested at the beginning of 1997 netted a $49,525 profit by the end of 1997; and

(c) in 1997, Colton entered into for the pool 359 buy and sell transactions for S&P 500 futures contracts, 287 of which resulted in profits.

16. These claims of high profits are false and misleading. During 1997, Colton actually lost money trading commodity futures and options. Moreover, during 1997, Colton entered into 77 round-turn buy and sell transactions for S&P 500 futures contracts, of which only 37 resulted in profits. Indeed, in 1998, Colton lost more than $100,000 trading futures and options.

17. Colton's claim that Future-Comm is a registered CPO is false. Future-Comm is not, and has never been, registered with the Commission in any capacity.

18. Colton instructed some potential investors to make their investment checks payable directly to Colton. Colton then deposited these pool participants' funds into a bank account held in his own name, not in the name of the pool. Colton instructed other pool participants to make their investment checks payable to Future-Comm. Although Colton deposited some customer funds into accounts titled in the name of Future-Comm, he routinely transferred funds between bank accounts titled in his own name and accounts titled in the name of Future-Comm, and he paid personal expenses from bank accounts holding funds of the Future-Comm pool.

19. After receiving funds from customers, Colton would transfer some funds to accounts at various futures commission merchants for the purpose of buying and selling S&P 500 futures contracts and option contracts. All of Colton's accounts at futures commission merchants were titled either solely in his own name or jointly in his name and that of another person, and none were in the name of Future-Comm. Colton has transferred pool funds from accounts at futures commission merchants into his personal bank accounts.

20. Colton received compensation or other payments, directly or indirectly, for operating the Future-Comm pool.

21. The total gross capital contributions Colton received for units of participation in the Future-Comm pool exceeds $200,000.

22. During the preceding twelve month period, Colton furnished commodity trading advice to more than fifteen persons.

V.

VIOLATIONS OF THE COMMODITY EXCHANGE ACT

COUNT I

VIOLATIONS OF SECTION 4b(a)(i) OF THE ACT:

FRAUD BY MISAPPROPRIATION AND MISREPRESENTATION

23. Paragraphs 1 through 22 are re-alleged and incorporated herein.

24. Beginning in at least January 1997 and continuing through the present, Colton violated Section 4b(a)(i) of the Act, 7 U.S.C. 6b(a)(i) (1994), in that he cheated or defrauded or attempted to cheat or defraud other persons by, among other things: (i) misrepresenting that investors had achieved significant profits by investing in the Future-Comm pool; (ii) misrepresenting or failing to disclose the risks associated with trading commodity futures and options; (iii) misappropriating investors' funds; and (iv) misrepresenting that Future-Comm is a CPO registered with the Commission.

25. Colton engaged in this conduct in or in connection with orders to make, or the making of, contracts of sale of commodities for future delivery, made, or to be made, for or on behalf of other persons where such contracts for future delivery were or may have been used for (a) hedging any transaction in interstate commerce in such commodity, or the products or byproducts thereof, or (b) determining the price basis of any transaction in interstate commerce in such commodity, or (c) delivering any such commodity sold, shipped, or received in interstate commerce for the fulfillment thereof.

COUNT II

VIOLATIONS OF SECTION 4o(1) OF THE ACT:

FRAUD BY COMMODITY TRADING ADVISORS

AND COMMODITY POOL OPERATORS

26. Paragraphs 1 through 25 are re-alleged and incorporated herein.

27. Beginning in at least January 1997 and continuing through the present, Colton, while acting as a CPO, has violated Section 4o(1) of the Act, 7 U.S.C. 6o(1) (1994), in that he directly or indirectly employed or is employing a device, scheme, or artifice to defraud investors or prospective investors, or has engaged or is engaging in transactions, practices or a course of business which operated as a fraud or deceit upon investors or prospective investors by using the mails or other means or instrumentalities of interstate commerce. His fraudulent acts include, but are not limited to: (i) misrepresenting that investors had achieved significant profits by investing in the Future-Comm pool; (ii) misrepresenting or failing to disclose the risks associated with trading commodity futures and options; (iii) misappropriating investors' funds; and (iv) misrepresenting that Future-Comm is a CPO registered with the Commission.

28. Beginning in at least January 1997 and continuing through the present, Colton, while acting as a CTA has violated Section 4o(1) of the Act, 7 U.S.C. 6o(1) (1994), in that he directly or indirectly employed or is employing a device, scheme, or artifice to defraud investors or prospective investors, or has engaged or is engaging in transactions, practices or a course of business which operated as a fraud or deceit upon investors or prospective investors by using the mails or other means or instrumentalities of interstate commerce. His fraudulent acts include, but are not limited to: (i) misrepresenting that investors had achieved significant profits by investing in the Future-Comm pool; (ii) misrepresenting or failing to disclose the risks associated with trading commodity futures and options; (iii) misappropriating investors' funds; and (iv) misrepresenting that Future-Comm is a CPO registered with the Commission.

COUNT III

VIOLATIONS OF SECTION 4h OF THE ACT:

FALSE REPRESENTATIONS CONCERNING STATUS AS A

REGISTRANT UNDER THE ACT

29. Paragraphs 1 through 28 are re-alleged and incorporated herein.

30. Beginning in at least January 1997 and continuing through the present, Colton has violated Section 4h of the Act, 7 U.S.C. 6h, by falsely representing that Future-Comm is a CPO registered with the Commission.

COUNT IV

VIOLATIONS OF SECTION 4m OF THE ACT:

ACTING AS AN UNREGISTERED COMMODITY

POOL OPERATOR AND COMMODITY TRADING ADVISOR

31. Paragraphs 1 through 30 are re-alleged and incorporated herein.

32. Beginning in at least January 1997 and continuing through the present, Colton, while not registered with the Commission as a CPO and while not exempt from such registration, made use of the mails or other means or instrumentality of interstate commerce by soliciting, accepting or receiving funds from members of the public to participate in a commodity pool formed and operated for the purpose of trading commodity futures contracts on contract markets, all in violation of Section 4m(1) of the Act, 7 U.S.C. 6m(1) (1994).

33. Beginning in at least January 1997 and continuing through the present, Colton, while not registered with the Commission as a CTA and while not exempt from such registration, made use of the mails or other means or instrumentality of interstate commerce by engaging in the business for compensation or profit of advising others as to the value or the advisability of trading in any contract of sale of a commodity for future delivery made or to be made on or subject to the rules of a contract markets, in all in violation of Section 4m(1) of the Act, 7 U.S.C. 6m(1) (1994).

COUNT V

VIOLATIONS OF COMMISSION REGULATION 4.20:

MISHANDLING PROPERTY BY COMMODITY POOL OPERATORS

34. Paragraphs 1 through 33 are re-alleged and incorporated herein.

35. Pursuant to Commission Regulation 4.20(a), 17 C.F.R. 4.20(a) (1998), a CPO must operate its pool as an entity cognizable as a legal entity separate from that of the pool operator. Pursuant to Commission Regulation 4.20(b), 17 C.F.R. 4.20(b) (1998), 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. Pursuant to Commission Regulation 4.20(c), 17 C.F.R. 4.20(c) (1998), 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.

36. Colton failed to operate the Future-Comm pool as a separate legal entity, in violation of Commission Regulation 4.20(a), 17 C.F.R. 4.20(a) (1998).

37. Colton received or intended to receive funds for the pool in his own name, and not in the pool's name, in violation of Commission Regulation 4.20(b), 17 C.F.R. 4.20(b) (1998).

38. Colton commingled property of the pool with his own property or the property of others, in violation of Commission Regulation 4.20(c), 17 C.F.R. 4.20(c) (1998).

COUNT VI

VIOLATION OF COMMISSION REGULATION 4.30:

MISHANDLING PROPERTY BY COMMODITY TRADING ADVISORS

39. Paragraphs 1 through 38 are re-alleged and incorporated herein.

40. Pursuant to Commission Regulation 4.30, 17 C.F.R. 4.30 (1998), a CTA may not solicit, accept or receive from an existing or prospective client, funds in the trading advisor's name to purchase any commodity interest of the client.

41. Colton solicited, accepted and received funds from prospective clients in his own name, in violation of Commission Regulation 4.30, 17 C.F.R. 4.30 (1998).

VI.

RELIEF REQUESTED

WHEREFORE, Plaintiff respectfully requests that this Court, as authorized by Section 6c of the Act, 7U.S.C. 13a-1, and pursuant to its own equitable powers, enter:

A. An order of permanent injunction enjoining Colton and all persons insofar as they are acting in the capacity of agents, servants, employees, successors, assigns, or attorneys of Colton, and all persons insofar as they are acting in active concert or participation with Colton who receive actual notice of the Order by personal service or otherwise, from directly or indirectly:

1. Cheating or defrauding or attempting to cheat or defraud other persons, in or in connection with any order to make, or the making of, any contract of sale of any commodity for future delivery, made, or to be made, for or on behalf of any other person if such contract for future delivery is or may be used for (a) hedging any transaction in interstate commerce in such commodity or the products or byproducts thereof, or (b) determining the price basis of any transaction in interstate commerce in such commodity, or (c) delivering any such commodity sold, shipped, or received in interstate commerce for the fulfillment thereof, in violation of Section 4b(a)(i) of the Act, 7 U.S.C. 6b(a)(i) (1994);

2. Employing any device, scheme, or artifice to defraud any client or participant or prospective client or participant, or 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, by use of the mails or any means or instrumentality of interstate commerce, in violation of Section 4o(1) of the Act, 7 U.S.C. 6o(1) (1994);

3. Falsely representing that he is registered with the Commission, in violation of Section 4h of the Act, 7 U.S.C. 6h (1994);

4. Making use of the mails or any means or instrumentality of interstate commerce in connection with the business of a CPO or CTA unless registered with the Commission as such, in violation of Section 4m of the Act, 7 U.S.C. 6m (1994);

5. While acting as a commodity pool operator registered or required to be registered under the Act: (a) failing to operate any pool as an entity cognizable as a legal entity separate from that of the pool operator, in violation of Commission Regulation 4.20(a), 17 C.F.R. 4.20(a) (1998); (b) failing to receive in the pool's name all funds, securities or other property from an existing or prospective pool participant for the purchase of an interest or as an assessment (whether voluntary or involuntary) on an interest in any pool that it operates or that it intends to operate, in violation of Commission Regulation 4.20(b), 17 C.F.R. 4.20(b) (1998); and (c) commingling the property of any pool that it operates or that it intends to operate with the property of any other person, in violation of Commission Regulation 4.20(c), 17 C.F.R. 4.20(c) (1998);

6. While acting as a commodity trading advisor registered or required to be registered under the Act, soliciting, accepting or receiving from an existing or prospective client funds, securities or other property in the trading advisor's name, in violation of Commission Regulation 4.30, 17 C.F.R. 4.30 (1998);

7. Engaging in any commodity related activity, including soliciting new customers or customer funds;

B. An order requiring Colton to disgorge all benefits received from acts or practices which constitute violations of the Act as described herein, including pre-judgment interest;

C. An order requiring Colton to make restitution to every customer whose funds were received or utilized by them as a result of acts and practices which constituted violations of the Act, as described herein, including pre-judgment interest;

D. An order requiring Colton to pay civil penalties under the Act, in an amount of not more than the higher of $100,000 or triple his monetary gain for each violation of the Act committed prior to November 27, 1996, or $110,000 or triple his monetary gain for each violation of the Act committed after that date;

E. An order requiring Colton to pay costs and fees as permitted by 28 U.S.C. 1920 and 2412(a)(2) (1994); and

F. Such other equitable relief as the court may deem necessary or appropriate under the circumstances.

Date: December 16, 1998 Respectfully submitted,

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Jodi S. Siff, Trial Counsel
Daniel R. Salsburg, Esq.
Lawrence H. Norton, Associate Director
Commodity Futures Trading Commission
Division of Enforcement
Three Lafayette Centre
1155 21st Street, N.W.
Washington, D.C. 20581
(202) 418-5320
(202) 418-5523 (fax)
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