UNITED STATES OF AMERICA
COMMODITY FUTURES TRADING COMMISSION
|In the Matter of||)||CIVIL DOCKET NO. 99-13|
|ROSS GODRES||)||ORDER INSTITUTING PROCEEDINGS|
|601 East Dounce Street||)||PURSUANT TO SECTIONS 6(c) AND 6(d)|
|Lafayette, Colorado 80026,||)||OF THE COMMODITY EXCHANGE ACT|
|)||AND FINDINGS AND ORDER IMPOSING|
The Commodity Futures Trading Commission ("Commission") has reason to believe that Ross Godres ("Respondent" or "Godres") has violated Sections 4b(a)(i), 4b(a)(ii) and 4o(1) of the Commodity Exchange Act, as amended ("Act"), 7 U.S.C. §§ 6b(a)(i), 6b(a)(ii) and 6o(1) (1994) and Commission Regulation 4.13(b)(2)(i), 17 C.F.R. § 4.13(b)(2)(i) (1998). Therefore, the Commission deems it appropriate and in the public interest that a public administrative proceeding be, and hereby is, instituted to determine whether Godres engaged in the violations as set forth herein and to determine whether any order should be issued imposing remedial sanctions.
In anticipation of the institution of this administrative proceeding, Godres has submitted an Offer of Settlement ("Offer") that the Commission has determined to accept. Without admitting or denying the findings herein, Godres acknowledges service of this Order Instituting Proceedings Pursuant to Sections 6(c) and 6(d) of the Commodity Exchange Act and Findings and Order Imposing Remedial Sanctions ("Order"). Godres consents to the use of the findings herein 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 May 1993 through at least May 1996 (the "relevant time"), Godres managed and was the only general partner of a Colorado limited partnership, Navco Precious Metals Fund, Ltd. ("Navco" or the "Fund"), a commodity pool with five investors and gross capital contributions in excess of $60,000. Godres began trading precious metals futures contracts on behalf of the Fund on June 30, 1993. Within a year, he lost almost all of the Fund's assets.
During the relevant time, Godres concealed losses from the Fund's participants. He verbally misrepresented to them that their investments were secure and sent them sporadic falsified statements representing that their investments were still intact. Finally, in June 1996, Godres began notifying the participants that he had lost virtually all of the Fund's assets through futures trading.
Respondent Ross Godres, fifty years old, whose address is 601 Dounce Street, Lafayette, Colorado 80026, has never been registered with the Commission in any capacity. On May 18, 1993, Godres filed with the Commission copies of a written statement that he provided to Fund participants, pursuant to Commission Regulation 4.13(a)(2), 17 C.F.R. § 4.13(a)(2) (1998), stating that he was exempt from registration with the Commission as a commodity pool operator ("CPO") because the Fund was the only pool he operated and it had gross capital contributions of less than $200,000 and less than 15 participants.
Navco was a commodity pool formed by Godres as a limited partnership under Colorado law on May 3, 1993. According to the Fund's Disclosure Statement, the Fund functioned as a commodity investment pool that sought to achieve capital appreciation through the purchase and sale of precious metal futures. Throughout the spring of 1993, Godres solicited clients of his previous metal bullion business to participate in the Fund. Godres successfully solicited approximately $60,750 for the Fund from five investors.
Godres opened a commodity trading account in the Fund's name (the "account") at Jack Carl/312 Futures ("Jack Carl"), a registered futures commission merchant at the time. He initially deposited $20,000 into the account, on June 30, 1993. A total of approximately $60,750 was deposited into the account over a one year period. Godres traded precious metal futures contracts through the account on behalf of the Fund. Godres lost almost all of the pool's assets within a year through unsuccessful futures trading. On June 1, 1994, he closed the account with a final balance of $531.99.
During the relevant time, Godres concealed the losses from Fund participants and verbally misrepresented to them in person and over the phone that their pool funds were secure. In addition, he drafted and mailed sporadic monthly pool statements to Fund participants that falsely omitted the losses and stated that their investments were substantially intact. None of these statements matched the actual trading results reflected in the statements Godres received for the account from Jack Carl.
From approximately September 1993 through June 1994, Godres attempted to recoup the pool's losses by trading futures contracts through his personal account at Vision Limited Partnership, a registered futures commission merchant. However, his attempts were unsuccessful, and Godres continued to send sporadic falsified statements and verbally to misrepresent the status of the Fund to participants until at least May 1996. Finally, in June 1996, Godres began notifying pool participants that he had lost the Fund's assets trading futures. Godres did not return any money to Fund participants.
D. VIOLATIONS OF THE ACT AND COMMISSION REGULATIONS
1. Godres Cheated and Defrauded Pool Participants
Section 4b(a)(i) of the Act prohibits cheating or defrauding or attempting to cheat or defraud other persons in connection with commodity futures trading. Godres violated Section 4b(a)(i) by purposefully failing to notify pool participants that he lost their investments trading commodity futures and by intentionally misrepresenting to them the true value of pool assets, both verbally and in written account statements. Section 4b(a)(ii) of the Act prohibits willfully making or causing to be made false reports or statements thereof concerning futures trading to other persons. Godres violated Section 4b(a)(ii) of the Act because he mailed statements to pool participants in which he knowingly omitted actual trading losses and falsely represented the true financial condition of the pool. See CFTC v. Commonwealth Financial Group, Inc., 874 F. Supp. 1345, 1353-54 (S.D. Fla. 1994)(material omissions constitute violations of Section 4b of the Act).
2. As A CPO, Godres Cheated and Defrauded Pool Participants By Use Of The Mails And Engaged in Activities Which Operated As A Fraud Upon Them
A CPO is "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." Section 1a(4) of the Act, 7 U.S.C. § 1a(4) (1994). Godres acted as a CPO of the Fund throughout the relevant time.
Even though it appears that Godres was entitled to the exemption from registration with the Commission that he claimed in May 1993, Section 4o(1)(A) of the Act makes it unlawful for a CPO, whether required to be registered or not, to employ any device, scheme or artifice to defraud any participant or prospective participant by use of the mails or any means or instrumentality of interstate commerce. Similarly, Section 4o(1)(B) of the Act prohibits a CPO, whether required to be registered or not, from directly or indirectly engaging in any practice or course of business which operates as a fraud or deceit upon any client or participant by the use of the mails or any means or instrumentality of interstate commerce. See Damiani v. Futures Investment Co., Inc., [1980-82 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 21,097 (CFTC Sept. 3, 1980) (respondent, who was not a registrant but whose activities brought him within the definition of a CTA, violated Sections 4b and 4o by misrepresenting how plaintiff's funds would be invested); CFTC v. Skorupskas, 605 F. Supp. 923, 930-33 (E.D. Mich. 1985) (defendant, who was not registered as a CPO but acted as such, violated Section 4o(1) by reporting profits when there were only losses). See also Commission Regulation 4.15, 17 C.F.R. § 4.15 (1998).
The same conduct that constitutes violations of Section 4b can constitute violations of Section 4o(1). Skorupskas, 605 F. Supp at 932-33. See also Hirk v. Agri-Research Council, Inc., 561 F.2d 96, 103-04 (7th Cir. 1977) (fraudulent inducement covered by both Sections 4b and 4o of the Act). During the relevant time, Godres violated Section 4o(1) of the Act by virtue of the same fraudulent acts and misrepresentations discussed above that violated Section 4b.
3. Godres Failed to Furnish Statements to Participants that Clearly Showed Profits and Losses
Commission Regulation 4.13(b)(2)(i) requires that CPOs, who are exempt from registration and not registered, promptly furnish to each pool participant a copy of the monthly statement for the pool received from a futures commission merchant, and a supplemental statement if necessary, that clearly shows the net profit or loss of all commodity interests closed since the last monthly statement. Godres violated Commission Regulation 4.13(b)(2)(i) because, as a person exempt from registration and not registered, he failed to provide pool participants with such regular and accurate monthly statements for the Fund during the relevant time.
OFFER OF SETTLEMENT
Godres has submitted an Offer of Settlement in which, without admitting or denying the findings herein, he: (1) acknowledges service of this Order; (2) admits the jurisdiction of the Commission with respect to the matters set forth herein; (3) waives 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, §§ 231-232, 110 Stat. 862-63, and part 148 of the Commission's Regulations, 17 C.F.R. §§ 148.1, et seq (1998), relating to, or arising from, this action and 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; (4) stipulates that the record basis on which this Order may be entered shall consist solely of the findings in this Order to which he has consented in the Offer; and (5) consents to the Commission's issuance of this Order, which makes findings and orders that: (a) Godres cease and desist from violating Sections 4b(a)(i), 4b(a)(ii) and 4o(1) of the Act and Commission Regulation 4.13(b)(2)(i); (b) Godres be permanently prohibited from trading on or subject to the rules of any contract market, and directs all contract markets to refuse Godres trading privileges, beginning the third Monday after the date of this Order; (c) Godres liquidate all futures and options on futures positions held by him or on his behalf, or in which he has any beneficial interest, before commencement of the denial of his trading privileges; (d) Godres pay a total of $60,750 restitution to participants in the Fund, plus pre-judgment interest thereon, in accordance with the terms set forth below; and (e) Godres comply with his undertakings set forth in the Offer: (1) never to seek registration or exemption from registration with the Commission and never to engage in any activity requiring registration or exemption from registration; and (2) not to take any action or make any statement denying, directly or indirectly, any statement in this Order or creating or tending to create the impression that the Order is without a factual basis.
FINDING OF VIOLATIONS
Solely on the basis of Godres' consent, as evidenced by the Offer, and without any adjudication on the merits, the Commission finds that Godres violated Sections 4b(a)(i), 4b(a)(ii) and 4o(1) of the Act, 7 U.S.C §§ 6b(a)(i), 6b(a)(ii) and 6o(1)(1994), and Commission Regulation 4.13(b)(2)(i), 17 C.F.R. § 4.13(b)(2)(i) (1998).
Accordingly, IT IS HEREBY ORDERED THAT:
1. Godres shall cease and desist from violating Sections 4b(a)(i), 4b(a)(ii) and 4o(1) of the Act and Commission Regulation 4.13(b)(2)(i);
2. Beginning on the third Monday after the date of this Order, Godres shall be prohibited from trading on or subject to the rules of any contract market, and all contract markets shall refuse Godres trading privileges;
3. Godres shall liquidate all futures and options held by him or on his behalf, or in which he has any beneficial interest, before commencement of the denial of his trading privileges;
4. Godres shall pay restitution in the amount of $60,750, plus pre-judgment interest thereon, to the five individual participants in Navco Precious Metals Fund, Ltd. Within ninety days of the date of this Order, Godres shall make payments totaling $6,000 to the participants to be distributed in accordance with Exhibit A, attached hereto. Godres shall provide the Commission's Division of Enforcement ("Division") in Chicago with copies of the checks or other documents evidencing that such payments were made. Godres shall pay the remainder of the restitution as follows: Godres 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 Payment"), starting in calendar year 2000 and continuing for five (5) years thereafter (or until his obligation to make the Annual Payment is discharged if that happens
first).2 Such funds shall be distributed as restitution payments to the participants identified in Exhibit A to this Order in the amounts calculated by the Monitor. The amount of Godres' Annual Payment shall consist of a portion of (1) the adjusted gross income (as defined by the Internal Revenue Code) earned or received by Godres 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 received by Godres 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 Godres to Participants is:|
|Equal to or exceeding $50,000 up to and including $99,999||30% of the amount from $50,000 through $99,999|
|Equal to or exceeding $100,000||40% of the $100,000 and the amount over $100,000|
5. Based upon Godres' sworn representations in his Financial Disclosure Statements dated May 9, 1998 and December 20, 1998, and other evidence provided by Godres regarding his financial condition, the Commission is not ordering him to pay a civil monetary penalty. The determination not to impose a civil monetary penalty is based upon the accuracy and completeness of his Financial Disclosure Statements and the other evidence provided by Godres regarding his financial condition. If at any time following the entry of this Order, the Division of Enforcement of the Commission obtains information indicating that Godres' representations concerning his 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 Godres 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 Godres' Offer had not been accepted. No other issues shall be considered in connection with this petition other than whether the financial information provided by Godres 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. Godres 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; and
6. Godres shall comply with the following undertakings:
A. Reporting/Disclosure Requirements to be Reviewed by Monitor. Godres shall provide his sworn financial statement to the Monitor on June 30 and December 31 of each calendar year, starting December 31, 1999, and continuing through and including December 31, 2004. The financial statement shall provide:
i. a true and complete itemization of all of Godres' rights, title and interest in (or claimed in) any asset, wherever, however and by whomever held;
ii. an itemization, description and explanation of all transfers of assets with a value of $1,000 or more made by or on behalf of Godres over the preceding six-month interval; and
iii. a detailed description of the source and amount of all of Godres' income or earnings, however generated.
Godres shall also provide the Monitor with complete copies of his signed federal income tax return, including all schedules and attachments thereto (e.g., IRS Forms W-2) and Forms 1099, as well as any filings he is required to submit to any state tax or revenue authority, on or before June 30 of each calendar year, or as soon thereafter as the same are filed. If Godres moves his residence at any time, he shall provide written notice of his new address to the Monitor and the Commission within ten (10) calendar days thereof.
B. Cooperation. Godres shall cooperate fully and expeditiously with the Monitor and the Commission in carrying out all aspects of his restitution Annual Payment. He shall cooperate fully with the Monitor and the Commission in explaining his financial income and earnings, status of assets, financial statements, asset transfers, tax returns, and shall provide any information concerning himself as may be required by the Commission. Furthermore, Godres shall provide such additional information and documents with respect thereto as may be requested by the Monitor or the Commission.
C. Fraudulent Transfers. Godres shall not transfer or cause others to transfer funds or other property to the custody, possession, or control of any member of Godres' family or any other person for the purpose of concealing such funds or property from the Monitor or the Commission.
D. Registration With The Commission. Godres 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 an agent or officer of any person registered, exempted from registration or required to be registered with the Commission; and
E. Public Statements. As stated in Section II, in submitting his Offer, Godres neither admits nor denies the findings in this Order. By this language, Godres agrees not to take any action or make any public statement denying, directly or indirectly, any finding 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 affects Godres' testimonial obligations, or right to take legal positions, in other non-Commission litigation. Godres understands and agrees that the Commission's acceptance of this Offer is conditioned upon his compliance with this agreement in statements made by Godres and/or by his agents and employees acting under his authority or control. Godres will undertake all steps necessary to assure that all of his agents and employees understand and comply with this agreement.
Unless otherwise specified, the provisions of this Order shall be effective on this date. A copy of this Order shall be served on Godres at the address set forth in the caption of this Order, on all contract markets, and on the National Futures Association.
By the Commission:
|Secretary to the Commission|
|Commodity Futures Trading Commission|
|Date: June 28, 1999||___________________________________|
ROSS GODRES INITIAL RESTITUTIONARY DISTRIBUTION
|Pool Investor||Investments Received By Godres||Percentage Of Total Investments||Distribution (Percentage of $6,000)|
|Estate of Barton, Ronald||
1 Respondent does not consent to the use of the Offer or this Order as the sole basis for any other proceeding brought by the Commission other than a proceeding to enforce the terms of this Order, nor does Respondent consent to the use of the Offer, or the findings in the Order consented to in the Offer, by any other person or entity in this or 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 any other proceeding.
2 The National Futures Association is hereby designated as the Monitor for a period of six (6) years from the date of entry of this Order. 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. Based on the information contained in Godres' 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 to be paid by Godres for that year and the specific amounts payable to each of the pool participants identified in Exhibit A. For five years, on or before July 31 of each year and starting in calendar year 2000, the Monitor shall send written notice to Godres with instructions to pay immediately the amount of restitution to an account designated by the Monitor. The Monitor shall then disburse any restitution payments to the participants listed in Exhibit A in the appropriate amounts.