IN THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF TEXAS

SAN ANTONIO DIVISION

___________________________________________
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COMMODITY FUTURES TRADING ) CIVIL ACTION NO. SA99CA0684
COMMISSION, )
Plaintiff, )
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v. )
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KENT C. CALHOUN, individually, as an )
agent of or doing business as KCI, )

Defendant.

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___________________________________________ )

COMPLAINT FOR INJUNCTIVE AND OTHER EQUITABLE RELIEF AND FOR
CIVIL PENALTIES UNDER THE COMMODITY EXCHANGE ACT

I. SUMMARY

1. From at least June 1995 and continuing through the present, the Defendant, Kent C. Calhoun individually, as an agent of or doing business as KCI ("Calhoun"), while acting as a commodity trading advisor ("CTA"), has solicited customers to purchase his commodity trading systems and attend his commodity trading training seminars through national advertisements. In those advertisements, Calhoun includes false and misleading statements that represent and/or imply that the Commodity Futures Trading Commission ("CFTC" or "Commission") has documented, verified or otherwise passed upon the success of his trading systems and/or the accuracy of his advertisements for such trading systems. By such false and misleading statements, Calhoun also implies that the Commission has in some manner recommended or approved Calhoun as a CTA, or otherwise passed upon his abilities or qualifications as a CTA.

2. The CFTC does not verify or otherwise pass upon commodity trading results or commodity trading systems and has not in any manner passed upon the effectiveness or profitability of Calhoun's trading systems or the accuracy of any advertisements he has disseminated touting these systems. The Commission also does not recommend or approve CTAs or otherwise pass upon their qualifications or abilities as CTA and has not done so in connection with Calhoun or KCI.

3. Thus Calhoun has engaged, is engaging, and is about to engage in acts and practices which violate Sections 4b(a)(i) and 4o (1) of the Commodity Exchange Act, as amended ("Act"), 7U.S.C. 6b(a)(i) and 6o(1) (1994), and Commission Regulations 4.16 and 4.41, 17 C.F.R. 4.16 and 4.41 (1998).

4. Accordingly, pursuant to Section 6c of the Act, 7U.S.C. 13a-1 (1994), Plaintiff CFTC 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 restitution, an accounting, disgorgement and such other equitable relief as the Court may deem necessary or appropriate.

5. Given Calhoun's pattern of fraudulent activity, unless restrained and enjoined by this Court, Calhoun 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, 7U.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, 7U.S.C. 13a-1(e) (1994), in that Calhoun 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 of administering and enforcing the provisions of the Act, 7U.S.C. 1 et seq. (1994), and the Regulations promulgated under it, 17C.F.R. 1 et seq. (1998).

9. Kent C. Calhoun resides at Canyon Springs Ranch, 111 Cave Spring Drive, Hunt, Texas 78024, and is either the owner or principal agent of the unincorporated sole proprietorship, "KCI". Calhoun has not been registered with the Commission in any capacity since July 1983 when he was registered as a CTA.

IV. FACTS

10. Section 1a(5)(A) of the Act, 7 U.S.C. 1a(5)(A), defines CTA as any person who, for compensation or profit, engages in the business of advising others as to the value 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; or (iii) any leverage transaction authorized under Section 19 of the Act, 7 U.S.C. 23; 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.

11. From at least June 1995, and continuing to the present, Calhoun has acted as a CTA offering commodity trading advice for compensation to members of the public through commodity trading systems, seminars, videotapes, and trading manuals that Calhoun produces or causes to be produced while conducting business under the name of KCI.

12. From on or about June 1995 through at least January 1999, Calhoun willfully placed advertisements in Futures magazine, a monthly commodity futures industry publication, in connection with orders to make, or the making of, contracts of sale of commodities for future delivery in interstate commerce. The advertisements contain the following statements, among others:

(a) "KCI is documenting claims in this ad to the CFTC May 25, 1995 in Federal District Court! Kent Calhoun is being legally documented as 'the most accurate time and price projection technical analyst who has ever lived.'" Futures (June 1995) (Bold in original).

(b) "KCI documented most ads [sic] claims to the CFTC May 25, 1995 in Federal Court.... Two weeks after the deposition, a CFTC attorney, who stated he had been a floor trader, called KCI for a copy of the KCI Stock & Commodity Technical Trading Manual." Futures (May 1996) (Bold in original).

(c) "Most ads overstate results citing only their test figures. KCI ads state legal CFTC documented facts from independent testing.... KCI advertising statements from 1987 to 1995 documented [sic] to the CFTC in Federal Court." Futures (June 1996) (Bold and Italics in original).

(d) "KCI ads state legal CFTC documented facts from independent testing.... KCI advertising statements from 1987 to 1995 documented to the CFTC in Federal Court." Futures (July 1996) (Bold in original).

(e) "The CFTC has verified 92% of KCI traders profitable in 1994.... Every KCI ad statement 1987 to 1995 was verified to the CFTC." Futures (July 1998) (Bold and Italics in original).

(f) "92% [sic] KCI clients make money (CFTC 1994) most traders lose money - why?... KCI is the only vendor documented by the CFTC 1- every ad statement 1987 to 1995 as truthful, 2- over $350,000 spent on independent testing, 3-clients names, addresses and phone numbers provided after three years of trading 4- a full refund guarantee on software, seminar, and $10,000 video guarantee." Futures (January 1999) (Bold and Italics in original).

13. On information and belief, Calhoun engaged in a direct mailing campaign in connection with orders to make, or the making of, contracts of sale of commodities for future delivery in interstate commerce by mailing out approximately 6,100 letters to customers and potential customers between on or about August 1998 and December 1998. In at least one such letter, dated December 15, 1998, which is believed to have been sent to numerous customers and potential customers, Calhoun willfully asserts that the "CFTC verified 92% of KCI attendees were profitable traders in 1994 ...." ("December 15, 1998 statement").

14. The CFTC does not verify, endorse or otherwise pass upon the adequacy, accuracy or success of any trading advice, system or methodology and has not done so with respect to Calhoun, KCI, the trading activities of any of Calhoun's alleged customers, or any of Calhoun's trading advice, systems or methodologies. The CFTC does not pass upon the truthfulness or accuracy of any advertisements for commodity trading advice, systems or methodologies and has not done so with respect to any of Calhoun's advertisements. The CFTC also does not recommend or approve CTAs or otherwise pass upon their abilities or qualifications and has not done so in connection with Calhoun or KCI.

15. The statements in paragraph 12 (a) - (f) are false and/or misleading.

16. The December 15, 1998 statement, set forth in paragraph 13, is false and/or misleading.

V. VIOLATIONS OF THE COMMODITY EXCHANGE
ACT AND REGULATIONS THEREUNDER

COUNT I

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

FRAUD THROUGH MISREPRESENTATIONS AND OMISSIONS OF MATERIAL FACTS

17. Paragraphs 1 through 16 are re-alleged and incorporated herein.

18. Beginning in at least June 1995 and continuing through the present, Calhoun violated Section 4b(a)(i) of the Act, 7U.S.C. 6b(a)(i), in that he willfully cheated or defrauded or attempted to cheat or defraud other persons by, among other things, making material misrepresentations and omissions of fact when he solicited customers through advertisements which would lead a reasonable customer to believe, inter alia, that:

(a) Calhoun "legally documented" or substantiated to the CFTC or a federal district court that he is the most accurate time and price projection technical analyst who has ever lived, when he had not;

(b) Calhoun provided documentation substantiating his previously advertised claims of profitability, among other things, to the CFTC and a federal district court, when he had not;

(c) a CFTC attorney expressed a personal interest in obtaining Calhoun's commodity trading systems for his own use, when the attorney had not;

(d) Calhoun's advertisements included facts about, among other things, the success and profitability of his commodity trading systems, the accuracy of which was either documented or verified by the CFTC, when they were not;

(e) the CFTC verified the profitability of individuals who allegedly used Calhoun's commodity trading systems, when it did not;

(f) the CFTC documented, verified, validated or substantiated the truthfulness of Calhoun's advertisements, the expenditures allegedly incurred by Calhoun in testing and/or developing his commodity trading systems, or the authenticity of Calhoun's guarantee or refund policy, when it had not; and

(g) the CFTC otherwise passed upon Calhoun's trading advice, trading systems or advertisements and/or recommended or approved Calhoun or otherwise passed upon his abilities and qualifications as a CTA, when it had not.

19. Calhoun engaged in this conduct 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

VIOLATION OF SECTION 4o OF THE ACT:

FRAUD AS A CTA

20. Paragraphs 1 through 19 are re-alleged and incorporated herein.

21. Beginning in at least June 1995 and continuing through the present, Calhoun, while acting as a CTA, violated Section 4o(1) of the Act, 7 U.S.C. 6o(1), in that Calhoun directly or indirectly employed or is employing a device, scheme, or artifice to defraud customers or prospective customers, or has engaged or is engaged in transactions, practices or a course of business which operated or operates as a fraud or deceit upon customers or prospective customers by using the mails or other means or instrumentalities of interstate commerce. Calhoun's fraudulent acts consisted of, among other things, making the material misrepresentations and omissions of fact in the solicitation of customers through advertisements which would lead a reasonable customer to believe, inter alia, the facts set forth in paragraph 18 (a)-(g), above.

COUNT III

VIOLATION OF COMMISSION REGULATION 4.16:

PROHIBITED REFERENCES TO THE COMMISSION

22. Paragraphs 1 through 21 are re-alleged and incorporated herein.

23. Pursuant to Commission Regulation 4.16, 17 C.F.R. 4.16, it shall be unlawful for a CTA to represent or imply in any manner whatsoever that it has been sponsored, recommended or approved, or that its abilities or qualifications have in any respect been passed upon, by the Commission, the Federal government or any agency thereof.

24. From at least June 1995 and continuing through the present, Calhoun, while acting as a CTA, represented either directly or through implication in advertisements that Calhoun or his commodity trading systems, seminars and other products and services have been "... sponsored, recommended or approved, [and/] or that [his] abilities or qualifications, [or those of his systems] have been passed upon, by the Commission" when they have not.

COUNT IV

VIOLATION OF COMMISSION REGULATION 4.41:

FRAUDULENT ADVERTISING AS A CTA

25. Paragraphs 1 through 24 are re-alleged and incorporated herein.

26. Pursuant to Commission Regulation 4.41(a), 17 C.F.R. 4.41(a), no CTA may advertise through any publication, distribution or broadcast of any report, letter, circular, memorandum, publication, writing, advertisement, or other literature or advice in a manner which employs any device, scheme or artifice to defraud any participant or client or prospective participant or client, or where such advertising involves any transaction, practice or course of business which operates as a fraud or deceit upon any participant or client or any prospective participant or client.

27. From at least June 1995 and continuing through the present, Calhoun, while acting as a CTA, violated Commission Regulation 4.41(a), 17 C.F.R. 4.41(a), in that he misrepresented and failed to disclose material facts in advertisements in Futures magazine, and on information and belief, at least one direct-mail campaign, in a manner which constituted a device, scheme or artifice to defraud prospective customers or a practice or course of business which operated as a fraud or deceit on prospective customers, to the extent that statements made in these advertisements would lead a reasonable customer to believe, inter alia, the facts set forth in paragraph 18 (a)-(g), above.

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 Calhoun and all persons insofar as they are acting in the capacity of agents, servants, employees, successors, assigns, or attorneys of Calhoun and all persons insofar as they are acting in active concert or participation with Calhoun 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, 7U.S.C. 6b(a)(i);

2. Employing any device, scheme, or artifice to defraud any client or prospective client, or engaging in any transaction, practice, or course of business which operates as a fraud or deceit upon any client or prospective client, 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);

3. Representing or implying in any manner whatsoever that Calhoun has been sponsored, recommended or approved, or that Calhoun's abilities or qualifications or those of Calhoun's commodity trading systems, seminars or other products have in any respect been passed upon by the Commission, the Federal government or any agency thereof, in violation of Regulation 4.16, 17 C.F.R. 4.16; and

4. While acting as a CTA, advertising in a manner which: (1) employs any device, scheme or artifice to defraud any client or prospective client; or (2) involves any transaction, practice or course of business which operates as a fraud or deceit upon any client or prospective client, in violation of Regulation 4.41(a), 17 C.F.R. 4.41(a).

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

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

D. An order directing that Calhoun make an accounting to the court of all his assets and liabilities, together with all the funds he received from persons in connection with the sale of his commodity trading systems, seminars, commodity trading manual, and/or video, including the names, addresses and telephone numbers of any such persons from whom he received such funds, from June 1995 to and including the date of such accounting;

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

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

Date: June 29, 1999

Respectfully submitted,

DESIGNATED LOCAL COUNSEL ATTORNEYS FOR PLAINTIFF
JAMES WILLIAM BLAGG David L. Oppenheim

United States Attorney

Trial Attorney
Oklahoma Bar No. 015961
RAYMOND A. NOWAK
Assistant United States Attorney Elizabeth M. Streit
Senior Trial Attorney
601 N.W. Loop 410, Suite 600 Illinois ARDC No. 6188119
San Antonio, Texas 78216
(210) 384-7305 Susan A. Berkowitz
(210) 384-7312 facsimile Regional Counsel
Illinois ARDC No. 6185164
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COMMODITY FUTURES TRADING COMMISSION
300 South Riverside Plaza, Suite 1600N
Chicago, IL 60606-6615
(312) 886-6144 (Oppenheim)
(312) 353-2200 (Streit)
(312) 886-3090 (Berkowitz)
(312) 353-4502 (facsimile)