UNITED STATES OF AMERICA

Before the

COMMODITY FUTURES TRADING COMMISSION

________________________________________________
)
In the Matter of: ) CFTC DOCKET NO. 93-2
)
MARK B. FISHER, et. al., ) ORDER MAKING FINDINGS
) AND IMPOSING REMEDIAL

Respondents.

) SANCTIONS AS TO
) MICHAEL SINGER
________________________________________________ )

I.

On October 19, 1992, the Commodity Futures Trading Commission ("Commission") filed a Complaint and Notice of Hearing ("Complaint") alleging that Michael Singer, a floor broker on the Coffee, Sugar & Cocoa Exchange, Inc. ("CSCE"), engaged in trade practice violations in the execution of his customer orders as well as trades for himself in violation of Sections 4b(a)(i), 4b(a)(ii), 4b(a)(iii), 4b(a)(iv), 4c(a)(A) and 4c(a)(B) of the Commodity Exchange Act, as amended, 7 U.S.C. 6b(a)(i), 6b(a)(ii), 6b(a)(iii), 6b(a)(iv), 6c(a)(A) and 6c(a)(B), and Commission Regulation 1.38(a), 17 C.F.R. 1.38(a).1

II.

In order to dispose of the allegations and issues raised in the Complaint, Singer has submitted an Offer of Settlement ("Offer") which the Commission has determined to accept. Without admitting or denying the allegations of the Complaint or findings contained in this Order, Singer acknowledges service of this Order Making Findings and Imposing Sanctions ("Order"). Singer, solely by virtue of the Offer and for purposes of settling this proceeding, 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. Singer does not consent to the use of the Offer or this Order as the sole basis for any other proceeding brought by the Commission, except a proceeding to enforce this Order, or to the use of the Offer or this Order against him in any other proceeding by any other party. The findings contained in this Order are not binding on any other person or entity named as a defendant or respondent in this or any other proceeding.

III.

The Commission finds the following:

A. Respondent

Michael Singer ("Singer"), who resides at 5 Poillon Avenue, Staten Island, New York 10312, has, since at least 1983, been registered with the Commission as a floor broker pursuant to Sections 4e and 4f of the Act, 7 U.S.C. 6e and 6f, and a member of the Coffee, Sugar & Cocoa Exchange, Inc. ("CSCE"). During the period of the Complaint, Singer executed orders for Rosa Commodities, a CSCE member firm that operated a floor brokerage business on the CSCE, and he traded for his own account, primarily in sugar futures on the CSCE.

B. Facts

Since at least 1983, Singer has traded in sugar futures on the CSCE. By 1988, he both executed orders for customers of Rosa Commodities and traded for his own account primarily in sugar futures. From June 1, 1988 through September 14, 1988, in the course of his trading on the CSCE, Singer engaged in at least thirteen noncompetitive trade sequences opposite other floor brokers or local traders.

The noncompetitive trading in which he participated involved customer orders. Principally, Singer noncompetitively executed trades with other brokers and local traders to enable Singer to indirectly bucket his own customer orders.2 In nine of the thirteen noncompetitive trade sequences, Singer unlawfully traded opposite his own orders, while in three other sequences, Singer aided and abetted another broker to indirectly bucket his customer orders. In one sequence, Singer illegally offset two customer orders opposite the same broker at advantageous prices to the opposite trader. Finally, in two trade sequences, Singer, trading for himself, benefited from changes to the execution prices on customer orders.

C. Legal Discussion

Noncompetitive Trading

A broker who knowingly executes a customer's order noncompetitively violates Sections 4b(a)(i) and 4b(a)(iii) of the Act. See, e.g., In re Reddy, [Current Transfer Binder] Comm. Fut. L. Rep. (CCH) 27,271 (CFTC Feb. 4, 1998)(Commission affirms ALJ's findings that traders noncompetitively executing customer orders violated Sections 4b(a)(i) and 4b(a)(iii) of the Act); In re Murphy, [1984-1986 Transfer Binder] Comm. Fut. L. Rep. (CCH) 22,798 at 31,351 (CFTC Sept. 25, 1985); In re Julian Marks, 22 A.D. 761, 774 (1963).3 A commodities customer has the right to expect open and competitive execution of his order. As the Court stated in United States v. Ashman, 979 F.2d 469, 478 (7th Cir. 1992) (citations omitted),

The selection of prices without competition deprived customers...of a clear market opportunity to obtain the best price for their orders. It does not matter if the...customers were not harmed financially....[E]ven though the customers may not be entitled to any specific prices, deliberate refusal to pursue the best price the broker could obtain can constitute a scheme to defraud.

A trader who knowingly associates himself with a broker's noncompetitive trading scheme and seeks by his actions to make it succeed aids and abets violations of Section 4b(a) of the Act. In re Rousso, [Current Transfer Binder] Comm. Fut. L. Rep. (CCH) 27,133 at 45,309 (CFTC Aug. 20, 1997). In ten trade sequences charged in the Complaint, Singer noncompetitively executed his own customer orders, while in three he aided and abetted other brokers' noncompetitive handling of their customer orders. Therefore, Singer violated Section 4b(a) directly and as an aider and abettor pursuant to Section 13(a) of the Act, 7 U.S.C. 13c(a).

By trading noncompetitively, Singer also violated Section 1.38(a) of the Commission's Regulations, which requires all purchases and sales on or subject to the rules of a contract market to be "executed openly and competitively." 17 C.F.R. 1.38(a) (1996). In re Elliott, [Current Transfer Binder] Comm. Fut. L. Rep. (CCH) 27,243 at 46,004 and n.12 (CFTC Feb. 3, 1998).

Bucketing of Customer Orders

Section 4b(a)(iv) of the Act prohibits a broker from bucketing customer orders and trading opposite his customer orders without the prior consent of the customers. Bucketing customer orders consists of the broker taking the opposite side of a customer's order without bona fide execution in accordance with the rules of a contract market. In re Mayer, [Current Transfer Binder] Comm. Fut. L. Rep. (CCH) 27,259 at 46,137 (CFTC Feb. 3, 1998); In re Marks, 22 A.D. at 773-74.4 While brokers bucket orders for a variety of reasons, the most common reason is to obtain a better price for their personal trades. In nine trade sequences, Singer bucketed his own customer orders, and in three, he aided and abetted another broker to bucket his orders. Therefore, Singer violated Section 4b(a)(iv) of the Act.5

Price Changes

A broker who changes the execution price of a customer's order to benefit the opposite trader cheats and defrauds his customer in violation of Section 4b(a)(i) of the Act as well as deceives his customer in violation of Section 4b(a)(iii) . He also violates Section 4b(a)(ii) of the Act by willfully making or causing to be made false reports or statements regarding the execution of a customer's order. By changing the execution price on a customer order to benefit an opposite trader, the broker has willfully made or caused to be made a false report or statement in connection with the execution of that order. In re Murphy, [1984-1986 Transfer Binder] Comm. Fut. L. Rep. (CCH) 22,798 at 31,352 (CFTC Sept. 25, 1985). In addition, by illicitly changing the price on the original transaction, the broker has altered his records to reflect a transaction that did not, in fact, occur. In two trade sequences, Singer participated in and benefited from two price changes made to executed customer orders of other brokers. He thereby violated Section 4b(a)(ii) as well as Sections 4b(a)(i) and 4b(a)(iii) pursuant to Section 13(a) of the Act.

Fictitious Sales, Wash Sales and Accommodation Trades

Singer also violated Section 4c(a)(A) of the Act in three different respects. First, by noncompetitively executing trades in the trading ring, he engaged in "fictitious sales," which are prohibited by Section 4c(a)(A). "Such a transaction appears to be the result of open outcry but negates both the risk and price competition incident to an open outcry market." In re Gimbel, [1987-1990 Transfer Binder] Comm. Fut. L. Rep. (CCH) 24,213 at 35,003 (CFTC Apr. 14, 1988). Second, where the noncompetitive trades are engaged in to produce, and do produce, a financial nullity, they also violate Section 4c(a)(A)'s prohibition against "wash sales." In re Mayer, 27,259 at 46,134. Third, noncompetitive trading entered into by one trader to facilitate another trader in making trades prohibited by the Act or Regulations is "accommodation trading," which is also prohibited by Section 4c(a)(A). Id. at 46,137; Sundheimer v. Commodity Futures Trading Commission, 688 F.2d 150, 152 (2d Cir. 1982), aff'g, In re Sundheimer, [1980-1982 Transfer Binder] Comm. Fut. L. Rep (CCH) 21,245 (CFTC Sep. 16, 1981); In re Eisen, 22 A.D. 758 (1963).

Reporting Non Bona Fide Prices

Singer also violated Section 4c(a)(B) of the Act, which makes it unlawful to confirm the execution of any commodity futures transaction "if such transaction is used to cause any price to be reported, registered, or recorded which is not a true and bona fide price." Singer executed trades noncompetitively, and thus the prices that were reported were not bona fide. In re Gilchrist, [1990-1992 Transfer Binder] Comm. Fut. L. Rep. (CCH) 24,993 at 37,653 (CFTC Jan. 25, 1991).6

IV.

FINDINGS OF VIOLATIONS

Solely on the basis of the consent evidenced by the Offer, the Commission finds that Singer violated Sections 4b(a)(i), 4b(a)(ii), 4b(a)(iii), 4b(a)(iv), 4c(a)(A) and 4c(a)(B) of the Act, and Commission Regulation 1.38(a).

V.

OFFER OF SETTLEMENT

Singer has submitted an Offer of Settlement ("Offer") in which, without admitting or denying the findings herein, he:

1. Acknowledges service of the Order;

2. Admits the jurisdiction of the Commission with respect to the matters set forth in the Order;

3. Waives 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 in this proceeding of any order imposing a civil monetary penalty or any other relief; and all claims which Singer 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 Regulations, 17 C.F.R. 148.1, et seq., relating to, or arising from, this action; and he shall not assert any right under the Equal Access to Justice Act to seek costs, fees or other expenses relating to, or arising from this proceeding;

4. Stipulates that the record basis on which the Commission Order accepting this Offer may be entered consists solely of the Complaint, Order and the findings consented to in the Offer;

5. Consents to the Commission's issuance of this Order, which makes findings as set forth in this Order, and orders:

a. that Singer cease and desist from further violations of Sections 4b(a)(i), 4b(a)(ii), 4b(a)(iii), 4b(a)(iv), 4c(a)(A), and 4c(a)(B) of the Act, 7 U.S.C 6b(a)(i), 6b(a)(ii), 6b(a)(iii), 6b(a)(iv), 6c(a)(A), and 6c(a)(B)(1995), and Regulation 1.38(a), 17C.F.R. 1.38(a) (1996);

b. that Singer, beginning on the third Monday after the date of this Order, be prohibited for a period of five years from trading for his own account or for any account in which he has a direct or indirect interest, on any contract market, and all contract markets refuse Singer trading privileges for that period;

c. that Singer liquidate all futures and options positions held by him or on his behalf, or in which he has any beneficial interest, before the commencement of the denial of his trading privileges;

d. that Singer's registration with the Commission be revoked;

e. that Singer pay a civil monetary penalty of seventy-five thousand dollars ($75,000) within ten (10) days of the date of the Order, and that such payment be made by electronic funds transfer to the account of the Commodity Futures Trading Commission at the United States Treasury, or by U.S. postal money order, certified check, bank cashier's check or bank money order made payable the Commodity Futures Trading Commission and sent to Denese Posey, Division of Trading and Market, Commodity Futures Trading Commission, 1155 21st Street, N.W., Washington, D.C. 20581; and provided that if payment is not made in accordance with the requirements of this paragraph the Order shall be vacated and the proceeding reinstated as to Singer; and

f. that Singer shall comply with the undertakings set forth in his Offer; and

6. Agrees that the findings in this Order may be used in this proceeding and in any other proceeding brought by the Commission or to which the Commission is a party; provided, however, that Singer does not consent to the use of the Offer, the findings consented to in the Offer, or this Order as the sole basis for any other proceeding brought by the Commission.

Upon consideration, the Commission has determined to accept the Offer.

VI.

ORDER

Accordingly, it is hereby Ordered that:

1. Singer shall cease and desist from violating Sections 4b(a)(i), 4b(a)(ii), 4b(a)(iii), 4b(a)(iv), 4c(a)(A), and 4c(a)(B) of the Act, 7U.S.C. 6b(a)(i), 6b(a)(ii), 6b(a)(iii), 6b(a)(iv), 6c(a)(A), and 6c(a)(B), and Regulation 1.38(a), 17C.F.R. 1.38(a);

2. Singer, beginning on the third Monday after the date of this Order, shall be prohibited for a period of five years from trading for his own account or for any account in which he has a direct or indirect interest, on any contract market, and all contract markets shall refuse Singer trading privileges for that period;

3. Singer shall liquidate all futures and options positions held by him or on his behalf, or in which he has any beneficial interest, before the commencement of the denial of his trading privileges;

4. Singer shall pay a civil monetary penalty of seventy-five thousand dollars ($75,000), such payment to be made by electronic funds transfer to the account of the Commodity Futures Trading Commission at the United States Treasury, or by U.S. postal money order, certified check, bank cashier's check or bank money made payable to the Commodity Futures Trading commission and sent to Denese Posey, Division of Trading and Market, Commodity Futures Trading Commission, 1155 21st Street, N.W., Washington, D.C. 20581; and if payment is not made in accordance with the requirements of this paragraph the Order shall be vacated and the proceeding reinstated as to Singer;

5. Singer's registration shall be revoked; and

6. Singer shall comply with the following undertakings:

a. Neither Singer, nor any of his agents or employees under his authority or control, shall take any action or make any public statements denying, directly or indirectly, any allegation in the Order, or creating, or tending to create, the impression that the Order is without factual basis; provided, however, that nothing in this provision shall affect Singer's:

(1) testimonial obligations; or

(2) right to take legal positions in other proceedings to which the Commission is not a party.

b. Singer shall not apply for registration, or claim exemption from registration with the Commission, or act in any capacity requiring registration, or exemption from registration with the Commission.

By the Commission:

___________________________________
Jean A. Webb
Secretary to the Commission
Commodity Futures Trading Commission
Date: August 23, 1999 ___________________________________


NOTES:

1 All references to statutory provisions and to the Commission's regulations in this Order are to their current designation in the Act or the Regulations. The Complaint refers to different sections, because the statutory provisions referred to herein had different section designations in the Act at the time the Complaint was filed. The pertinent sections of the Act were renumbered without substantive change by the Futures Trading Practices Act of 1992, H.R. 707, 102 Cong., 2d Sess., P.L. 102-546 (enacted Oct. 28, 1992).

2 Brokers generally participate in indirect bucketing of orders to obtain better prices on trades for their own account. It is not the motive for the conduct, however, that makes it improper. Noncompetitive trading, bucketing, illegal offsets, fraudulent price changes, fictitious sales, wash sales and accommodation trading are all illegal whatever the motive. See In re Gilchrist, [1990-1992 Transfer Binder] Comm. Fut. L. Rep. (CCH) 24,993 at 37,652 (CFTC Jan. 25, 1991).

3 Noncompetitive trading consists of the use of trading techniques, such as prearrangement, which negate the risk or price competition incident to an open, competitive market. See In re Bear Stearns, [1990-1992 Transfer Binder] Comm. Fut. L. Rep. (CCH) 24,994 at 37,662 (CFTC Jan. 25, 1991).

4 A broker can bucket an order either directly, or, as Singer did here, indirectly through an accommodating broker. In an indirect bucket, the broker executes the customer order opposite another trader and then executes an opposite transaction with the same trader for his own account. As long as the order is not submitted for competitive bidding, a transaction is a bucket even if the orders are executed on the exchange floor.

5 Singer also committed the separate violation of Section 4b(a)(iv) of filling an "order by offset against the order or orders of any other person...." Unless done pursuant to exchange rules, a broker's use of one customer's order to fill the order of another customer violates Section 4b(a)(iv) of the Act, whether done directly or indirectly. Nichols v. Secretary of Agriculture, 136 F.2d 503, 504 (1st Cir. 1943); see also In re Sennott, 25 A.D. 18, 19-21 (1966); In re Joseph Crilly, 20 A.D. 178, 181-82 (1961).

6 The prices reported for noncompetitive trades violate Section 4c(a)(B) even if they accurately reflect the prices agreed upon by the parties and the current price in the market. See In re Gilchrist, 24,993 at 37,653 n.25.