UNITED STATES OF AMERICA
COMMODITY FUTURES TRADING COMMISSION
|In the Matter of:||)||CIVIL Docket No. 99-7|
|DUNHILL FINANCIAL GROUP, INC.,||)||ORDER MAKING FINDINGS|
|MARK HUTCHERSON,||)||AND IMPOSING REMEDIAL|
|KEVIN JACKAM,||)||SANCTIONS AS TO RESPONDENTS|
|NEW MILLENNIUM PROMOTIONS,||)||NEW MILLENNIUM PROMOTIONS|
|MICHAEL THOMAS, and||)||AND MICHAEL THOMAS|
|FORREST DAYTON, JR.,||)|
On March 4, 1999, the Commodity Futures Trading Commission ("Commission") filed a Complaint and Notice of Hearing ("Complaint") against New Millennium Promotions ("NMP") and Michael Thomas ("Thomas"), among others. The four-count Complaint charges, inter alia, that NMP violated Section 4d(1) of the Commodity Exchange Act, as amended ("Act"), 7 U.S.C. §6d(1)(1994), and Section 166.3 of the Commission's Regulations ("Regulations"), 17 C.F.R. §166.3 (1998); and Thomas violated Section 4k(1) of the Act, 7 U.S.C. §6k(1) (1994) and Sections 3.12(a), 17 C.F.R. §§3.12 (1998), and 166.3 of the Commission's Regulations.
In order to dispose of the allegations and issues raised in the Complaint, NMP and Thomas submitted a Joint Offer of Settlement ("Offer") which the Commission has determined to accept. Without admitting or denying any of the allegations of the Complaint or the findings herein, and prior to any adjudication on the merits, NMP and Thomas acknowledge service of this Order Making Findings and Imposing Remedial Sanctions as to Respondents NMP and Thomas ("Order"). NMP and Thomas consent 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.1
The Commission finds the following:
In June 1997, Dunhill Financial Group, Inc. ("Dunhill"), a registered introducing broker ("IB"), contracted with NMP to solicit prospective customers over the Internet in order to generate interested prospects for Dunhill associated persons ("APs") to solicit by telephone for futures and options trading. Thus, NMP was required to be registered as an IB, but was not.
Thomas, the owner and sole employee of NMP, was responsible for soliciting prospective customers over the Internet on behalf of Dunhill. Thomas contracted with Forrest Dayton, Jr. ("Dayton") to send these advertisements and purported to supervise Dayton's work. Thus, Thomas was required to be registered as an AP of NMP, but was not.
Finally, NMP and Thomas each failed in their duties to supervise diligently Dayton's work and to review the advertisements prior to their being sent over the Internet. NMP and Thomas thereby violated Section 166.3 of the Regulations.
New Millennium Promotions is a Georgia corporation located at 4957 Overlook View Court, Duluth, Georgia 30096. NMP has never been registered with the Commission in any capacity.
Michael Thomas, who resides at 4957 Overlook View Court, Duluth, Georgia 30096, is the owner and sole employee of NMP. Thomas was formerly an AP and principal of Dunhill, but was not registered in any capacity from July 1997 through September 10, 1998.
1. NMP Acted as an Introducing Broker Without Registration
In June 1997, Dunhill contracted with NMP for NMP to send advertisements over the Internet ("Internet advertisements") in order to generate prospective customers for Dunhill APs to call and further solicit to trade futures and options on futures contracts. In return for generating a list of prospective customers for Dunhill, NMP was paid a monthly fee. Thus, NMP acted as an IB by soliciting prospective customers for the purpose of trading in futures and option contracts and failed to register as an IB.
2. Thomas Acted as an Associated Person Without Registration
Thomas was the owner and sole employee of NMP and, in these capacities, was responsible for generating prospective customers for Dunhill to further solicit. Thus, Thomas acted as an AP of an IB in that he was associated with NMP in a capacity which involved the solicitation of customers' orders, without registering as an associated person of NMP.
3. NMP and Thomas Failed to Supervise Diligently
Rather than send the advertisements himself, Thomas contracted with Dayton to send the Internet advertisements. Dayton chose prospective customers to whom to send the Internet advertisements, prepared the response form to be filled out by persons responding to the advertisements, and received responses from prospective customers. Dayton then provided the responses from prospective customers to Thomas, who in turn provided them to Dunhill. Although Thomas was responsible for supervising Dayton, who was operating as an AP of the IB, there was no program in place for the review of Dayton's work. The failure of NMP and Thomas to implement and follow a program of supervision resulted in Dayton sending advertisements containing misleading language to prospective customers as part of the solicitation. NMP and Thomas thereby failed to diligently supervise Dayton's Internet solicitation of prospective customers who were to be further solicited by Dunhill.
D. LEGAL DISCUSSION
1. NMP Violated Section 4d(1) of the Act and Thomas Violated Section 4k(1) of the Act and Commission Regulation 3.12
Section 4d(1) of the Act makes it unlawful for any person to act as an IB unless such person is registered as such. Section 4k(1) of the Act makes it unlawful for any person to be employed or act as an agent of an IB if that person acts in a capacity that involves (i) the solicitation or acceptance of customers' orders or (ii) the supervision of any person who solicits or accepts customers' orders, unless such person is registered with the Commission as an associated person of the IB. Commission Regulation 3.12(a) is a corollary to Section 4k(1) in that it also states that it is unlawful for any person to be associated with an IB without being registered as an associated person of that IB.
From June 1997 through at least July 1998, NMP regularly solicited customers to trade options through Dunhill by sending bulk Internet advertisements. NMP was paid a monthly fee by Dunhill for the list of persons who responded to the advertisement. NMP therefore was an IB and violated § 4d(1) of the Act by failing to register as such.
Thomas was the sole employee of NMP, was involved in soliciting customers for Dunhill and was responsible for the supervision of Dayton, the person who was directly responsible for sending the Internet advertisements to solicit prospective customers. Thomas thus functioned as an AP of NMP and violated both Section 4k(1) of the Act and Commission Regulation 3.12(a) by failing to register with the Commission.
2. NMP and Thomas Violated Commission Regulation 166.3
Commission Regulation 166.3 requires each Commission registrant, except an AP who has no supervisory duties, to diligently supervise the handling of commodity interest accounts by its employees and agents. Commission Regulation 166.1 defines a "Commission registrant" as "any person who is registered or is required to be registered with the Commission." Thus, both NMP and Thomas fall under the purview of Commission Regulation 166.3 and have a duty to supervise their employees and agents.
To determine whether a registrant has failed to supervise diligently, it must first be determined whether there existed a program of supervision designed to detect violations and, if so, whether the relevant policies and procedures were followed in practice. See In re GNP Commodities, Inc., [1990-1992 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 25,360 at 39, 219 (CFTC August 11, 1992) aff'd sub nom. Monieson v. CFTC, 996 F 2d. 852 (7th Cir. 1993).
NMP did not have a meaningful system of supervising the Internet advertisements which Dunhill hired NMP to disseminate. NMP hired Dayton to solicit customers for Dunhill by disseminating the advertisements to, and receiving the responses from, prospective customers. NMP and Thomas failed, however, to review the advertisements in their complete and final form prior to the advertisements being transmitted over the Internet, which resulted in misleading language being included in the advertisements. NMP's and Thomas' failure to supervise diligently was in violation of Section 166.3 of the Regulations.
OFFER OF SETTLEMENT
Respondents NMP and Thomas have submitted a Joint Offer of Settlement, in which, without admitting or denying the findings herein, they:
1. Admit the jurisdiction of the Commission with respect to all matters set forth in this Order;
(a) a hearing;
(b) all post-hearing procedures;
(c) judicial review by any court;
(d) any objection to the staff's participation in the Commission's consideration of their Offer;
(e) 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
(f) all claims which they 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. 862-863, and Part 148 of the Regulations, 17 C.F.R. §§ 148.1 et seq. (1998), relating to, or arising from, this action, and they 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;
3. Stipulate that the record basis on which this Order is entered consists solely of the Complaint, this Order and findings to which NMP and Thomas have consented in the Offer, which is incorporated in this Order; and
4. Consent to the Commission's issuance of this Order, which makes findings and orders:
(a) NMP to cease and desist from violating Section 4d(1) of the Act and Section 166.3 of the Regulations;
(b) Thomas to cease and desist from violating Section 4k(1) of the Act and Sections 3.12(a) and 166.3 of the Regulations; and
(c) NMP and Thomas to comply with their undertakings as set forth in Section VI of this Order.
FINDINGS OF VIOLATIONS
Solely on the basis of the consent evidenced by the Offer, and prior to any adjudication on the merits, the Commission finds that NMP violated Section 4d(1) of the Act and Section 166.3 of the Regulations; and Thomas violated Section 4k(1) of the Act and Sections 3.12(a) and 166.3 of the Regulations.
Accordingly, it is hereby ordered that:
1. NMP shall cease and desist from violating Section 4d(1) of the Act, 7 U.S.C. § 6d(1) (1994), and Section 166.3 of the Commission's Regulations, 17 C.F.R. §166.3 (1998);
2. Thomas shall cease and desist from violating Section 4k(1) of the Act, 7 U.S.C. §6k(1) (1994), and Sections 3.12(a), 17 C.F.R. §3.12(a) (1998), and 166.3 of the Commission's Regulations;
3. The Commission notes that an order of civil monetary penalties against NMP and Thomas would be appropriate in this case, but does not impose it based upon their financial condition. NMP and Thomas acknowledge that the Commission's acceptance of this Offer is conditioned upon the accuracy and completeness of the sworn Financial Statement and other evidence that has been provided regarding their financial condition. NMP and Thomas consent that if at any time following the entry of the Order, the Division obtains information indicating that the representations concerning their financial conditions were fraudulent, misleading, inaccurate, or incomplete in any material respect at the time they were made, the Division may, at any time following the entry of the Order, petition the Commission to: (1) reopen this matter to consider whether NMP and Thomas provided accurate and complete financial information at the time such representations were made; (2) determine the amount of civil monetary penalty to be imposed; and (3) seek any additional remedies that the Commission would be authorized to impose in this proceeding if the Joint Offer had not been accepted. No other issues shall be considered in connection with this petition other than whether the financial information provided by NMP and Thomas was fraudulent, misleading, inaccurate, or incomplete in any material respect, the amount of civil monetary penalty to be imposed, and whether any additional remedies should be imposed. NMP and Thomas may not, by way of defense to any such petition, contest the validity of, or the findings in, the Order, contest the allegations of the Complaint or assert that payment of a civil monetary penalty should not be ordered; and
4. NMP and Thomas shall immediately comply with the following undertakings:
a. NMP and Thomas shall never apply for registration or claim exemption from registration with the Commission in any capacity and shall not engage in any activity requiring such registration or exemption from registration, or act as a principal, agent or officer of any person registered, exempted or required to be registered with the Commission; and
b. Neither NMP, Thomas, nor any of their agents or employees under their 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 a factual basis; provided, however, that nothing in this provision shall affect NMP's or Thomas' (i) testimonial obligations, or (ii) right to take legal positions in other proceedings to which the Commission is not a party.
By the Commission:
|Secretary to the Commission|
|Commodity Futures Trading Commission|
|Date: July 29, 1999||___________________________________|
1 NMP and Thomas do not consent to the use of the Offer or this Order, or the findings consented to in this Order, as the sole basis for any other proceeding brought by the Commission other than in a proceeding to enforce the terms of this Order. NMP and Thomas do not consent to the use of the Offer or this Order, or the findings consented to in this Order, by any other person or entity in this or any other proceeding. The findings made in this Order are not binding on any other person or entity named as a defendant or respondent in this or any other proceeding.