UNITED STATES OF AMERICA
COMMODITY FUTURES TRADING COMMISSION
|In the matter of:||)||CFTC DOCKETS NO. 98-13 AND 99-10|
TODD ALAN THOMAS,
|)||ORDER MAKING FINDINGS AND|
|)||IMPOSING REMEDIAL SANCTIONS|
|________________________________________________||)||AS TO RESPONDENTS TODD ALAN|
|THOMAS AND WELLINGTON|
|FINANCIAL GROUP, INC.|
|In the matter of:||)|
WELLINGTON FINANCIAL GROUP, INC.,
On April 27, 1998, the Commodity Futures Trading Commission ("Commission") filed a Complaint and Notice of Hearing against Todd Alan Thomas ("Thomas"). The one-count Complaint charges that Thomas violated Section 4c(b) of the Commodity Exchange Act, as amended ("Act"), 7 U.S.C. § 6c(b) (1994), and Section 33.10 of the Commission's Regulations ("Regulations"), 17 C.F.R. § 33.10 (1998). Thomas failed to Answer the Complaint in a timely manner. On December 7, 1998, Administrative Law Judge Levine entered a default judgment against Thomas and assessed a civil monetary penalty against Thomas in the amount of $2,613,000. On December 18, 1998, Thomas appealed the default judgment to the Commission.
On March 30, 1999, the Commission filed a Complaint and Notice of Hearing against Wellington Financial Group, Inc. ("Wellington"). The one-count Complaint charges that Wellington violated Section 4c(b) of the Act and Section 33.10 of the Regulations.
In order to dispose of the allegations and issues raised in the two Complaints, Thomas and Wellington have each submitted an 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, Thomas and Wellington acknowledge the service of this Order Making Findings and Imposing Remedial Sanctions as to Respondents Todd Alan Thomas and Wellington Financial group, Inc. ("Order"). Thomas and Wellington consent to the use of the findings contained in this Order in these proceedings and in any other proceeding brought by the Commission or to which the Commission is a party.1
The Commission finds the following:
Thomas joined a registered Florida introducing broker ("Florida IB"), in December 1992. The Florida IB used radio infomercials which discussed certain commodity markets to attract prospective customers. Then the Florida IB's associated persons ("APs") solicited those persons who responded to the infomercials to buy exchange-traded options on futures contracts for the commodities discussed in the infomercials. From December 1992 through March 1996, Thomas appeared in virtually all of the Florida IB's infomercials and solicited customers who responded to the infomercials. After spending three months as a registered AP of another registered IB, Thomas rejoined the Florida IB in August 1996, staying through January 1997, at which time he established Wellington, a registered IB. Thomas was the sole principal and owner of Wellington and initially was Wellington's only AP. Thomas produced and appeared in infomercials at Wellington similar in format and content to those he appeared in at the Florida IB.
In both the infomercials and telephone sales solicitations, Wellington and Thomas (at both the Florida IB and Wellington) fraudulently solicited customers to purchase exchange-traded options on futures contracts by knowingly misrepresenting and failing to disclose material facts. Wellington and Thomas overstated customers' ability to exploit seasonal and other existing and known supply and demand forces in the cash markets for various commodities to profit on options on futures contracts in those commodities. Wellington and Thomas also downplayed the risk inherent in such options and overstated customers' performance record in trading them. In fact, approximately 90% of Thomas' customers lost money, resulting in total losses of approximately $1.2 million, and more than 90% of the accounts opened with Wellington lost money, resulting in total losses of approximately $800,000.
Todd Alan Thomas resides at 4713 Baidric Street, Boca Raton, Florida 33428. Thomas was registered as an AP of the Florida IB from December 1992 through March 1996 and from August 1996 through January 1997. Thomas has been a registered AP, principal and 100% owner of Wellington since March 12, 1997.
Wellington Financial Group, Inc. is a Florida corporation with its principal office located at 408 South Andrews Avenue, Suite 204, Fort Lauderdale, Florida 33301. Wellington has been registered with the Commission as an IB since March 12, 1997.
a. The Florida IB
Thomas appeared in at least 56 30-minute infomercials of the Florida IB that aired on radio stations across the United States. Thomas always represented that the cash price of the advertised commodity was about to go up because demand would exceed supply, usually due to seasonal patterns, e.g., demand for unleaded gasoline always increases in summer when people take driving vacations, or demand for heating oil always increases in autumn due to the impending onset of colder weather. Thomas then represented that the Florida IB's customers who purchased options on futures contracts in the commodity ("commodity options") being advertised would profit on the cash price increases and that there is a one-to-one correlation between an increase in the cash price of a commodity and the resulting profit to the holder of the commodity option.
Thomas repeatedly identified a "standard" price movement for the advertised commodity, as well as the return that such a price movement purportedly would yield to the holder of a commodity option. Thomas also referred at least once in each infomercial to an extraordinary price movement for the advertised commodity and/or an extraordinary return that could be achieved by the holder of commodity options in the event of the extraordinary price move.
Thomas' statements also downplayed the risks involved with commodity options trading. Thomas mentioned only briefly that a customer could lose all or part of his investment, and then suggested that one could manage the risk by taking advantage of known seasonal tendencies or other supply and demand forces in the cash market for the commodity.
Most, if not all, of Wellington's customers learned of Wellington by listening to Wellington's radio infomercials. Thomas made the same misrepresentations and omitted the same material facts in the infomercials that he prepared for Wellington, and in which he, along with other Wellington APs, participated, as he did in the Florida IB's infomercials. The Wellington radio infomercials claimed that the advertised commodities such as heating oil, unleaded gasoline, and natural gas, would be affected by seasonal patterns. The Wellington infomercials also claimed the same correlation between cash price movements and options profits that Thomas had claimed in the Florida IB's infomercials, and made the same references to profits available from a commodity's purportedly standard cash price increases and to a larger price increase from years past
2. Telephone Sales Solicitations
When prospective customers called the Florida IB in response to an infomercial, and were referred to Thomas, Thomas often tailored his sales solicitation to repeat what the prospective customers had heard in the infomercials, including the promise of an imminent increase in the cash price of the advertised commodity and the representation that there is a direct correlation between the cash price movement of a commodity and the profit on an option on a futures contract for that commodity. Thomas also frequently minimized the risk inherent in the purchase of commodity options.
Thomas often misrepresented his performance record to his customers at the Florida IB, representing, for example, that he had a "good track record with investments;" and had made "millions" for his clients. In fact, Thomas' actual trading results for his customers at the Florida IB were disastrous - for the more than three-year period ending June 30, 1996, more than 90% of the 188 accounts opened with Thomas at the Florida IB lost money, and approximately 65% of the total money invested by Thomas' customers was lost. Total losses in his unprofitable accounts exceeded $1.2 million, and profits in Thomas' profitable accounts totaled only $54,586.
The telephone sales solicitations of Thomas and the APs at Wellington tracked Thomas' solicitations at the Florida IB and repeated the false and misleading claims made in the Wellington infomercials. Wellington APs told customers that when the price of unleaded gasoline went up as the summer arrived, or the price of heating oil or unleaded gas went up as winter arrived, they would be making profits and that the APs had consistently made money for their customers. In fact, more than 90% of the 119 Wellington accounts lost money, with total losses of approximately $800,000.
Thomas and the other Wellington APs rarely discussed the risk of trading options with their customers at Wellington. When they did mention risk, they downplayed the risk of options trading, telling customers that they did not have to worry about the risk of losing their money.
D. LEGAL DISCUSSION
Thomas and Wellington Violated Section 4c(b) of the Act and Commission Regulation 33.10
Section 4c(b) of the Act and Commission Regulation 33.10 provide that it shall be unlawful, in or in connection with an offer to enter into, the entry into, the confirmation of the execution of, or the maintenance of, exchange-traded commodity option transactions, to cheat or defraud, or attempt to cheat or defraud, any other person. Liability under these provisions requires proof that a person or entity made misleading statements of, or omitted to disclose, material facts with scienter, i.e., proof that the respondent committed the alleged wrongful acts "intentionally or with reckless disregard for his duties under the Act." Hammond v. Smith Barney, Harris Upham & Co., [1987-1990 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 24,617 at 36,659 (CFTC March 1, 1990). See In re Staryk, [Current Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 27,206 at 45,810 (CFTC Dec. 18, 1997) (scienter is a necessary element for options fraud); CFTC v. Savage, 611 F.2d. 270, 283 (9th Cir. 1979) (finding of scienter supported by proof of recklessness).
1. Misrepresentations and Omissions by Thomas and Wellington
a. Seasonal and Other Existing and Known Supply and Demand Forces
Do Not Affect the Profitability of Options on Futures Contracts
In infomercials and telephone solicitations that echoed those infomercials, Thomas and Wellington falsely represented that customers would achieve large and certain profits by purchasing options on futures contracts for commodities that are subject to purportedly predictable price movements caused by seasonal or other existing and known supply and demand forces. In fact, however, known existing supply and demand forces in the cash market, including predictable seasonal trends, do not necessarily affect the likelihood of profit or the risk of trading options because the markets anticipate and account for those factors in the price paid for the option and in the price of the option's underlying futures contract Thus, these representations by Thomas and Wellington are fraudulent.
b. There is Not a Direct Correlation Between an Increase in the Price
of a Commodity and Profits From Trading Options in that Commodity
Thomas and Wellington further represented that there is a direct correlation between an increase in the price of a commodity and the resulting profit to the holder of a call option for that commodity. Thomas suggested that the customer's strike price is simply the price of the commodity at the time he purchases the option, and that if the commodity's price increases from there, the customer will profit accordingly. This representation is false. Price movements in the cash market and futures market generally do not move in direct correlation, and this non-correlation is generally even more pronounced between price movements in the cash and options markets. Option values do not usually move in the same manner or in direct proportion to the underlying futures prices. See In re JCC, Inc., [1992-1994 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 26,080, at 41,576 (CFTC May 12, 1994) (the statement "every time sugar moves ten cents, you make $67,000" violated the anti-fraud provisions of the Act and Regulations); Bishop v. First Investors Group of the Palm Beaches, Inc., [Current Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 27,004 at 44,841 (CFTC March 26, 1997). ("the statements misrepresented the profit potential of such a seasonal strategy by representing that a penny move in the underlying market would translate into a $420 profit per option"). Cf. CFTC v. Commonwealth Financial Group, 874 F. Supp. 1345, 1352 (S.D. Fla. 1994) (such statements "are deceptive because the movement of the cash price or the underlying futures contract seldom produces a directly proportional increase in the value of an option on that futures contract"). Thus, these representations by Thomas and Wellington are fraudulent.
c. Thomas and Wellington Made Fraudulent Profit Claims, Minimized the Risk of
Trading Options and Overstated the Performance Record of Their Customers
In both the infomercials and telephone solicitations, Thomas and Wellington built on the foregoing misrepresentations by misrepresenting both the likelihood and the magnitude of profit that purchasers of commodity options were likely to achieve. Thomas and Wellington also minimized the risk of trading options by emphasizing the supposed advantage that knowledge of seasonal or other existing supply and demand forces offer the commodity options investor.2 These misrepresentations are very similar to misrepresentations held to be misleading:
Although Staryk does not explicitly state that the predictable nature of the seasonal price trends in gasoline and heating oil decreases the risk or increases the likelihood of profits in options tied to those commodities, no reasonable consumer could fail to take this message away from his sales presentation.
In re Staryk, [Current Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 27,206 at 45,809 (CFTC Dec. 18, 1997) (quoting from and endorsing the Administrative Law Judge's holding in In re Staryk, [1994-1996 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 26,701 at 43,928-43,929 (ALJ June 5, 1996)).
It is well established that promises of large and certain profits, like the promises made by Thomas and Wellington in the infomercials and telephone solicitations, are fraudulent. Munnell v. Paine Webber Jackson Curtis [1984-1986 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 23,313, at 32,863 (CFTC Oct. 8, 1986) (statements that an investor could conservatively expect a profit of 32% per year amount to a guarantee of profitability and are inherently fraudulent).
Finally, the representations by Thomas and Wellington regarding their performance record were demonstrably fraudulent See, e.g., CFTC v. Commonwealth Financial Group, Inc., 874 F. Supp. 1345, 1353-54 (S.D. Fla. 1994) (misrepresentations regarding the trading record and experience of a firm or broker are fraudulent because past success and experience are material factors to reasonable investors); CFTC v. U.S. Metals Depository Co., 468 F. Supp. 1149, 1160 (S.D.N.Y. 1979) (misrepresentations regarding profitability of investment are material). The total losses of Thomas' customers at the Florida IB and Wellington were approximately $1.2 million, and Wellington customers losses were approximately $800,000, including the losses suffered by Thomas' Wellington customers.
2. Misrepresentations and Omissions by Thomas and Wellington were Material
A statement or omitted fact is material if it is substantially likely that a reasonable investor would consider the matter important in making an investment decision. In re Citadel Trading Co., [1986-1987 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 23,082 (CFTC May 23, 1986). Thomas' and Wellington's claims regarding the purported ability to exploit existing and known cash market conditions (including seasonality), and the correlation between cash price movements and profits on options went to the heart of options purchasers' decisions to invest.
The misstatements by Thomas and Wellington regarding profit potential, risk of loss, and performance record for customers also were material. See JCC, at 41,576 n.23 ("[w]hen the language of a solicitation obscures the important distinction between the possibility of substantial profit and the probability that it will be earned, it is likely to be materially misleading to customers"); CFTC v. British Am. Commodity Options Corp., [1977-1980 Transfer Binder] Comm Fut. L. Rep. (CCH) ¶ 20,662, at 22,701 (S.D.N.Y. 1978) ("[U]nsupported and unreasonable predictions [of price shifts] unmistakably implied the near-certainty of sizeable and immediate returns, and were thus materially misleading to potential investors").
3. Thomas and Wellington Acted with Scienter
Scienter requires proof that the respondent committed the alleged wrongful acts "intentionally or with reckless disregard for his duties under the Act." Hammond, supra, at 36,659; CFTC v. Savage, 611 F.2d 270, 283 (9th Cir. 1979) ("[k]nowledge, of course, exists when one acts in careless disregard of whether his acts amount to cheating").
On May 16, 1996, NFA's Board of Directors issued Notice I-96-11 (the "NFA Notice"), a strong statement that seasonality claims of the type made in the Florida IB infomercials, and later in the Wellington infomercials, violate NFA Compliance Rule 2-29:
Claims Regarding Seasonal Trades -- Some Members have suggested almost certain profits from so-called seasonal trades in, among other things, heating oil and unleaded gas. These ads cite historical data which supposedly shows that certain trades produce dramatic profits year in and year out. Invariably, however, the "historical data" involves different products, different time frames or different fee structures. The most telling point, by far, is that the firm's customers have never experienced the types of profits touted by the Member.
NFA Notice, I-96-11. The NFA notice went on to state that seasonality claims "present a distorted and misleading view of the likelihood of customers earning dramatic profits by investing with the Member firm, and . . . represent a clear violation of NFA sales practice rules." Id.
NFA provided the NFA Notice to Wellington when Wellington became registered as an IB in March 1997. Despite knowledge of the NFA Notice, Thomas subsequently prepared and participated in at least seven Wellington infomercials after the date of the NFA Notice. Many of the Wellington infomercials advertised "seasonal" commodities and made "seasonal" claims identical to those that were addressed in the NFA Notice.
Moreover, Thomas and Wellington knew that their customers did not make anywhere near the profits they advertised in their infomercials and telephone solicitations. The actual trading results revealed that customers did not benefit from seasonal or other existing and known supply and demand forces in the cash market, and did not profit from any direct correlation between commodity price increases and options profits. Thomas and Wellington therefore acted with scienter.
OFFERS OF SETTLEMENT
Respondents Thomas and Wellington have each submitted an Offer of Settlement ("Offer"), in which, without admitting or denying the findings herein, they:
1. Acknowledge service of their respective complaints and this Order;
2. Admit the jurisdiction of the Commission with respect to all matters set forth in their respective complaints and 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 the Offer;
(e) any claim of Double Jeopardy based upon the institution of these proceedings or the entry in these proceedings 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, these actions, 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, these proceedings;
4. Stipulate that the record basis on which this Order is entered consists solely of their respective complaints, this Order and findings to which they have consented in their respective Offers, which are incorporated in this Order; and
5. Consent to the Commission's vacating of the default judgment against Thomas, currently on appeal to the Commission, and to the issuance of this Order, which makes findings, revokes Wellington's registration as an introducing broker, revokes Thomas' registration as an associated person of Wellington, and orders Thomas and Wellington to:
a. cease and desist from violating Section 4c(b) of the Act and Section 33.10 of the Commission's Regulations;
b. be permanently prohibited from trading on or subject to the rules of any contract market, and directs all contract markets to refuse Thomas and Wellington trading privileges, beginning on the third Monday after the date of this Order;
c. comply with their undertakings as set forth in their respective Offers; and orders Thomas to pay a total of up to $1.9 million restitution, plus prejudgment interest thereon, in accordance with the terms set forth below.
FINDINGS OF VIOLATIONS
Solely on the basis of the consent evidenced by the Offers, and prior to any adjudication on the merits, the Commission finds that Thomas and Wellington violated Section 4c(b) of the Act and Section 33.10 of the Commission's Regulations.
Accordingly, it is hereby ordered that:
1. The default judgment against Thomas, currently on appeal to the Commission, is vacated;
2. Thomas and Wellington shall cease and desist from violating Section 4c(b) of the Act, 7 U.S.C. § 6c(b) (1994), and Commission Regulation 33.10, 17 C.F.R. §33.10 (1998);
3. Wellington's registration as an introducing broker is revoked; and Thomas' registration as an associated person of Wellington is revoked;
4. Beginning on the third Monday after the date of this Order, Thomas and Wellington shall be prohibited from trading on or subject to the rules of any contract market, and all contract markets shall refuse Thomas and Wellington trading privileges;
5. Thomas shall pay restitution in the amount of up to $1.9 million, plus pre-judgment interest thereon, to his customers. The amount of Thomas's Annual Payment shall consist of a portion of (1) the adjusted gross income (as defined by the Internal Revenue Code) earned or received by Thomas 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 Thomas 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 Thomas to Participants is:|
|Up to $50,000||0%|
|$50,001-$100,000||30% of the amount above $50,000|
|Above $100,000||$15,000 (30% of the amount between $50,000 and $100,000) plus 40% of the amount above $100,000;|
Thomas shall make the 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) years3 thereafter (or until his obligation to make the Annual Payment is discharged if that happens first).4 Such funds shall be distributed annually as restitution payments to Thomas' customers at the Florida IB and Wellington in the amounts calculated by the Monitor, unless, at its sole discretion, based upon the amount of funds available for distribution, the Monitor decides to defer distribution. If, at the end of the five year payment period, any part of the Annual Payments has not been distributed, the Monitor shall either distribute the funds in the account or make a recommendation to the Commission that the funds instead become a civil monetary penalty pursuant to Section 6(c) of the Act. In the event the Commission rejects the Monitor's recommendation, the funds shall be distributed as restitution.
6. The Commission notes that an order imposing a civil monetary penalty, and requiring immediate payment of restitution, against both Thomas and Wellington would be appropriate in this case, but does not do so based upon their financial condition, notwithstanding the provision in paragraph 5 above. Thomas and Wellington acknowledge that the Commission's acceptance of their respective Offers is conditioned upon the accuracy and completeness of the sworn Financial Statement and other evidence they have provided regarding their financial condition. Thomas and Wellington consent that if at any time following the entry of the Order, the Division of Enforcement ("Division") obtains information indicating that either Thomas's or Wellington's representations concerning their respective financial conditions were fraudulent, misleading, inaccurate, or incomplete in any material respect at the time it was made, the Division may, at any time following the entry of the Order, petition the Commission to: (1) reopen this matter to consider whether Thomas and Wellington provided accurate and complete financial information at the time such representations were made; (2) determine the amount of civil monetary penalty to be imposed; (3) require immediate payment of restitution by Thomas and determine the amount of restitution to be imposed upon Wellington; and (4) seek any additional remedies that the Commission would be authorized to impose in this proceeding if the offers of Thomas and Wellington had not been accepted. No other issues shall be considered in connection with this petition other than whether the financial information provided by Thomas and Wellington 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. Thomas and Wellington 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 the amount of restitution to be paid or assert that payment of a civil monetary penalty should not be ordered;
7. Thomas shall immediately comply with the following undertakings:
a. Thomas 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, 2003. The financial statement shall provide:
i. a true and complete itemization of all of Thomas's 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 Thomas over the preceding six-month interval; and
iii. a detailed description of the source and amount of all of Thomas's income or earnings, however generated.
Thomas 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 Thomas moves his residence at any time, he shall provide written notice of the new address to the Monitor and the Commission within ten (10) days thereof;
b. Thomas 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, Thomas shall provide such additional information and documents with respect thereto as may be requested by the Monitor or the Commission;
c. Thomas shall not transfer or cause others to transfer funds or other property to the custody, possession, or control of any member of Thomas' family or any other person for the purpose of concealing such funds or property from the Monitor or the Commission;
d. Thomas shall never apply for registration or claim 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 a principal, agent or officer of any person registered, exempted from registration or required to be registered with the Commission; and
e. Neither Thomas, nor any of his agents or employees under its 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 Thomas' (i) testimonial obligations; or (ii) right to take legal positions in other proceedings to which the Commission is not a party.
8. Wellington shall immediately comply with the following undertakings:
a. Wellington shall never apply for registration or claim 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 a principal, agent or officer of any person registered, exempted from registration or required to be registered with the Commission; and
b Neither Wellington, nor any of its agents or employees under its 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 Wellington's (i) testimonial obligations; or (ii) right to take legal positions in other proceedings to which the Commission is not a party.
|By the Commission|
|Dated: November 3, 1999|
|Jean A. Webb|
|Secretary of the Commission|
|Commodity Futures Trading Commission|
1 Thomas and Wellington do not consent to the use of the Offers, the findings consented to in the Offers, or 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. Thomas and Wellington do not consent to the use of the Offers, the findings consented to in the Offers or this Order, by any other person or entity in these or any other proceedings. 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.
2 Fraud exists although a statement may be literally true if, "when recited repeatedly as a sales inducement . . . the representation inflates the likelihood of profit while minimizing the risk of loss . . ." In re Staryk, Comm. Fut. L. Rep. (CCH) ¶ 27,206 at 45,809 (CFTC December 18, 1997) and Bishop at 44,841. (Emphasis in the original) Accord, Swickard v. A.G. Edwards & Sons, [1984-1986 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 22,522 at 30,275 (CFTC Mar. 7, 1985) ("half the truth may obviously amount to a lie if it is understood to be the whole") quoting Prosser & Keeton, The Law of Torts, 738 (1984).
3 Thomas' five year restitution period shall run from January 1, 1999 through December 31, 2003. Restitution payments for a calendar year shall take place by July 31 of the following year. Therefore, the final restitution payment for the year 2003 will occur on or before July 31, 2004.
4 The National Futures Association is hereby designated as the Monitor for a period of six 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. For five years, based on the information contained in Thomas' 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 Thomas for that year and the specific amounts payable to each customer. On or before July 31 of each year and starting in calendar year 2000, the Monitor shall send written notice to Thomas with instructions to pay immediately the amount of restitution to an account designated by the Monitor. In the event Thomas makes payments to any of the customers, which payments have not been directed by the Monitor, the Commission and Monitor shall reduce Thomas' total restitution obligation upon receipt from the customer of a signed written acknowledgment stating the amount paid.