UNITED STATES OF AMERICA
COMMODITY FUTURES TRADING COMMISSION
|In the Matter of:||)||CFTC DOCKET NO. 99-14|
|WOLCOTT & LINCOLN FUTURES, LLC f/k/a||)||ORDER INSTITUTING|
|Wolcott & Lincoln Futures, Inc.,||)||PROCEEDINGS PURSUANT TO|
|and||)||SECTIONS 6(c), 6(d) AND 8a(4) OF|
|DAVID GIBSON,||)||THE COMMODITY EXCHANGE|
|)||ACT AND FINDINGS AND ORDER|
|Respondent.||)||IMPOSING REMEDIAL SANCTIONS|
The Commodity Futures Trading Commission ("Commission") has reason to believe that Wolcott & Lincoln Futures, L.L.C., formerly Wolcott & Lincoln Futures, Inc. ("WL"), and David Gibson ("Gibson") (collectively, "Respondents") have violated Sections 4d(2), 4g, and 6(c) of the Commodity Exchange Act, as amended (the "Act"), 7 U.S.C. §§ 6d(2), 6g and 9 (1994), and Regulations 1.10, 1.18, 1.20(a) and (c), 1.31, 1.32, 1.33 and 166.3, 17 C.F.R. §§ 1.10, 1.18, 1.20(a) and (c), 1.31, 1.32, 1.33 and 166.3 (1998). Therefore, the Commission deems it appropriate and in the public interest that public administrative proceedings be, and they hereby are, instituted to determine whether Respondents engaged in the violations set forth herein and to determine whether any order should be issued imposing remedial sanctions.
In anticipation of the institution of these administrative proceedings, Respondents have submitted a Joint Offer of Settlement (the "Offer"), which the Commission has determined to accept. Without admitting or denying the findings herein, Respondents each acknowledge service of this Order Instituting Proceedings Pursuant to Sections 6(c), 6(d) and 8a(4) of the Act and Findings and Order Imposing Remedial Sanctions (the "Order"). Respondents each 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:
WL is a futures commission merchant ("FCM"), which at all relevant times has been under the day-to-day control and management of Gibson. In January 1995, WL transferred its active customer accounts to LIT, Division of First Options of Chicago ("FOC"). As part of the transfer, FOC formed a branch office of LIT called the Wolcott & Lincoln Division (the "W&L Division"). WL then ceased to engage in business as an FCM, although it remained a registered FCM. Gibson remained in charge of WL, while simultaneously serving as the branch manager of the W&L Division.
In 1995, WL, under Gibson's management, breached its recordkeeping obligations and willfully filed false reports with the Commission. Further, both WL and the W&L Division ignored proper procedures and regulatory requirements with respect to the segregation and transfer of customers funds, thereby allowing customer funds to be commingled with the funds of others, in violation of the requirements of the Act and Regulations.
In 1994 and 1995, WL and Gibson lacked adequate supervision over WL's back-office functions. As a result, WL and Gibson failed to supervise diligently WL's employees, officers and agents in handling customer funds, and filing reports required by the Commission. As branch manager of the W&L Division in 1995, Gibson failed to implement and enforce FOC's policies and procedures within the W&L Division and failed to supervise diligently the W&L Division's handling of customer money.
Wolcott & Lincoln Futures, L.L.C. ("WL") has been a registered FCM since at least May 20, 1986. It is located at the Kansas City Board of Trade Building, 4800 Main Street, Suite 565, Kansas City, Missouri 64112. Prior to May 1998, WL was known as Wolcott & Lincoln Futures, Inc., a Missouri corporation. In May 1998, WL became a Missouri limited liability company and changed its name to Wolcott & Lincoln Futures, L.L.C.
David Gibson ("Gibson"), who resides at 6624 Wenonga Road, Shawnee Mission, Kansas 66028, has been registered with the Commission as a floor broker since on or before January 1, 1975. From at least August 1993 until the present, Gibson performed the functions of the chief executive officer of WL, and all WL employees directly or indirectly reported to him. Upon the transfer of customer accounts to FOC in approximately January 1995, Gibson continued to be the principal officer of WL, while becoming simultaneously employed by FOC with the title of branch manager of the W&L Division. At all pertinent times, WL was under the day-to-day control of Gibson. Since its formation in January 1995, the W&L Division has also been under the day-to-day control of Gibson.
1. Underlying fraud by an FCM customer
Prior to January 1995, WL carried a number of customer accounts, including accounts managed by local Kansas City floor brokers. One such floor broker was a general partner (the "General Partner") of a limited partnership in which another individual had an interest. The General Partner opened a trading account at WL for the limited partnership. He also maintained and controlled other trading accounts at WL, both in his own name and in the name of his son. All of the trading accounts controlled by the General Partner shall be referred to as the "General Partner's accounts." During the period of approximately August 1993 through October 1996, the General Partner defrauded the limited partner and the limited partnership by misappropriating funds and making misrepresentations and omissions regarding the likelihood of trading success, the nature and extent of his intended and actual trading activities, the benefits he received for managing and trading on behalf of the limited partnership, and the use of the limited partner's and limited partnership's funds. The General Partner misappropriated funds in part by passing partnership funds into and out of the bank and trading accounts he controlled.
2. The transfer of WL's customer accounts to other FCMs
In January 1995, WL entered into an agreement with FOC pursuant to which (a) all of WL's active customer accounts were transferred to LIT, Division of FOC, (b) LIT established the W&L Division, and (c) WL's office personnel became employees of FOC and, under the management and control of Gibson, staffed the new W&L Division branch office. The General Partner's accounts were included in the transfer of customer accounts from WL to FOC.
In September 1998, E D & F Man International, Inc. ("ED&F Man") purchased LIT, including the W&L Division, which became a branch office of ED&F Man. The W&L Division remains under Gibson's supervision.
3. Handling Customer Funds
From approximately January 1994 until at least September 1995, WL complied with the General Partner's numerous requests to move limited partnership funds to bank and trading accounts maintained in the names of the General Partner or his son, as well as to bank accounts in the names of other business enterprises with which the General Partner was involved. WL never questioned such fund transfers even though (a) the opening account papers for the limited partnership account stated that there were persons other than the General Partner with an interest in the account, (b) the transfers were to accounts other than the bank and trading accounts identified in the opening account papers as belonging to the limited partnership, and (c) WL was unaware of any relationship between the limited partnership and the accounts to which the General Partner was transferring partnership funds.
Despite the number and nature of the requests to transfer funds, WL did not try to verify the extent of the General Partner's authority to dispense partnership funds. For example, WL did not obtain a copy of the limited partnership agreement, which expressly prohibited the General Partner from possessing or transferring partnership property for other than a partnership purpose, and from commingling partnership funds with his own money or that of another. WL also failed to obtain and maintain in its records written authorization from the General Partner for each of the transfers made by WL that resulted in partnership funds being transferred from the limited partnership to the General Partner or third party accounts controlled by him. By following the General Partner's instructions, WL, on at least two occasions and without recording the transactions in the limited partnership's commodity statements, accepted partnership money and immediately issued a check to the General Partner for the same amount.
After WL transferred its customer accounts to FOC, customer money from the General Partner and others was deposited on numerous occasions into WL's operational and segregated funds bank accounts. The money deposited in WL's operational bank account was commingled with non-customer funds.
Both WL and the W&L Division participated in this commingling of customer funds.
The customer money was tendered by customers to the W&L Division staff, who were under the direct management of Gibson. Instead of depositing the money directly into LIT segregated accounts, as required by FOC's internal policies and procedures, the W&L Division allowed the money to be deposited into WL's operational funds account. WL, in turn, allowed its bank accounts to be so used, even though WL no longer maintained customer accounts or otherwise engaged in the business of being an FCM.2
Such flaws in the management of the W&L Division and WL existed despite the written FOC policies and procedures that prohibited such transfers.
WL did not properly account for the customer funds deposited in its bank accounts after it transferred its customer accounts to FOC. Among other things, WL stopped preparing and maintaining daily segregation records; stopped issuing monthly statements to customers; stopped recording the customer funds in its general ledger; and stopped preparing detailed general ledger records showing the receipt and transfer of customer funds.
4. Filing False Reports
Section 1.18 of the Commission Regulations require FCMs to file Form 1-FRs-FCM ("Form 1-FRs"), which, among other things, report each transaction affecting the FCMs' assets, liability, income, expense and capital accounts. In 1995, WL willfully filed at least eight monthly Form 1-FRs with the Commission that did not disclose the customer funds that WL accepted or held after the transfer of customer accounts to FOC. Instead, the required filings falsely represented that WL held no customer funds at month-end. Two of the Form 1-FRs filed in that time period, moreover, were not signed by the chief executive officer or chief financial officer of WL as Commission Regulations require, but by a low-level, back-office employee.
Gibson was the top link of the supervisory chain within WL and the W&L Division. He was the person to whom the WL and W&L Division staffs ultimately reported. As such, he had the power to control and the responsibility for enforcing the manner in which WL and the W&L Division performed their back office functions. Nevertheless, at all relevant times, Gibson failed to supervise the manner in which WL and the W&L Division handled customer funds. He further failed to supervise the method and manner in which WL completed and filed its 1-FRs.
At no time did WL or Gibson develop or implement an adequate supervisory system. WL and Gibson had no written procedures for handling customer funds. They had no guidelines for assessing requests from persons such as the General Partner to transfer funds into and out of customer accounts. WL had inadequate reporting relationships for the supervision of employees and agents handling customer funds. No regular office meetings were held and no written procedures were drafted. WL and Gibson did not implement any review procedures with respect to handling customer funds, or any mechanism to detect and deter possible wrongdoing or noncompliance with WL's internal procedures or regulatory obligations.
Similarly, at no time during his management of the W&L Division did Gibson establish adequate procedures to ensure compliance with FOC's policies and procedures regarding the handling of customer funds within his office.
In 1995, some of the irregularities in WL's and the W&L Division's handling of customer funds came to Gibson's attention, yet he failed to investigate such occurrences. For example, Gibson was aware that the W&L Division continued to accept customer checks in WL's name, in direct violation of FOC's written policies and procedures, yet he failed to investigate how those checks were deposited and transmitted to FOC. Gibson was also aware that the General Partner submitted a large third party check to one of Gibson's back-office employees. The General Partner instructed the employee not to deposit the money into the limited partnership's trading account. The back-office employee deposited the money into WL's segregated funds account. Over the next four months, WL and the W&L Division distributed the money to various partnership and non-partnership accounts at the General Partner's request. Despite Gibson's knowledge of such activities, he did not investigate the propriety of WL and the W&L Division's compliance with the General Partner's requests to transfer funds into and out of the accounts he controlled, or the extent of his staff's violation of FOC's internal policies and procedures in doing so.
E. VIOLATIONS OF THE ACT AND COMMISSION REGULATIONS
1. WL mishandled customer funds.
Section 4d(2) of the Act and Commission Regulation 1.20 require all customer funds to be separately accounted for and segregated. 7 U.S.C. § 6d(2) (1994); 17 C.F.R. § 1.20 (1998). When deposited with a bank, such funds must be deposited under an account name that clearly identifies the money as belonging to customers. WL violated these provisions in 1995 by allowing FOC customer money to be deposited into its house account, where the money was commingled with non-customer funds. Lincolnwood Commodities, Inc. of California, [1982-1984 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 21,986 at 28,224 (CFTC Jan. 31, 1984)(respondent violated Act and regulations by commingling customer money and proprietary funds in the same bank account).
2. WL filed false and improperly executed reports.
WL filed inaccurate and improperly executed Form 1-FRs in 1995. Regulation 1.10 required WL to file Form 1-FRs signed under oath by the firm's chief executive or chief financial officer. 17 C.F.R. § 1.10 (1998). The Form 1-FRs were also required to identify the funds held in segregation for customers trading on U.S. exchanges and to contain "such further material necessary to make the form not misleading." In disregard of these regulatory requirements, WL filed Form 1-FRs that did not disclose the customer funds held in WL's bank accounts after the transfer to FOC. In addition, the forms filed in January and February of 1995 were not signed by WL's chief financial or chief executive officer.
Section 6(c) of the Act authorizes administrative proceedings against anyone who willfully makes materially false and misleading statements or omissions in a report filed with the Commission. 7 U.S.C. § 9 (1994). "Willfulness" is defined as acting intentionally or with reckless disregard of regulatory obligations. In re Squadrito, [1990-1992 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 25,262 at 38,828 (CFTC March 27, 1992).
The omissions from WL's Form 1-FRs were willful and thus in violation of Section 6(c) of the Act. Although aware of the continued deposits into and balances in its bank accounts, WL executed Form 1-FRs that made no mention of the customer funds. In allowing such Form 1-FRs to be filed, and often signing them himself, Gibson, too, acted intentionally or in reckless disregard of his and WL's regulatory obligations to file Form 1-FRs executed by the company's chief executive or financial officer. As a result, WL is liable for filing false records in violation of Section 6(c) of the Act.
3. WL breached its duty to prepare, maintain and file required records.
The failure to prepare, maintain and file required records constitute separate and independent violations of the Act and Regulations. 7 U.S.C. § 6g (1994). In 1995, WL violated its recordkeeping obligations by failing to maintain daily segregation records, issue commodity statements to customers, and record the customer money or the disposition of such money in its general ledger, and by filing improperly executed Form 1-FRs.
As long as WL accepted or held customer funds, Regulations 1.18, 1.31 and 1.32 required WL to compute daily segregation records and to record the customer funds on detailed and general ledgers. 17 C.F.R. §§ 1.18, 1.31 and 1.32 (1998). Further, Regulation 1.33 required WL to issue monthly statements to its customers showing any customer funds carried with the firm, as well as a detailed accounting of all financial charges. 17 C.F.R. § 1.33 (1998). WL failed to comply with these regulations from January 1995 through at least August 1995 with respect to customer funds that flowed through its accounts.
In addition, as stated above, WL violated Section 4g of the Act and Regulation 1.10 by filing two Form 1-FRs that were not accurate and not executed by the company's chief executive or chief financial officer. 7 U.S.C. § 6g (1994); 17 C.F.R. §1.10 (1998).
4. WL and Gibson breached their duties to supervise diligently.
A violation under Regulation 166.3 is an independent violation for which no underlying violation is necessary. 17 C.F.R. § 166.3 (1998); In re Collins, [Current Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 27,194 at 45,744 (CFTC Dec. 10, 1997). A showing that a registrant lacked an adequate supervisory system may be sufficient to establish a breach of duty under Regulation 166.3. Id. Also, when a problem or issue comes to its attention, a registrant is required to conduct an adequate investigation in order to meet its supervisory obligations. Monieson v. CFTC, 996 F.2d 852, 862 (7th Cir. 1993). Toward this end, future commission merchants have a duty to develop procedures for the "detection and deterrence of possible wrongdoing by its agents." Samson Refining Co. v. Drexel Burnham Lambert, Inc., [1987-1990 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 24,596 at 36,566 (CFTC Feb. 16, 1990)(further citation omitted). WL owed this duty as a registrant. In re GNP Commodities, Inc., [1990-1992 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 25,360 at 39,219 and n. 11 (CFTC Aug. 11, 1992), aff'd in pertinent part sub nom. Monieson v. CFTC, 996 F.2d 852 (7th Cir. 1993). Gibson, who was both a registrant and "the top link in the supervisory chain" within WL and the W&L Division, also owed this duty to supervise. Monieson, 996 F.2d at 862 (board chairman to whom wrongdoers reported owed and breached duty to diligently supervise by failing to launch investigation).
WL and Gibson breached their duties in 1994 and 1995 by failing to develop or implement an adequate supervisory system, particularly as it relates to handling customer money. The handling of customer funds was left inadequately supervised. Further, by failing to establish clear supervisory relationships, safeguards to ensure that proper records were prepared and maintained, and office procedures with respect to handling and transferring customer funds, WL deprived its staff of coherent guidelines and channels by which to assess the propriety of the General Partner's treatment of partnership funds and to communicate any concerns about his activities. Further, WL and Gibson conducted no investigation of the General Partner's money movement, or the other customer fund transfers that passed through WL's bank accounts after its customer trading accounts had been transferred to FOC.
Gibson continued to breach his supervisory duties upon the creation of the W&L Division in January 1995. As the branch manager of the W&L Division, Gibson was required to diligently administer and enforce the policies and procedures set by FOC. See Crothers v. CFTC, 33 F.3d 405, 411 (4th Cir. 1994)(finding that vice president of bond department had supervisory responsibility and was liable for failing to follow FCM's internal control procedures in connection with opening account). He failed to do either, allowing W&L Division personnel knowingly to circumvent FOC policies and procedures with respect to the handling of customer funds. Despite knowing of some irregularities in the handling of the limited partnership funds, Gibson failed to acquaint himself with the frequency or quantity of such deviations, the manner in which the W&L Division staff was handling the money, or the fact that the W&L Division was complying with questionable transfer instructions from the General Partner. His failure to implement and enforce FOC's written policies and procedures and to investigate deviations from such policies and procedures constitute breaches of Regulation 166.3. Monieson, 996 F.2d at 852.
5. Gibson is also liable as a controlling person of WL.
Controlling person liability exists pursuant to Section 13(b) of the Act where the respondent directly or indirectly controls any person who has violated any provision of the Act, and the respondent either did not act in good faith or knowingly induced the act or acts constituting the violation. 7 U.S.C. §13c(b) (1994). Here, Gibson is liable for WL's violations because:
a. Gibson actually exercised general control over the operation of the entity principally liable;
b. Gibson possessed the power or ability to control the specific transaction or activity upon which the primary violation was predicated; and
c. Gibson did not act in good faith
Monieson, 996 F.2d at 859-60 .
With respect to the first element, Gibson was the person who exercised general control over the operation of WL. He was in charge of the entire business and the person to whom everyone employed by WL ultimately reported.
With respect to the second element, it is the existence of power to control an activity that matters, not the exercise of that power. Id. WL was a small firm having fewer than ten back-office employees. As the person in charge of the day to day management of that small operation. Gibson had the power to control the handling of customer funds by WL. In 1995, he was the only person who was authorized under the regulations to sign WL's Form 1-FRs.
With respect to the final element, Gibson's lack of good faith is demonstrated by the fact that he failed to "maintain a reasonably adequate system of internal supervision and control over [WL] or to enforce such a system." Id. at 960, quoting Harrison v. Dean Witter Reynolds, Inc., 974 F.2d 873, 881 (7th Cir. 1992)(additional citations omitted). WL lacked organization. No systematic review and reporting procedures of any kind existed within WL. While Gibson was aware of some of the irregularities in WL and the W&L Division's activities, and knew that such irregularities violated FOC's policies and procedures, he failed to explore the number and extent of such occurrences. He failed to develop procedures for implementing and enforcing the policies and procedures set forth in FOC's manual. Such facts sustain a finding of a lack of good faith under Section 13(b) of the Act. In re Apache Trading Corp., [1990-1992 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 25,251 at 38,794 (CFTC March 11, 1992)(maintenance and enforcement of an adequate system of supervision are helpful in determining issues of good faith).
OFFER OF SETTLEMENT
Respondents have submitted the Offer, in which, without admitting or denying the findings herein, they admit the jurisdiction of the Commission with respect to the matters set forth herein; waive service of a complaint and notice of hearing, 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 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, §§231-32, 110 Stat. 862-63, and Part 148 of the Commission's Regulations, 17 C.F.R. §§ 148.1, et seq., relating to or arising from this action, and any claim of Double Jeopardy based upon institution of this proceeding or the entry of any order imposing a civil penalty or any other relief; stipulate that the record basis on which the Order may be entered shall consist solely of the Order and findings in the Order consented to in this Offer; and consent to the Commission's issuance of this Order, which makes findings and orders: (a) that Respondents cease and desist from violating the provisions of the Act and Regulations that they are found to have violated; (b) that Respondents pay jointly and severally a civil monetary penalty in the amount of $50,000 in accordance with the terms set forth below; (c) that WL's registration be revoked; and (d) that Gibson immediately comply with the undertakings set forth in the Offer.
FINDINGS OF VIOLATION
Solely on the basis of the consent evidenced by the Offer, and without any adjudication on the merits, the Commission finds that:
A. WL violated Section 4d(2) of the Act, 7 U.S.C. § 6d(2) (1994), and Regulation 1.20(a) and (c), 17 C.F.R. § 1.20(a) and (c) (1998), and Gibson is also liable for such conduct as a controlling person of WL, pursuant to Section 13(b) of the Act, 7 U.S.C. § 13c(b) (1994);
B. WL violated Section 6(c) of the Act, 7 U.S.C. § 9 (1994), and Regulation 1.10, 17 C.F.R. § 1.10 (1998), and Gibson is also liable for such conduct as a controlling person of WL, pursuant to Section 13(b) of the Act, 7 U.S.C. § 13c(b) (1994);
C. WL violated Section 4g of the Act, 7 U.S.C. § 6g (1994), and Regulations 1.18, 1.31, 1.32, 1.33, 17 C.F.R. § 1.18, 1.31, 1.32, 1.33 (1998), and Gibson is liable for such conduct as a controlling person of WL, pursuant to Section 13(b) of the Act, 7 U.S.C. § 6g (1994); and
D. WL and David Gibson violated Regulation 166.3, 17 C.F.R. § 166.3 (1998).
Accordingly, it is hereby ordered that:
1. Respondents shall cease and desist from further violations of Sections 4d(2), 4g and 6(c) of the Act, 7 U.S.C. §§ 6d(2), 6g and 9 (1994), and Regulations 1.10, 1.18, 1.20(a) and (c), 1.31, 1.32, 1.33 and 166.3, 17 C.F.R. §§ 1.10, 1.18, 1.20(a) and (c), 1.31, 1.32, 1.33 and 166.3 (1998);
2. Respondents shall pay jointly and severally a civil monetary penalty in the amount of Fifty Thousand Dollars ($50,000) within ten (10) days of the date of the Order and make such payment by electronic funds transfer to the account of the Commission at the United States Treasury or by certified check or bank cashier's check made payable to the Commodity Futures Trading Commission and addressed to Dennese Posey, Division of Trading and Markets, Commodity Futures Trading Commission, 1155 21st Street, N.W., Washington, D.C. 20581 under cover of a letter that identifies Respondents and the name and docket number of this proceeding. A copy of the cover letter and of the form of payment shall be simultaneously transmitted to Phyllis Cela, Acting Director, Division of Enforcement, Commodity Futures Trading Commission, 1155 21st Street, N.W., Washington, D.C. 20581. If Respondents fail to pay the full amount of this penalty within 10 days of the date of the Order, Respondents shall be automatically prohibited from trading on or subject to the rules of any contract market, and all contract markets shall refuse them trading privileges, and Gibson's registration as a floor broker shall be automatically suspended until Respondents show to the satisfaction of the Commission that payment of the full amount of the penalty with interest thereon to the date of payment has been made;
3. The registration of Respondent WL as a futures commission merchant is revoked; and
4. Gibson shall comply with his undertakings, outlined below:
a. CLOSE WOLCOTT & LINCOLN FUTURES, L.L.C.'S FCM BUSINESS
Gibson shall immediately take all steps necessary to, within 30 days of the entry of the Order, responsibly and permanently discontinue and close Wolcott & Lincoln Futures, L.L.C.'s FCM business.
b. DEVELOP AND IMPLEMENT WRITTEN COMPLIANCE
PROCEDURES AND ORGANIZATIONAL STRUCTURE
i. Within 90 days of the entry of the Order, ED&F Man shall conduct a review of the W&L Division's organizational structure, policies and procedures to determine whether they are reasonably designed to deter, detect, discipline and correct conduct of the type found by the Commission in this Order to be violative of the Act and are reasonably designed to provide diligent supervision in accordance with Commission Regulation 166.3. Such review shall include, without limitation, the policies and procedures governing the W&L Division's activities with respect to handling customer funds, opening customer accounts, making any Required Filings,3 and supervision. With respect to any policies and procedures that ED&F Man determines are inadequate, ED&F Man shall formulate reforms or augmentations of those policies and procedures to ensure their implementation and enforcement within the W&L Division.
ii. Within 90 days of the entry of the Order, ED&F Man shall deliver a written report to the Branch Chief of the Southwestern Region Headquarters of the Commodity Futures Trading Commission, Division of Trading and Markets, 4900 Main Street, Suite 721, Kansas City, Missouri 64112 ("T&M"). The report shall include the results of the review undertaken pursuant to this Order and identify specifically ED&F Man's conclusions as to each of the policies and procedures evaluated in the review and any reforms or augmentations of current policies and procedures formulated and implemented within the W&L Division. In addition, Gibson shall certify that the policies and procedures to be followed by the W&L Division are and will remain in force.
c. FUTURE COMPLIANCE PROCEDURES
If Gibson seeks, directly or indirectly, to register an entity with the Commission, either as an Introducing Broker ("IB") or Futures Commission Merchant ("FCM"), or to become a principal or manager of a registered IB or FCM, Gibson shall develop written compliance policies and procedures that include, without limitation, handling customer funds, opening customer accounts, and making any Required Filings by the prospective IB or FCM. Such policies and procedures shall also include a defined organizational and reporting structure. Gibson shall submit such proposed compliance policies and procedures to T&M at least 30 days prior to the time that the prospective IB or FCM begins operation or accepts customer funds.
d. EDUCATION AND TRAINING
In 1999 and 2000, Gibson shall arrange for and attend 8 hours of formal in-house training or outside courses or seminars regarding requirements and regulatory obligations of branch offices and FCMs. To the extent that Gibson delegates responsibility for supervising handling customer funds, opening customer accounts, and making any Required Filings, the person(s) to whom such supervisory responsibility is delegated shall also attend training or courses pertinent to his or her delegated responsibilities. This Education and Training undertaking may be satisfied by in-house training provided by compliance and regulatory personnel of the Kansas City Board of Trade, provided that such in-house training covers the areas outlined above. Gibson shall notify T&M of the sponsor, nature and scope of the proposed training 14 days prior to enrollment in an outside course or seminar or commitment to specific in-house training.
e. PENALTY FOR NON-COMPLIANCE
If Gibson fails to comply with the provisions of paragraphs b, c or d of these undertakings, he shall be, upon 5 day's written notice from the Commission, automatically prohibited from trading on or subject to the rules of any contract market, and all contract markets shall refuse him trading privileges, and his registration as a floor broker shall be automatically suspended until he has so complied.
f. PUBLIC STATEMENTS
As stated in Section II, in consenting to this Order, Respondents neither admit nor deny the allegations or findings of the Order in this proceeding. By neither admitting nor denying the findings or conclusions, Respondents agree that neither they nor any of the agents or employees under their respective authority or control shall take any action or make any public statement denying, directly or indirectly, any findings or conclusions in this Order or creating, or tending to create, the impression that this Order is without a factual basis; provided, however, that nothing in this provision shall affect Respondents' (i) testimonial obligation, or (ii) right to take legal positions, in other proceedings to which the Commission is not a party.
A copy of this Order shall be served upon WL and Gibson, and upon the National Futures Association and all contract markets.
By the Commission:
|Jean A. Webb|
|Secretary to the Commission|
|Commodity Futures Trading Commission|
|Date: August 9, 1999||___________________________________|
1 Respondents do not consent to this use of the Offer or the findings in this Order, consented to in the Offer, as the sole basis for any other proceeding brought by the Commission, other than a proceeding brought to enforce the terms of this Order. Respondents also do not consent to the use of the Offer or the findings in the Order by any other person or entity in this or in any other proceeding. The findings made in the Order are not binding on any person or entity named as a defendant or respondent in this or any other proceeding.
2 The customers' funds were then transferred from WL's account to LIT's customer segregated funds account. The transfers from WL's bank account to LIT's bank account generally occurred on the day that the customer money was deposited in WL's bank account.
3 "Required Filings" are filings and reports required by the Commodity Exchange Act, 7 U.S.C.
§ 1 et seq., and Commission Regulations, 17 C.F.R. § 1 et seq.