Before the





CFTC Docket No. 95-R097


Gregg Fager, the complainant in this reparations proceeding, appeals an initial decision in which he was awarded $858 in damages as against Robert Nadell and Siegel Trading Company, Inc. ("Siegel").1 The Judgment Officer awarded this amount based on a finding that it represented Fager's out-of-pocket losses resulting from Nadell's fraudulent misrepresentations of the profitability of trading. On appeal, Fager argues that his damages should be increased to approximately $10,000. Nadell and Siegel seek affirmance of the damages award, arguing that out-of-pocket losses were correctly calculated by the Judgment Officer.

Based on our independent assessment of the record, we increase Fager's damages to $8,744 as against Nadell and Siegel. This award is consistent with the Judgment Officer's conclusions that Nadell violated Section 4c(b) of the Commodity Exchange Act ("Act"), 7 U.S.C. 6c(b) (1994), and Commission Rule 33.10, 17 C.F.R. 33.10 (1997), by misrepresenting the profitability of trading and that Siegel is liable for Nadell's violations pursuant to Section 2(a)(1)(A)(iii) of the Act, 7 U.S.C. 2(iii) (1994). In addition, we concur with the Judgment Officer's dismissal of the complaint as to Tijean Barrere and James Lane.


Proceeding pro se, Fager filed a complaint on May 22, 1995, alleging that Siegel, a registered futures commission merchant, and its associated persons, Nadell, Barrere and Lane, fraudulently misrepresented the risks and the profit potential of options trading. Complaint at 9-13. Fager alleged that he was initially contacted by Nadell in March 1994 and received information and account opening documents, including risk disclosure statements, soon thereafter. Fager alleged that Nadell called him two or three times a week and that he decided in May 1994 to open an account. Stating that he "knew next to nothing" about trading commodities, Fager claimed that he was persuaded to invest by Nadell, who continually told him to "let me drive the bus." Complaint at 2.

Nadell's first recommendation to Fager was to buy coffee options, which he did. Fager alleged that Nadell then persuaded him to liquidate his coffee position at a profit of $9,599 and to invest in Treasury bond options. Fager claimed that Nadell repeatedly urged him to establish a Treasury bond position, telling Fager that the Federal Reserve Board was expected to raise interest rates by November 1994. Complaint at 2-3. Nadell recommended that Fager buy put options to take advantage of this anticipated market move. Two December Treasury bond put options were purchased for Fager's account on June 30, 1994, followed on July 6, 1994, by the purchase of one November 1994 soybean call option.2

Interest rates did not increase, and Fager's Treasury bond position eroded over the summer and into the fall. Nevertheless, Fager claimed that Nadell persuaded him to maintain the position on the grounds that rates would rise. Complaint at 3-4. Fager's soybean option expired worthless. Fager alleged that Nadell persuaded him to sell the expiring December Treasury bond options and to purchase March Treasury bond options, because the latter would have more time to react to a rate increase, which Nadell assured Fager was still anticipated. Complaint at 4, 12-13.

Interest rates were raised on November 15, 1994, but failed to increase the value of Fager's position. Fager contacted Siegel's offices and learned that Nadell was away. His calls were handled by Barrere and Lane, other associated persons with Siegel. They both advised Fager to hold onto his position and await another anticipated rise in interest rates in late January or early February 1995. Complaint at 6-7. Fager did so to no avail. Though interest rates were raised on February 1, 1995, Fager's Treasury bond put options decreased in value, expiring worthless in mid-February 1995. Id.

Respondents filed a joint answer denying liability and asserting that Fager's realized profits of $9,599 on the coffee trade should be offset against his damage claim, thus limiting his out-of-pocket losses to $858.

Account statements produced by respondents during discovery detail Fager's trading history. Fager opened the account with a $7,000 cash deposit on May 24, 1994, making an additional deposit of $496 on May 26, 1994, and a final deposit of $1,714 on July 15, 1994, for a total of $9,210. On May 24, 1994, Fager made his first purchase consisting of one December 1994 coffee call option, for a total amount of $7,496. Fager offset the position on June 29, 1994, for a total of $17,095, realizing a $9,599 profit on the round-turn trade. On June 30, 1994, Fager purchased two December 1994 Treasury bond put options for a total of $9,010. On July 6, 1994, Fager purchased one November 1994 soybean call option for $1,714. Also on that day, Fager requested and received a cash distribution from his account for $8,085. On October 24, 1994, Fager's soybean call option expired worthless. On November 1, 1994, in a rollover transaction, Fager offset his two December Treasury bond put options and purchased three March 1995 Treasury bond put options, which expired worthless in February 1995. Fager's remaining $267 account balance was remitted to him. No further trading took place.

Testifying during a telephonic hearing held on September 12, 1996, Fager reiterated the allegations of his complaint. Fager testified that Nadell told him that bonds and coffee were a "good investment and that [he] ought to become involved." (Tr. at 9.) Fager testified that he agreed to invest after Nadell assured him that, if he let Nadell "drive the bus," the risk would be minimized. (Tr. at 10.) Fager testified that encouraged by Nadell, he invested in coffee with the goal of doubling his investment. (Tr. at 9-10.) By summer, Fager agreed to Nadell's recommendation to invest in Treasury bonds, testifying that Nadell assured him that:

the way interest rates were going . . . I could make a good amount of money on those . . . . [T]hey were essentially the same things that [Nadell] repeated throughout the time that I had those bond options; namely, that Greenspan was going to raise the interest rates and, in doing so, that would increase the value of my bond options.

(Tr. at 11-12.)

Fager said little about his soybean position other than that by September the soybean option had become worthless. (Tr. at 20.)

Nadell testified that Fager's name was obtained from a list of Utah lawyers supplied by Siegel and compiled by the local bar association. (Tr. at 86.) Conceding that he told Fager to let him "drive the bus," Nadell claimed, however, that he only meant that he would be "very, very alert in handling his account." (Tr. at 87.) Nadell testified that he never guaranteed the profitability of Fager's positions. (Tr. at 86.) He said that, in conversations before the account was opened, he discussed with Fager "[g]enerally, options, what they could produce, the risk, general conversation about the commodity, and . . . bonds . . . ." (Tr. at 85.) Asked about his conversations with Fager during the life of the account, Nadell testified that he and Fager discussed "what [Fager's] worth was on his options, where were they going, what the market was doing and any other information [he] could give him on that particular day." (Tr. at 86.)

Barrere testified that he spoke to Fager about half a dozen times during Nadell's absence in mid-December 1994, speaking in general terms about interest rates and recommending that Fager hold his position. (Tr. at 91.) Lane testified that he also spoke to Fager during this time and gave him various quotes on his position. (Tr. at 96.)

In a March 20, 1997 initial decision, the Judgment Officer found that Nadell fraudulently solicited Fager to trade by making representations of profits that he could make for Fager if Fager "trusted" him to "drive the bus." Initial Decision at 21. The Judgment Officer found that Nadell made this statement to Fager because "Nadell knew that Fager had little time to track the market. . . . Nadell convinced Fager to let him select and time trades . . . ." Initial Decision at 21. Moreover, the Judgment Officer found that "[t]he fortuitous profit on the first trade reinforced Fager's belief that Nadell in fact knew how to select profitable trades." Id. In addition, the Judgment Officer found that Nadell "routinely overemphasized profits" and concluded that these "unrestrained claims of profits" constituted reckless misrepresentations and deceptions in violation of Section 4c(b) of the Act and Commission Rule 33.10. Initial Decision at 21-22. In addition, the Judgment Officer found Siegel liable for Nadell's violations pursuant to Section 2(a)(1)(A)(iii) of the Act. He dismissed the complaint as to Barrere and Lane. Initial Decision at 24.

The Judgment Officer concluded that the proper measure of damages was Fager's out-of-pocket losses, which he calculated as $858, representing his losses on the Treasury bond and soybean options less his gain on the coffee option.

On appeal, Fager argues that the damage award should be increased to approximately $10,000.3 Nadell and Siegel seek affirmance of the damages awarded by the Judgment Officer. Reply Brief at 2.


Section 14(a)(1)(A) of the Act, 7 U.S.C. 18(a) (1)(A) (1994), allows complainants in a reparations proceeding to recover "actual damages proximately caused by [a] violation." See Goldstein v. James T. McKerr & Co., [1984-1986 Transfer Binder] Comm. Fut. L. Rep. (CCH) 22,553 at 30,395 (CFTC Apr. 12, 1985). In this regard, the Commission stated in Stiller v. Shearson, Loeb Rhoades, Inc., [1982-1984 Transfer Binder] Comm. Fut. L. Rep. (CCH) 21,780 at 27,155 (CFTC July 11, 1983), "the calculation of damages should focus on the out-of-pocket loss to the complainant which was caused by the unlawful act."

We conclude that the Judgment Officer erred in calculating Fager's "actual damages" as $858. The Judgment Officer's error lay in offsetting Fager's profit on his coffee trade against his subsequent losses on Treasury bond options. Although Nadell's initial representations that induced Fager to begin trading were fraudulent, Nadell's subsequent representations regarding the impact of anticipated increased interest rates on Treasury bond option prices were also fraudulent and a proximate cause of Fager's losses on the Treasury bond options. As the Judgment Officer found, Nadell's statements, as described by Fager in his testimony, went beyond the range of permissible predictions and advice and amounted to impermissible guarantees and lulling. Nadell promised Fager that he would "drive the bus" and continually assured him that the anticipated interest rate hike would lead to profits on his Treasury bond options. See, e.g., Tr. at 10, 11, 12, 13, 22. These fraudulent representations caused Fager to invest in, and ultimately lose on, the Treasury bond option transactions.

The $9,599 in profits that Fager earned on the coffee trade should not be used to reduce his damages on the subsequent Treasury bond transactions. Those profits had been earned as of the time that Fager relied on Nadell's misrepresentations concerning Treasury bond options by instructing Nadell to purchase them on his behalf. The Commission has stated that "profits [are] no less [complainant's] property than his initial investment and constitute part of his total damages." Kacem v. Castle Commodities Corp., [Current Transfer Binder] Comm. Fut. L. Rep. (CCH) 27,058 at 45,033 (CFTC May 20, 1997). Nadell and Siegel should not benefit from Fager's initial profit by having it offset against Fager's later losses merely because Fager had been fraudulently induced to enter into the profitable trade. To permit such an offset would be to reward perpetrators of fraudulent schemes designed to induce customers into investing large sums by an initial profitable transaction. Accordingly, Fager's damages are $8,743, calculated as follows: Fager's first two deposits to his account totaling $7,496, plus $9,599 in trading profits on the coffee transaction, for a total of $17,095, less the two cash disbursements to Fager totaling $8,352 equals $8,743.4

In light of our findings, we affirm the liability finding in the initial decision, but increase Fager's damages award to $8,743. Fager is awarded damages from Nadell and Siegel in the amount of $8,743, with prejudgment interest on this amount calculated at the rate of 5.39 percent per annum from June 30, 1994 to the date of payment, plus $125 for the cost of the filing fee.


By the Commission (Chairperson BORN and Commissioners HOLUM and SPEARS; Commissioner TULL concurring).


Jean Webb

Secretary of the Commission

Commodity Futures Trading Commission

Dated: May 7, 1998

1 On November 24, 1997, the Commission's Office of Proceeding was notified of the death of respondent Nadell.

2 None of the pleadings submitted by Fager describes the circumstances surrounding his decision to enter into the soybean trade or any specific representations made to induce him to establish the position, nor did Fager describe the soybean trade in his testimony.

3 Fager's pleadings variously calculate his damages as $10,121, $10,457 and $10,724.

4 No recovery has been granted for Fager's $1,714 losses on the soybean option trade. Fager has provided little evidence regarding the representations made to induce him to purchase the soybean option and, thus, has not carried his burden of proof as to this transaction. See n. 2. Fager's final deposit to his account of $1,714 was apparently made to cover the soybean trade. Accordingly, that deposit plays no role in this damage calculation.

5 Under Sections 6(c) and 14(e) of the Commodity Exchange Act (7 U.S.C. 9 and 18(e) (1994)), a party may appeal a reparation order of the Commission to the United States Court of Appeals for only the circuit in which a hearing was held; if no hearing was held, the appeal may be filed in any circuit in which the appellee is located. The statute also states that such an appeal must be filed within 15 days after notice of the order and that any appeal is not effective unless, within 30 days of the date of the Commission order, the appealing party files with the clerk of the court a bond equal to double the amount of the reparation award.

A party who receives a reparation award may sue to enforce the award if payment is not made within 15 days of the date the order is served by the Proceedings Clerk. Pursuant to Section 14(d) of the Act (7 U.S.C. 18(d) (1994)), such an action must be filed in United States District Court. See also 17 C.F.R. 12.407 (1997).

Pursuant to Section 14(f) of the Act (7 U.S.C. 18(f) (1994)), a party against whom a reparation award has been made must provide to the Commission, within 15 days of the expiration of the period for compliance with the award, satisfactory evidence that (1) an appeal has been taken to the United States Court of Appeals pursuant to Section 6(c) and 14(e) of the Act or (2) payment has been made of the full amount of the award (or any agreed settlement thereof). If the Commission does not receive satisfactory evidence within the appropriate period, such party shall be automatically suspended from registration under the Act and prohibited from trading on all contract markets. Such prohibition and suspension shall remain in effect until such party provides the Commission with satisfactory evidence that payment has been made of the full amount of the award plus interest thereon to the date of payment.


I concur with the majority that Fager was fraudulently induced to trade options and should be awarded reparations for his losses. However, I find any fraudulent inducement as to the coffee trades to be irrelevant in this case, because there were profitable trades. Consequently, I do not believe that it is possible or correct to include the coffee trade profits in calculating Fager's damages and would arrive at the reparations award figure differently from the majority.

On the facts before us, I would limit Fager's reparations award to the damages proximately caused solely by Nadell and Siegel's fraudulent inducement to trade the Treasury Bond options contracts. Fager's out-of-pocket losses are thus calculated by deducting from the amount he lost in the Treasury bond options trades--$9,010.00-the equity returned to him when his account was closed--$267.00. The difference, $8,743.00, is what Fager lost out-of pocket from the Treasury Bond option trades, and this is what I would award him in reparations.

Therefore, I concur in the judgment.