CFTC News Release 4355-00

For Release January 27, 2000

CFTC ACCEPTS SETTLEMENT OFFERS FROM FIRST OPTIONS OF CHICAGO, INC. IN TWO ENFORCEMENT ACTIONS, AND ORDERS MORE THAN $200,000 IN MONETARY SANCTIONS

In One Action, CFTC Finds That First Options of Chicago Is Liable For Violations Of, And Failed To Diligently Supervise its Guaranteed Introducing Broker; In The Second Action, CFTC Finds Recordkeeping Violations

WASHINGTON - The Commodity Futures Trading Commission (CFTC) announced today that it issued two orders on January 27, 2000, settling two administrative enforcement actions against First Options of Chicago, Inc. (First Options), a registered futures commission merchant in Chicago, Illinois. In one order, the CFTC finds that First Options failed to diligently supervise International Futures Corporation (IFC), its guaranteed introducing broker (IB), when reviewing and approving IFC’s promotional materials and that, as IFC’s guarantor, First Options is liable for IFC’s failure to include certain cautionary language in its promotional materials, as required by CFTC regulation. Among other sanctions, First Options is ordered to pay restitution to customers of $138,000 and a civil monetary penalty of $25,000. This order settles a complaint filed against First Options by the CFTC on August 17, 1998 (see CFTC News Release 4179-98 August 17, 1998).

In the second order, the CFTC finds that First Options violated recordkeeping requirements by making delayed and incomplete responses to requests for documents in a Commission enforcement investigation. Among other sanctions, First Options is required to pay a civil monetary penalty of $40,000. This order settles a CFTC complaint filed against First Options on December 22, 1998 (see CFTC News Release 4218-98, December 22, 1998). First Options settled both enforcement actions without admitting or denying the allegations of the complaints or the findings in the orders.

In First Action, CFTC Order Finds That, As IFC’s Guarantor, First Options Is Liable For IFC’s Violations Of CFTC Regulations And That First Options Failed To Diligently Supervise IFC When Reviewing And Approving IFC’s Promotional Materials and Powers of Attorney

The CFTC’s order finds that, between March and July 1996, IFC solicited clients through radio advertisements, written promotional material, and oral representations to open accounts in a managed commodity futures trading account program called the Hermes Trading Program ("Hermes"). IFC’s radio advertisements and written promotional material presented hypothetical performance results for the Hermes program as actual performance results. First Options, which guaranteed IFC, approved IFC radio advertisements that misrepresented that the Hermes program had eight years of actual performance results, and an IFC promotional document that created the impression that the Hermes program had three years of actual performance results, when in fact these performance results were hypothetical. First Options approved the radio advertisements and the promotional document although: (1) these performance results were not accompanied by the cautionary statement explaining the inherent limitations of hypothetical performance results required by section 4.41(b) of the regulations; and (2) they did not comply with the requirements for such advertisements and promotional material set forth in First Options’ compliance manual. The order finds that First Options is liable for the violations of section 4.41(b) of the regulations committed by IFC, its guaranteed IB.

The CFTC order also finds that First Options failed to diligently supervise IFC, in violation of Commission Regulation 166.3. Specifically, the order finds that First Options failed to diligently supervise IFC in its review of IFC’s advertisements and promotional material, as set forth above, and in failing to determine whether IFC or its associated persons (APs) needed to register as commodity trading advisors even though: (1) IFC’s advertisements and promotional document alerted First Options that IFC was promoting a managed account program; and (2) First Options knew that IFC’s APs were obtaining numerous powers of attorneys in a very short period of time, including one that specifically referenced the Hermes program. The order also finds that total revenues to First Options and IFC from the Hermes program were approximately $25,000 and $113,000, respectively.

Without admitting or denying the CFTC’s findings, First Options consented to the entry of the order that:

-- directs it to cease and desist from further violations of Commission supervision and advertising regulations;

-- requires the firm to pay restitution to Hermes customers in the amount of $138,000; and

-- orders the firm to pay a civil monetary penalty of $25,000.

The CFTC previously issued an order accepting the settlement offer of IFC on March 3, 1999 (see CFTC News Release #4238-99, March 3, 1999).

In Second Action, CFTC Order Finds That First Options Failed to Retain and Promptly Produce Required Records

In the second enforcement action against First Options, the CFTC order finds that First Options failed to retain and promptly produce records which are required to be kept pursuant to Section 4g of the CEA and CFTC regulations 1.31 and 1.35(a). Specifically, the order finds that First Options took almost nineteen months to complete production of the floor order tickets requested by the CFTC’s Division of Enforcement in March 1995. In addition, the order finds that First Options failed to produce most of the requested carbon copies of floor orders. As a result, the order finds that First Options violated the Commission’s recordkeeping requirements.

Without admitting or denying the CFTC’s findings, First Options consented to the entry of the order that:

-- directs it to cease and desist from further violations of the recordkeeping provisions;

-- orders the firm to pay a civil monetary penalty of $40,000; and

-- requires the firm to comply with its undertakings, including that it maintain the compliance procedures that it has recently implemented or other procedures reasonably designed to ensure timely responses to regulatory requests for required records.

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