CFTC News Release: 4359-00 (CFTC Docket # 99-7)
For Release February 4, 2000
CFTC ACCEPTS SETTLEMENT OFFERS OF DUNHILL FINANCIAL GROUP, INC. AND MARK HUTCHERSON IN CASE INVOLVING THE FRAUDULENT SOLICITATION OF CUSTOMERS
CFTC Finds that Dunhill and Hutcherson Committed Fraud in Soliciting Customers to Trade Options on Commodity Futures Contracts and Failed to Supervise, and Revokes Their Registrations and Prohibits Them from Trading, among other Sanctions
WASHINGTON -- The Commodity Futures Trading Commission (CFTC) announced today that on February 4, 2000, it issued an order accepting offers of settlement from Dunhill Financial Group, Inc. and Mark Hutcherson, both of the Atlanta, Georgia, area, and imposing sanctions, in connection with a complaint filed against them on March 4, 1999 (see CFTC News Release 4241-99, March 4, 1999). This case involved, among other things, the fraudulent solicitation of customers over the Internet to trade options on commodity futures.
The CFTC order finds that Dunhill, a registered introducing broker (IB), commodity pool operator (CPO), and commodity trading advisor (CTA), and Hutcherson, a principal and 51 percent owner of Dunhill, and a registered associated person of Dunhill, violated anti-fraud provisions of the Commodity Exchange Act (CEA) and CFTC regulations, specifically section 4c(b) of the CEA and regulation 33.10, and failed to supervise diligently their employees and agents, in violation of regulation 166.3. The order also finds that Hutcherson aided and abetted, and as a controlling person of Dunhill was liable for, Dunhill’s fraudulent solicitation of customers to trade options and options spreads on commodity futures contracts, primarily "seasonal" commodities such as natural gas, heating oil, and unleaded gas.
Specifically, the CFTC order finds that over approximately 4 years, Dunhill fraudulently solicited customers by knowingly misrepresenting, and failing to disclose, material facts, such as: (1) the customer’s ability to profit from known supply and demand forces, including seasonal trends, in the commodity cash markets; (2) the risk involved in trading options; and (3) the amount of commissions charged and the substantial impact that commissions had upon the customer’s ability to earn a profit on options trading. In fact, as the order finds, over a three-year period, more than 94 percent of Dunhill’s customers suffered net losses in options trading totaling in excess of $8,000,000, including commissions.
The CFTC order further finds that Hutcherson also defrauded customers by making material misrepresentations and omissions in his personal telephone solicitation of customers and that he aided and abetted Dunhill’s fraud by (1) reviewing or approving the content of fraudulent radio advertisements from which Dunhill purchased leads; (2) contributing to and approving the inclusion of false representations in Dunhill’s own promotional materials; and (3) training Dunhill APs to make material representations and omissions. The order also finds Hutcherson liable as a controlling person for Dunhill’s fraud, as a controlling person and that Dunhill and Hutcherson failed to supervise diligently Dunhill’s APs and agents in their solicitations and Dunhill’s employees in preparing Dunhill’s promotional materials.
Dunhill and Hutcherson, without admitting or denying the findings, consented to the entry of an order:
-- directing them to cease and desist from further violations of the CEA and regulations as charged;
-- revoking their registrations;
-- prohibiting them from trading on or subject to the rules of any contract market;
-- requiring Hutcherson to pay a civil monetary penalty of $10,000;
-- requiring Hutcherson to pay $8,308,621 in restitution, plus prejudgment interest, pursuant to a payment plan; and
-- requiring them to comply with certain undertakings, including never applying for registration or claiming exemption from registration in any capacity and never engaging in any activity requiring such registration or exemption from registration.
The CFTC previously issued an order accepting offers of settlement from all of the other respondents named in the complaint on July 29, 1999 (see CFTC News Release #4295-99, July 29, 1999).