CFTC News Release 4375-00 (CFTC Docket No. 00-07)
For Release March 7, 2000
CFTC FILES AND SETTLES ENFORCEMENT ACTION AGAINSTJAMES DEN HARTOG OF WORTHINGTON, MINNESOTA, AND JAMES BAUMGARD, OF SPIRIT LAKE, IOWA, IN UNAUTHORIZED TRADING CASE
CFTC Finds that James Den Hartog Defrauded His Employer by Engaging in Unauthorized Trading and that James Baumgard, an Account Executive, is Also Liable in Connection with Den Hartog’s Trading
WASHINGTON – The Commodity Futures Trading Commission (CFTC) announced today the issuance of an order instituting and simultaneously settling an administrative proceeding against James Den Hartog of Worthington, Minnesota, and James Baumgard of Spirit Lake, Iowa, a registered associated person (AP) of Farmers Commodities Corporation (FCC).
The CFTC order finds that Den Hartog engaged in unauthorized trading to the detriment of his employer and Baumgard failed to disclose the unauthorized trading to Den Hartog’s employer and assisted Den Hartog in implementing a trading strategy to attempt to reduce or eliminate the trading losses resulting from the unauthorized trading.
Specifically, the CFTC order finds that Den Hartog was the general manager of the Cooperative Elevator Association (Cooperative) of Ocheyedan, Iowa, whose Board of Directors (Board) authorized Den Hartog to trade commodity futures and options on futures to hedge Cooperative’s cash grain market business.
According to the order, in approximately December 1995 and continuing through June 1996, Den Hartog established and liquidated certain speculative corn futures spreads and corn options positions in the Cooperative hedge account that resulted in trading losses to Cooperative of approximately $1 million. The order further finds that Den Hartog concealed those losses by making or causing to be made false written statements to the Board until June 1996, when he disclosed the losses to the Board. The CFTC order finds that by his actions, Den Hartog defrauded Cooperative and willfully made or caused to be made false reports in violation of sections 4b(a)(i),(ii) and (iii) and 4c(b) of the Commodity Exchange Act (CEA) and Commission regulation 33.10(a),(b) and (c).
The CFTC order also finds that Den Hartog informed Baumgard, the account executive responsible for Cooperative’s trading account, about his speculative trading losses at the end of April 1996. The order further finds that, although he advised Den Hartog to inform Cooperative’s Board about the losses, Baumgard himself did not disclose the unauthorized trading to the Board or FCC. Instead, as the order finds, Baumgard continued to accept orders from Den Hartog that he knew were unauthorized and recommended and assisted Den Hartog in implementing an options trading strategy in an attempt to reduce or limit the trading losses. The CFTC order finds that Baumgard committed fraud by accepting unauthorized orders from Den Hartog and breaching his duty to advise his customer of the obvious dangers to its financial interests in violation of sections 4b(a)(i) and (iii) and 4c(b) of the CEA and Commission regulation 33.10(a) and (c).
Without admitting or denying the findings of the order, Den Hartog and Baumgard consented to the entry of the order making findings and:
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