CFTC News Release 4397-00
For Release May 1, 2000
CFTC FILES TEN ACTIONS ALLEGING FRAUDULENT INTERNET PROMOTION OF COMMODITY TRADING SYSTEMS AND ISSUES CONSUMER ADVISORY
CFTC Issues Ten Orders Against Fraudulent Internet Promoters; CFTC also Warns the Public to Be Wary of Websites which Claim that Purchasers of Trading Systems and Advisory Services Will Make Substantial Profits and Be Exposed to Minimal Risk of Loss
WASHINGTON -- The Commodity Futures Trading Commission (CFTC) announced today that it has commenced a coordinated enforcement initiative aimed at cleaning up websites that fraudulently promote commodity trading systems and advisory services. Commodity trading systems typically are computerized programs that signal members of the public when to buy and sell futures and options contracts based on technical analysis of market trends. As part of its initiative, the CFTC is:
-- instituting and simultaneously settling ten administrative proceedings; and
-- issuing a Consumer Advisory warning the public about false and misleading claims on websites touting the purported performance of trading systems and advisory services.
According to CFTC Chairman William J. Rainer:
The Internet provides many benefits to the investing public, but it can also provide a means for some web operators to make misleading or fraudulent claims about their investment strategies. Today's actions by the CFTC should help remind consumers to be very skeptical when someone promises amazing investment profits with little or no risk. And these actions should also be a warning to the sellers of these systems that the CFTC will vigorously pursue fraudulent advertising and solicitation -- on the Internet and through traditional media.
Phyllis Cela, Acting Director of the CFTC's Division of Enforcement, also commenting on the CFTC's enforcement initiative, said:
In the last couple of years, we have seen an increase in the number of commodity trading systems fraudulently advertised on Internet websites. Unscrupulous promoters have misrepresented that they have earned enormous profits by trading according to the signals generated by their trading systems. The CFTC’s investigations have revealed, however, that the claimed results were false and often were based on hypothetical or simulated trading, not actual trading in futures and options markets. Through today’s enforcement actions and Consumer Advisory, the CFTC reminds the public to investigate exaggerated profit claims before committing personal savings to risky trading ventures.
The CFTC's enforcement initiative has been coordinated with similar actions taken today by the Federal Trade Commission and the Securities and Exchange Commission.
CFTC Finds that Ten Internet Promoters of Trading Systems and Advisory Services Engaged in Fraud
In the ten orders issued today, the CFTC found that promoters of commodity trading systems and advisory services (collectively, "respondents") made fraudulent performance claims on their Internet websites. Many of the respondents falsely claimed that performance results were based on real trading, when, in fact, the results were based on hypothetical trading. Some respondents also falsely claimed personal success in trading with their systems. One respondent claimed significant profits based on hypothetical trading but never disclosed that he had actually lost money trading with his system. In addition, in one case, the CFTC found that the respondents -- the promoter of the trading system and a registered introducing broker -- made false claims concerning a rebate plan the introducing broker was offering customers of the promoter. Respondents neither admitted nor denied the findings entered by the CFTC.
The following respondents and their websites were the subjects of the CFTC orders:
|Firm or Individual (click to view Order):||Website Address:|
The ten orders require the promoters to cease and desist from violating the provisions of the Commodity Exchange Act (CEA) and the CFTC's regulations which the Commission found they violated; to undertake, among other things, to make no unsubstantiated profit or risk claims; and to pay $10,000 civil monetary penalties, unless respondents have demonstrated to the Commission that they do not have the financial ability to pay such a penalty.
Advisory Warns Members of the Public to Beware of Websites Selling Commodity Trading Systems that Guarantee High Profits with Minimal Risks
The CFTC's Advisory, also issued today, warns the public to be skeptical when promoters of commodity trading systems and services claim that their systems and services earn high profits with minimal risks. The Advisory further warns that some trading systems trigger frequent trading signals, which result in substantial commissions and fees that can have a substantial effect on profitability. Consumers are reminded that no trading system can guarantee profits and, whether or not a trading system is used, trading commodity futures and options is typically a high-risk endeavor.
The Advisory points out that at times these websites falsely claim that performance results are based on real trading, when, in fact, the results are based on hypothetical trading. As the Advisory emphasizes, hypothetical trading results do not reflect actual trading results; instead, trading systems promoters typically pretend that they traded futures contracts at market prices that occurred some time in the past. The Advisory notes that hypothetical trading results do not account for real market conditions that affect trading decisions and may not take into account the financial ability of the trader to handle trading losses. Hypothetical results also may not account for the cost of purchasing and using the systems and trading including commissions, and may be susceptible to rigging by promoters who select historical trades that would have yielded the greatest returns.
The Advisory provides a checklist of questions to help consumers in deciding whether to use a trading system, and reminds consumers: "If it sounds to be good to be true, it probably is too good to be true."
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