CFTC News Release 4454-00 (CFTC Docket No. 00-35)
For Release September 28, 2000
CFTC FILES ENFORCEMENT ACTIONS CHARGING FRAUDULENT SOLICITATION OF CUSTOMERS AGAINST TWO FLORIDA INTRODUCING BROKERS, MATRIX TRADING GROUP, INC. AND FIRST FINANCIAL TRADING, INC.
CFTC Also Charges Fraud Against Five Current and Former Principals and Employees of the Companies -- Christopher Smithers and David Wedeen of Matrix, and Corey Johnson, Scott Dewitte and Thomas Glover, II, of First Financial
WASHINGTON – The Commodity Futures Trading Commission (CFTC) announced today the filing of two separate enforcement actions against two Florida companies registered with the CFTC as introducing brokers (IBs), Matrix Trading Group, Inc. (Matrix) of Singer Island, Florida, and First Financial Trading, Inc. of Jupiter, Florida, and against five current and former principals and employees of the companies -- Christopher Smithers and David Wedeen of Matrix, and Corey Johnson, Thomas Glover, II, and Scott Dewitte of First Financial.
The CFTC complaints each allege that the defendants engaged in fraudulent solicitation of customers to open accounts to trade options on commodity futures contracts (commodity options) by misrepresenting, and failing to disclose, the likelihood that customers would realize large profits from trading commodity options, the risk involved in trading commodity options, and the performance record of Matrix customers based upon the Matrix trading strategy. The complaints also allege that Matrix and First Financial and their principals -- Smithers and Wedeen of Matrix and Johnson of First Financial --failed to supervise diligently the solicitation and handling of customer accounts.
CFTC Files Federal Court Injunctive Action Against Matrix, Wedeen, and Smithers, Alleging Fraud and Failure to Supervise Diligently And Is Seeking A Temporary Restraining Order
In the first matter, the CFTC filed an injunctive complaint on September 26, 2000, in the United District Court of the Southern District for Florida against Matrix, Wedeen (formerly president, principal and registered associated person (AP) of Matrix), and Smithers (vice president, principal and registered AP of Matrix), charging them with violating anti-fraud provisions of the Commodity Exchange Act (CEA) and CFTC regulations, specifically section 4c(b) of the CEA and CFTC regulation 33.10, and with violating the supervisory requirements of regulation 166.3.
The CFTC is seeking a temporary restraining order (TRO) against Matrix, Wedeen, and Smithers, prohibiting them from further violations of the CEA and Commission regulations, freezing defendants’ assets, and granting CFTC representatives immediate access to defendants’ books and records. A hearing will be held on October 5 on the CFTC's motion for a TRO.
The CFTC complaint specifically alleges that Matrix, Smithers, and Wedeen each fraudulently misrepresented and failed to disclose material facts in connection with the solicitation of commodity option transactions. The complaint alleges that since at least July 1998, Matrix, through its APs, including Wedeen and Smithers, has knowingly misrepresented or failed to disclose material facts concerning:
For instance, the complaint alleges that the defendants claimed that Matrix had success rates varying from "more than 50 percent" to "100 percent," even though approximately 92 percent of Matrix’s customers suffered net losses totaling approximately $3.2 million. The complaint further alleges that Matrix, Wedeen, and Smithers violated CFTC regulation 166.3 by failing to diligently supervise Matrix's APs. The complaint also alleges that from at least March 1998 to July 1998, before working at Matrix, Smithers also fraudulently solicited customers to open commodity options accounts by making similar misrepresentations and omissions while employed at Infinity Trading Group.
In its continuing litigation, the CFTC is also seeking preliminary and permanent injunctions and other remedial relief, including restitution to customers, against the defendants.
CFTC Files Administrative Complaint Charging First Financial, Dewitte, Glover, and Johnson With Fraud, and First Financial and its Former Principal, Johnson, With Failure To Supervise Diligently
In the second matter, the CFTC filed a four-count administrative complaint on September 28, 2000 against First Financial, Johnson, a former principal of First Financial, DeWitte (current principal and AP of First Financial), and Glover (former AP of First Financial), also charging them with the fraudulent solicitation of customers to trade commodity options in violation of section 4c(b) and regulation 33.10. The complaint also alleges that First Financial and Johnson failed to supervise First Financial APs diligently in violation of CFTC regulation 166.3.
The CFTC complaint alleges, as in the Matrix injunctive case, that since at least July 1999, First Financial, Glover, and Dewitte defrauded customers by making false and misleading statements which:
For example, the complaint alleges that Glover and Dewitte both claimed their customers were making money or had an excellent success rate even though over 98 percent of First Financial’s customers suffered net losses, totaling over $540,000. The complaint alleges that Johnson is liable for the fraud because he controlled First Financial during the relevant time, and did not act in good faith or knowingly induced the fraudulent conduct. As further alleged, First Financial and Johnson also failed to supervise diligently the sales practices and solicitations of APs and the trading of customer accounts and failed to design, implement, and monitor a program of supervision and compliance designed to detect and deter violations of the CEA and regulations.
The complaint further charges that prior to their employment with First Financial, Glover fraudulently solicited customers while at LMB Trading Group, and Dewitte defrauded customers while at LMB and American Financial Group Services Incorporated, by making similar misrepresentations and failing to disclose material facts while soliciting customers to open and trade commodity options accounts.
A public hearing has been ordered in the administrative action to determine whether the allegations are true, and, if so, what sanctions are appropriate and in the public interest. Possible sanctions include cease and desist orders, restitution to defrauded customers, civil monetary penalties, trading prohibitions and registration revocations, suspensions or restrictions.
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