CFTC News Release 4465-00 (CFTC Docket # 01-01)
For Release October 26, 2000
CFTC FILES ENFORCEMENT ACTION AGAINST U.S. SECURITIES & FUTURES CORP. (USSFC), JUSTUS ENTERPRISES, INC., THOMAS WHITE, NANCY BELLASSAI, JOHN HING, MICHAEL SKRABLE AND DANIEL REYNOLDS, CHARGING THAT THEY PARTICIPATED IN A FOREIGN BROKER’S MULTI-MILLION DOLLAR TRADE ALLOCATION FRAUD
CFTC Also Alleges, Among Other Things, That USSFC, Hing, White, Bellasai, Huaya Lu Tung, Thomas Gong, Jiping Wu, and Bellasai Failed to Supervise Diligently USSFC and Its Employees
WASHINGTON – The Commodity Futures Trading Commission (CFTC) announced today that, on October 26, 2000, it filed a six-count administrative complaint against U.S. Securities & Futures Corp. (USSFC), a New York futures broker and securities broker-dealer, certain of its officers, and Justus Enterprises, Inc. (Justus), a New York commodity trading advisor, and certain of its officers. The CFTC complaint alleges that USSFC, Justus, and certain individual respondents participated in an extensive allocation scheme and other fraudulent conduct and that USSFC and certain of its officers engaged in supervisory and regulatory violations.
The individuals charged in the complaint are USSFC’s President, Thomas V. White of Staten Island, New York; USSFC Vice President, Nancy A. Bellassai of Manhattan; USSFC’s Chairman, Huaya Lu Tung and USSFC’s compliance officer, Thomas H. Gong, both of Edison, New Jersey; USSFC’s Chief Executive Officer,John O. Hing of Holmdel, New Jersey; USSFC’s Chief Financial Officer, Jiping Wu of Branchburg, New Jersey; Justus’ Officer Manager, Daniel Reynolds of Manhattan; and Justus’ Assistant Office Manager, Michael Skrable of Toms River, New Jersey.
The complaint alleges that between 1996 and 1998, USSFC, White, Bellassai, Justus, Reynolds, and Skrable defrauded customers of Currency & Commodity Broker GmbH (CCB), a Hamburg, Germany-based foreign broker that traded through USSFC, by participating in the fraudulent allocation of thousands of customer trades after they were executed. As alleged, CCB allocated, at the end of the trading day, winning futures trades to recently-opened accounts and losing trades to older accounts. The complaint alleges that CCB then persuaded the customers receiving the winning trades to invest substantial additional funds. As further alleged, Justus, Reynolds, Skrable, and Bellassai placed, as directed by CCB, hundreds of unallocated trades each trading day through USSFC. In addition, the complaint alleges that the trading strategies recommended by Justus and the individual trading advisors, and the relatively high commissions, did not offer customers a reasonable opportunity to profit. The complaint alleges that White and Bellasai of USSFC’s International Division accepted orders from the Justus traders without noting account identification even when it was apparent that the post-execution allocation of trades was not fair or equitable.
As alleged in the CFTC complaint, through the execution of some 90,000 unallocated futures orders, USSFC assisted CCB and Justus in earning approximately $11 million in commissions, while it earned more than $2 million for itself, while customers lost more than $19 million in more than 700 customer accounts.
The complaint further alleges that USSFC, Hing, Gong, Wu, White, and Bellassai failed to supervise USSFC staff diligently. The complaint alleges that the lack of any diligent supervisory structure allowed USSFC's International Division to play a key role in CCB's allocation fraud and that other misconduct occurred repeatedly from 1995 to the present, without any resulting changes to USSFC's practices and procedures. As alleged, USSFC's inadequate compliance systems failed to detect fraud, under-margined accounts, and unauthorized trading.
Complaint Also Alleges Registration Violations, False Report Violations and Failure to File Required Net Capital Notifications
The CFTC complaint also alleges that:
The complaint charges Hing with liability as a controlling person for USSFC’s, White’s and Bellassai’s alleged roles in the CCB scheme and USSFC’s and Gong’s alleged filing of a false or misleading registration document; Tung and Hing with controlling person liability for USSFC’s and Wu’s alleged net capital notification failures; and Tung with controlling person liability for the alleged supervisory failures.
A public hearing has been ordered to determine whether the allegations in the complaint are true, and, if so, what sanctions are appropriate and in the public interest. Possible sanctions include an order directing the companies and individuals to cease and desist from violating the Commodity Exchange Act and CFTC regulations, requiring payment of restitution to defrauded customers (including interest thereon from the date of the violations), imposing a trading prohibition, and imposing civil monetary penalties of not more than $100,000 or triple their monetary gain, whichever is greater, for each violation committed on or prior to November 27, 1996 or $110,000 for violations thereafter.
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