For Release: July 11, 2001
FORMER MEMBER OF NEW YORK FUTURES EXCHANGE
CHARGED WITH PRICE MANIPULATION AND FALSE REPRESENTATIONS
CFTC Charges Norman Eisler and First West Trading with Manipulating Settlement Prices of Option Contract and Making False Representations
WASHINGTON, D.C. — The United States Commodity Futures Trading Commission (CFTC) announced today that on July 11, 2001, it filed a two-count administrative action against Norman Eisler (Eisler) of White Plains, New York, and his trading company, First West Trading, Inc. (First West). The complaint alleges that from at least August 1999 to May 12, 2000, Eisler manipulated settlement prices of the PSE Technology Index Option contract (P-Tech Options), and, in doing so, presented false market information to an exchange. According to the complaint, Eisler was a member of the settlement committee of the New York Futures Exchange (NYFE) and took sole charge of setting the settlement prices of P-Tech Options. As alleged, Eisler traded P-Tech Options through the First West trading account, and his manipulation inflated the value of that account by, on average, an excess of $2 million each day – an illegal activity that allowed Eisler to avoid or dramatically reduce margin calls against the First West account. On May 15, 2000, when Eisler no longer was involved in setting the P-Tech Options settlement prices, the settlement prices fell significantly, and the value of the First West account plunged to a negative $4.9 million, according to the complaint.
Eisler and First West face possible sanctions that include cease and desist orders, restitution, civil monetary penalties of $110,000 per violation of the Commodity Exchange Act or three times the monetary gain (whichever is higher), trading prohibitions, and suspension, restriction or revocation of registrations.
The CFTC also issued an order today simultaneously filing and settling a related administrative action against the NYFE. In the order, the CFTC finds that from at least August 1999 to May 12, 2000, the NYFE failed to enforce its own rule for determining settlement prices for P-Tech Options. The order notes that the NYFE had no procedure in place to ensure that its settlement committee complied with the settlement price rule, beyond NYFE's reliance upon self-policing by its settlement committee and other market participants. As a result, the CFTC order imposes a civil monetary penalty of $75,000 against the NYFE. The order further notes that prior to this action, the exchange initially took no independent action to ensure compliance of NYFE's settlement rule; however, the order also notes that NYFE has represented that it has subsequently enhanced its procedures in three main areas: 1) risk management, 2) record keeping, and 3) computer programming. Additionally, the order recognizes that the NYFE cooperated with the Commission's investigation. NYFE consents to the entry of the order without admitting or denying the findings made in the order.
The CFTC's Division of Trading and Markets also today issued a report on lessons learned from the related failure of Klein & Co Futures, Inc. (Klein), the futures commission merchant through which Eisler cleared his trades for First West. The report is based on interviews with a variety of futures industry participants, and sets forth observations and recommendations focusing, among other things, on the risk management practices of exchanges, clearinghouses, and futures commission merchants. Among the recommendations are that contract markets and clearinghouses should perform periodic stress tests to identify members who would be affected by large or unusual price moves in futures and options and should review settlement prices to determine if they are reasonable.
To see copies of the CFTC complaint, order, and report, go to the following Internet web address http://www.cftc.gov/
For information on the Eisler, First West, and NYFE actions, please
Division of Enforcement
For information on the Report on Lessons
Learned, please contact:
Division of Trading and Markets
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