For Release: August 20, 2001
CFTC FILES ENFORCEMENT ACTION CHARGING TWO CHICAGO FIRMS AND RESIDENT WITH A FAILURE TO SUPERVISE FOREIGN ACCOUNTS
CFTC Files Complaint Against Excellent USA And John Gallwas and Accepts Settlement Offer From LFG
WASHINGTON—The Commodity Futures Trading Commission (CFTC) today announced the filing of a two-count complaint against Excellent USA, Inc., a registered non-clearing futures commission merchant (FCM), and its managing director, John F. Gallwas, both of Chicago, Illinois, and the issuance of an order filing, and simultaneously settling, a complaint against LFG, L.L.C., a registered FCM. The enforcement actions stem from the respondents' alleged failures to supervise the handling of the omnibus accounts of two Japanese firms.
In its complaint against Excellent USA and Gallwas, the CFTC charges that the two Japanese firms were Excellent USA's clients, representing nearly all of Excellent USA's business. However, the complaint charges, Excellent USA and Gallwas did not have an adequate system of supervision in place to monitor the trading in the Japanese firms' omnibus accounts and, thus, missed warning signs of trading irregularities in those accounts.
Specifically, between March 1994 and January 1998, Excellent USA and Gallwas regularly accepted spread orders from the Japanese firms -- including simultaneously entered orders to buy or sell the same spread -- that resulted in the omnibus accounts holding almost equal and offsetting positions in each futures month, the complaint alleges. This trading, as alleged, had the appearance of improper wash sales, but Excellent USA and Gallwas never sought clarification of the customers' intent or questioned the Japanese firms. Excellent USA and Gallwas ignored various warning signs that the Japanese firms were engaged in customer fraud.
The complaint further alleges that Excellent USA is statutorily disqualified from continued registration with the CFTC as a result of the February 2000 criminal conviction in Japan of Toshio Yokoyama, a principal of Excellent USA and the two Japanese firms, the complaint alleges. Toshio Yokoyama was convicted of cheating and defrauding unsophisticated Japanese retail customers in connection with the futures trading of the Japanese firms in the U.S. and was sentenced to seven years imprisonment.
LFG Order Finds that the Firm Had No Written Procedures Relating to the Supervision of Foreign Omnibus Accounts
The CFTC order entered against LFG finds -- similar to the allegations
made against Excellent USA and Gallwas --that from 1994 through 1998, LFG
regularly accepted the suspicious spread
orders for the omnibus accounts of the two Japanese firms, without ever inquiring into the trading or the intent of the customers, even though LFG's daily equity runs revealed the unusual trading pattern.
The order also finds that LFG had no written procedures relating to the supervision of foreign omnibus accounts and no one at LFG had responsibility to monitor those accounts. The CFTC order finds that, as a result, LFG contributed to the failure to provide adequate customer protection to foreign retail customers who traded in the U.S. futures markets.
LFG has ceased doing customer business and has filed for bankruptcy under Chapter 11 of the Bankruptcy Code. Accordingly, the CFTC order requires LFG to withdraw its CFTC registration and never to seek registration in any capacity. LFG consented to the entry of the order without admitting or denying the order's findings.
As to its ongoing litigation against Excellent USA and Gallwas, a public hearing has been ordered to determine whether the CFTC's allegations are true and, if so, what sanctions are appropriate. Possible sanctions include civil monetary penalties of not more than $110,000 (or $100,000 for pre-1996 violations), or triple the monetary gain to defendants, for each violation; a cease and desist order, trading prohibitions, and registration sanctions.
The CFTC received the cooperation of the Japanese Government and the Chicago Board of Trade in its investigation.
A copy of the CFTC order may be found at http:///www.cftc.gov/
Media Case Contact:
Scott Williamson, (312) 886-3090
Acting Regional Counsel, Central Regional Office
CFTC Division of Enforcement
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