Release: #4573-01 (CFTC Docket # 01-25)
For Release: October 1, 2001


CFTC Alleges that D. Michael Sheaves Fraudulently Omitted Significant Trading Losses

WASHINGTON, D.C. -- The Commodity Futures Trading Commission (CFTC) announced today the filing of an administrative action against D. Michael Sheaves (Sheaves) of Kerrville, Texas, a registered commodity trading advisor (CTA). The CFTC charges that Sheaves, while doing business under the name Strategic Trading & Investing (STI), committed fraud in soliciting customers by failing to update reports of earlier trading profits to include more recent substantial trading losses.

Specifically, the CFTC complaint, filed on September 28, 2001, alleges that, from May 2000 until at least mid-January 2001, Sheaves solicited customers to: 1) allow him to trade the NASDAQ 100 Index futures contract on their behalf; or 2) advise them on how to trade that contract. To solicit customers, Sheaves allegedly distributed -- either via the mail or his Internet web site -- a disclosure document showing profitable results for the first quarter of 2000, which did not include the substantial losses Sheaves suffered while managing the trading accounts of his customers in the second quarter of 2000 and beyond.

In addition, the complaint charges that Sheaves sent a letter to prospective clients reporting profits for the first quarter of 2000 but ignoring the subsequent substantial losses he incurred in the six weeks prior to sending the letter, which were approximately three times the amounts of prior profits that he reported. Sheaves’ solicitations of prospective clients operated as a fraud or deceit upon prospective customers, in violation of the Commodity Exchange Act (CEA), according to the complaint.

The CFTC complaint also charges Sheaves with failing to disclose that certain profitable results that he published on his Internet web site were based on hypothetical trading, rather than actual trading. CFTC regulations require that hypothetical trading results, and the inherent limitations of hypothetical trading, be identified in any public statement that includes such results.

A public hearing has been ordered to determine whether the allegations are true and, if so, what sanctions are appropriate and in the public interest. Possible sanctions include a cease and desist order, restitution to defrauded customers, civil monetary penalties, trading prohibitions, registration revocations, and suspensions or restrictions.

Case Media Contact:
Scott R. Williamson
Deputy Regional Counsel
Division of Enforcement
(312) 886-3090

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