Release: 4633-02 (CFTC Docket #01-25)
For Release: April 23, 2002
TEXAS COMMODITY BROKER
COMMITTED SOLICITATION FRAUD
In CFTC Action, D. Michael Sheaves Fined $50,000 and Ordered to Pay Restitution for Fraudulently Failing to Advise Prospective Clients of Significant Trading Losses
WASHINGTON -- The Commodity Futures Trading Commission (CFTC) announced today that D. Michael Sheaves of Kerrville, Texas, a registered commodity trading advisor, has been found to have committed fraud. The CFTC had alleged, in an administrative complaint filed on September 28, 2001, that Sheaves, while doing business under the name Strategic Trading & Investing, fraudulently 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 (see CFTC News Release 4573-01, October 1, 2001). After Sheaves failed to answer an administrative complaint, CFTC Administrative Law Judge George H. Painter issued a decision on default on February 27, 2002. That decision is now final.
This decision found that Sheaves’ solicitations of prospective clients operated as a fraud or deceit, in violation of the Commodity Exchange Act (CEA). Judge Painter’s decision ordered Sheaves to cease and desist from further violations of the CEA, revoked Sheaves’ registration as a commodity trading advisor, suspended his registration as an associated person for a period of six (6) months, and ordered him to pay restitution of $11,923 to one investment client whose damages were proximately caused by Sheaves’ violations. Sheaves was also ordered to pay a civil monetary penalty of $50,000.
Judge Painter specifically found that, from May 2000 until at least mid-January 2001, Sheaves distributed -- either via the mail or his Internet web site -- a disclosure document that was outdated and materially inaccurate. The disclosure document showed profitable results for the first quarter of 2000, but did not include the substantial losses Sheaves suffered managing the trading accounts of his customers in the second quarter of 2000 and beyond. Sheaves similarly sent a letter to prospective clients reporting profits for the first quarter of 2000 but ignoring losses that he had accrued in the six weeks prior to sending the letter. Judge Painter also found that Sheaves failed to disclose that certain profitable results he reported – a record 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 labeled as such in any public statement that notes results.
The following Division of Enforcement Staff were responsible for this case: Susan Padove, William Janulis, and Scott Williamson.
Scott R. Williamson
Deputy Regional Counsel
Division of Enforcement
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