For Release: September 4, 2002
CALIFORNIA DEFENDANTS SETTLE CFTC COMPLAINT ALLEGING COMMODITY OPTIONS FRAUD
Madison Financial Group, LLC, and Its President and a Principal, Richard A. Cohen, Are Permanently Barred From Trading Commodity Futures and Options
WASHINGTON, D.C. -- The U.S. Commodity Futures Trading Commission (CFTC) announced today that it has settled an enforcement action against Madison Financial Group, LLC, and Richard A. Cohen, both of Los Angeles, California. The CFTC action, filed in June 2001, charged the defendants with fraudulently soliciting customers to invest in options on commodity futures contracts (see CFTC News Release 4523-01, June 6, 2001).
The CFTC settlement order, issued August 28, 2002, finds that, from April 1998 to March 2001, Madison, at the direction of Cohen, fraudulently solicited customers by (1) misrepresenting the likelihood that customers would realize large profits from trading commodity options and the performance record of its customers, and (2) failing to disclose the risk involved in trading commodity options.
The order specifically finds that Madison’s associated persons (APs) were encouraged to “make up a story” when soliciting customers and that Cohen directed the APs to make misrepresentations overstating Madison’s trading record for its customers. The order finds that during the period of time that customers were told that Madison’s brokers had high success rates and that customers were making money, approximately 97 percent of them suffered losses.
The CFTC’s Director of Enforcement Gregory Mocek said:
“The prosperity and effectiveness of the retail futures markets are dependent on intolerance to these kinds of deviant sales techniques. Solicitation fraud may appear to be one of the subtlest forms of improper conduct, but at the end of the day, it is just as financially damaging to victims as any other deceitful scam. For those reasons, we continue to actively pursue these types of cases.”
The order also finds that Madison and Cohen failed to supervise diligently the solicitation and handling of customer accounts.
The order requires Madison and Cohen to cease and desist from further violations of the Commodity Exchange Act, imposes a permanent trading ban on Cohen and registration bans on Madison and Cohen, and orders Cohen to make customer restitution in the amount of $810,000 and to pay a contingent civil monetary penalty in the amount of up to $110,000, both pursuant to a 10-year payment plan.
A copy of the order may be found at www.cftc.gov.
The following Division of Enforcement staff are responsible for this case:
Louis Traeger, James Andreozzi, and Jack Barrett.
Media Enforcement Contact
CFTC Division of Enforcement
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