U.S. COMMODITY FUTURES TRADING COMMISSION CHARGES A NEBRASKA BANK, ITS BANK HOLDING COMPANY, AND AN INTRODUCING BROKER WITH FRAUD AND UNAUTHORIZED TRADING
CFTC Names Sherman County Management, Inc., Sherman County Bank, and PT Holdings as Additional Defendants in an Ongoing Case Alleging Commodity Fraud and Unauthorized Trading
WASHINGTON, D.C. -- The U.S. Commodity Futures Trading Commission (CFTC) announced today the filing of an amended complaint in the U.S. District Court for the District of Nebraska naming Sherman County Bank (Bank) of Loup City, Nebraska; its holding company, Sherman County Management, Inc. of Loup City, Nebraska (Management Company); and PT Holdings, Inc. of Loup City, Nebraska (PT) as additional defendants in its ongoing litigation against Commercial Hedge Services (CHS) of North Platte, Nebraska (CHS), Prime Trading Company (Prime Trading) of Loup City, Nebraska, and their Principal, Lawrence Joseph Volf of North Platte, Nebraska. (See CFTC News Release 4924-04, May 5, 2004.)
The amended complaint charges that the Management Company and Bank are jointly and severally liable as principals for the unlawful conduct of Volf and Prime Trading, respectively. The amended complaint also charges the Bank with aiding and abetting the fraud committed by Prime Trading. Finally, the amended complaint charges that PT, as the successor to Prime Trading, is jointly and severally liable for Prime Trading’s violations.
As in the initial complaint, the amended complaint charges that CHS, Prime Trading, and Volf engaged in fraud and unauthorized trading with regard to commodity hedge accounts managed for or on behalf of approximately 98 Nebraska farmers, resulting in losses of approximately $5 million. Specifically, the amended complaint alleges that the farmers engaged defendants to hedge their corn crops with commodity trades. As alleged, without approval from the farmers, and in contravention of the farmers’ hedge account agreements, defendants executed speculative commodity trades that resulted in millions of dollars of losses to the farmers. Moreover, according to the complaint, defendants led the farmers to believe that the trading strategy would reduce the farmers’ market risk when, in fact, the trading strategy substantially increased the farmers’ risk and ultimate exposure to adverse price fluctuations.
The amended complaint charges that the Management Company, which owned 50 (fifty) percent of Prime Trading, is liable for the unlawful trading of Prime Trading because Prime Trading engaged in the trading within the scope of its affiliation with the Management Company. Also, according to the amended complaint, the Bank is liable for Volf’s violations of the Commodity Exchange Act (CEA) because those violations occurred while Volf was vice-president of the Bank and while he was operating Prime Trading for the primary purpose of providing commodity trading services to the Bank’s customers.
Further, the CFTC's amended complaint charges the Bank with aiding and abetting Prime Trading’s violations because the Bank provided Prime Trading with the clients that were ultimately defrauded and assisted Prime Trading’s unlawful conduct by routinely advancing funds to the farmers to cover margin calls generated by the trading.
Finally, the amended complaint charges that PT Holdings is jointly and severally liable for Prime Trading’s violations of the CEA because it is merely a continuation of Prime Trading that maintains the same office space, the same employees, and offers the same trading program as Prime Trading.
The CFTC seeks from the additional defendants full restitution and disgorgement, civil monetary penalties, a permanent injunction, trading prohibitions, and other ancillary relief.
The Division of Enforcement staff responsible for this case are: Jan M. Folena, Michael J. Otten, Matthew Elkan, Frank Rangoussis, and Richard Glaser.
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