For Release:September 4, 1996
CFTC TAKES ACTION AGAINST TRADING ADVISORS IN CYBERSPACE;
TWO UNREGISTERED COMMODITY TRADING ADVISORS OPERATING OVER THE INTERNET HALTED FROM VIOLATING FEDERAL COMMODITY LAWS
WASHINGTON -- In what are the first enforcement proceedings brought by the Commodity Futures Trading Commission (CFTC) based exclusively on Internet activities, the CFTC announced today that it has ordered Steven Jay Marks of Ocala, Florida, and J. Spencer Brown, of Fort Worth, Texas, doing business as ProTrade, to halt operating over the Internet in violation of federal commodity law.
In separate consent orders filed on September 3, 1996, the two respondents agreed to stop providing advisory services to Internet subscribers until they register with the CFTC as commodity trading advisors (CTAs) and to provide customers and file with the CFTC the mandatory Disclosure Document. Marks also agreed to provide restitution to his subscribers.
Citing the unique challenges in regulating the Internet and the Worldwide Web, the CFTC orders state that the Internet and the Web enable unscrupulous operators to commit fraud or other violations of the federal commodity futures laws with virtual anonymity, and then to disappear quickly into cyberspace, leaving behind little or no evidence of wrongdoing. Both orders also emphasize that the CFTC's registration requirements, and the related recordkeeping and disclosure requirements, are essential tools in overseeing this rapidly growing area of technology. These requirements provide the CFTC, as well as prospective customers, with basic information about individuals and entities providing advice regarding investments in commodity futures and options.
According to CFTC Director of Enforcement Geoffrey Aronow: "In recent years, personal computers have gained widespread entry into the mass market, and technological advances have enabled increasing numbers of computer users to access the Internet and the Web. As the Internet increasingly becomes a medium for the exchange of information and activity falling within the CFTC's jurisdiction, our Internet surveillance program will become an increasingly important part of our efforts to enforce the law and protect the public."
CFTC Accepts Offer of Settlement of Steven Jay Marks
Marks consented to the entry of an order which finds that he has been operating as a CTA without being registered as such, in violation of the Commodity Exchange Act (CEA). Specifically, the CFTC order finds that from at least May 7, 1996, through the end of June 1996, Marks posted messages on financial-related bulletin boards on the Internet geared toward individual investors. The order also finds that he offered one-week trial memberships and paid subscriptions to "MarketPulse Online," an electronic newsletter service containing market updates and trading recommendations concerning eight categories of commodity futures and options. In addition to his daily electronic newsletter service, Marks provided subscribers with his personal telephone number to call to receive individualized trading advice based on his systematic trading program, according to the order.
Marks had been previously employed by other firms engaged in soliciting orders for futures contracts. Two former customers obtained monetary judgments against him, which Marks has failed to satisfy. The CFTC notes that Marks could not register in any capacity until those judgments were satisfied. The order also finds that Marks failed to provide his customers, or file with the CFTC, the mandatory Disclosure Document required by CFTC regulations.
The order prohibits Marks from violating the registration and Disclosure Document requirements of the CEA and CFTC regulations, and directs him to refund all funds he received from "MarketPulse Online" subscribers. In addition, Marks must transmit an electronic mail message over the Internet to all former subscribers notifying them that he has been ordered to cease and desist from operating as an unregistered CTA and to refund all subscription fees, and referring them to the CFTC's Internet Homepage (http://www.cftc.gov) to obtain general information concerning the trading of commodity futures and specific information concerning the settlement order.
Finally, the order requires Marks to make reasonable efforts to satisfy the outstanding monetary judgments against him, including keeping the claimants apprised of his whereabouts until such time as the judgments are satisfied.
CFTC Accepts Offer of Settlement of J. Spencer Brown d/b/a ProTrade
Brown consented to the entry of an order which finds that he also has been operating as an unregisterd CTA, thus also violating the CEA. The CFTC's surveillance of the Internet brought Brown's unregistered activities to light within a few weeks after he first launched his venture in late July 1996.
Specifically, the order finds that Brown solicited the public through his Internet homepage to open commodity futures trading accounts that would be managed by him by means of a computer trading program called "ProTrade." In his solicitation, Brown touted 13 years of ProTrade's trading results based on hypothetical trading, according to the order. The order prevents Brown from operating as a CTA in an unregistered capacity and from violating the Disclosure Document and hypothetical performance requirements of the CFTC's regulations.
CFTC Employing New Ways To Investigate And Regulate The Use Of Electronic Media For Commodities-Related Activities, Including a New Enforcement Internet Webpage
The CFTC's Internet surveillance program includes routine monitoring of homepages on the Worldwide Web, as well as newsgroups, bulletin boards, and chat rooms frequently visited by Internet users. The CFTC's Internet surveillance program has already provided dozens of initial referrals to enforcement staff, including the matters highlighted above, involving issues relating to registration, possible misrepresentation of the success of trading programs, and the offer of potentially illegal off-exchange products.
The CFTC has recently added an additional component to its Internet surveillance program, consisting of a Division of Enforcement Internet Webpage which is located on the CFTC's Homepage. The Enforcement Webpage provides the public with a means to contact directly the Enforcement Division's electronic mailbox (firstname.lastname@example.org) with a click of a mouse and thereby serves as a simple method to report suspected commodities-related wrongdoing to the CFTC. The Enforcement Webpage also provides direct access to the CFTC's Proceedings Bulletin, which contains readily available information about CFTC enforcement actions and sanctions against individuals and firms. (See CFTC News Release #3930-96, August 9, 1996.)
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