Release:#3927-96 (Civ. 93-1567)
For Release:July 23, 1996
FLORIDA COURT ENTERS CFTC SETTLEMENT ORDER WITH CONCORDE TRADING GROUP OF AVENTURA, FLORIDA, AND CONCORDE PRESIDENT ARTHUR J. SCHLECHT, NETTING $1.5 MILLION IN CUSTOMER RESTITUTION,
AMONG OTHER SANCTIONS AGAINST THE DEFENDANTS
Florida Court's Approval of Settlement Also Prohibits Fraudulent Statements and Omissions in Marketing Commodity Options, Requires Stringent Controls on Sales Operations
WASHINGTON -- The Commodity Futures Trading Commission (CFTC) announced today that U.S. District Judge Stanley Marcus of the U.S. District Court for the Southern District of Florida entered a consent order of permanent injunction against Concorde Trading Group, Inc., an introducing broker located in Aventura, Florida, and Concorde's president, Arthur J. Schlecht, of Miami, Florida.
The consent settlement agreement follows nearly three years of litigation against the firm and Schlecht, commencing in August 1993 when the CFTC filed a two-count civil complaint against the defendants, including a former Concorde branch manager, Frederick N. Hollander, of Sunrise, Florida, alleging violations of the anti-fraud provisions of the Commodity Exchange Act (CEA) and CFTC regulations, including that the defendants make false, deceptive, and misleading representations of material facts in connection with the solicitation of customer commodity option accounts (see CFTC release #3689-93, August 18, 1993).
The CFTC's complaint alleged that, through high-pressure telephone sales activities, the defendants committed fraud, specifically, by, in the course of soliciting customers to purchase options on commodities, routinely making false, deceptive, and misleading oral representations and omissions of material fact regarding the likelihood of profits, the risk of loss (particularly regarding seasonal factors in energy futures and options contracts), and the experience and trading record of Concorde and its salesforce. Hollander settled the CFTC's charges shortly after the filing of the complaint.
Failure to Make the Ordered $1.5 Million of Restitution Payments Would Result in Concorde and Schlecht Being Barred Permanently from the Futures Industry
Under the court's consent order, Concorde and Schlecht have agreed to pay $1.5 million in restitution to former Concorde customers who maintained a commodity futures trading account introduced by Concorde after February 1, 1992, to settle CFTC charges in connection with telemarketing options on commodities such as heating oil and unleaded gasoline.
The order also prohibits Concorde and Schlecht from specific misrepresentations and deceptive omissions in connection with their sales activities, and requires their diligent supervision of customer accounts. Concorde and Schlecht also must implement measures to
monitor their sales operations. Should Concorde or Schlecht fail to make timely payment of their obligation, the order provides that they shall be permanently prohibited from acting in any capacity, including their present capacities, for which registration under the CEA is required.
In commenting on the settlement, CFTC Acting Chairman John Tull said:
"This settlement reflects the CFTC's commitment to use its enforcement resources to put money back in the pockets of injured customers, whenever it's possible. The customers who will receive restitution lost substantial amounts in what defendants touted as 'seasonal investment opportunities.'"
Order Lists Prohibited Misrepresentations and Omissions of Material Fact Related to the Solicitation of Commodity Options
In addition, the settlement order permanently enjoins and restrains Concorde and Schlecht from further violations of the CEA and CFTC regulations as charged. To that end, for the first time in a CFTC settlement, the court order specifically lists the prohibited misrepresentations and omissions of material fact related to the solicitation of customers or prospective customers to purchase commodity option investments to customers. In this regard, the consent order prohibits the following misrepresentations and omissions:
Representing to customers and prospective customers
that they are guaranteed to make a profit as the result of an investment in commodity options,
that trading commodity options is virtually risk- free, and
that disclosure documents required by CFTC regulation are insignificant or of little importance, or words to that effect.
Omitting to inform customers and prospective customers
that a seasonal increase in demand for a specific commodity, such as heating oil and unleaded gasoline, in and of itself, will not necessarily result in increased value of the option on the given commodity,
that past trends in futures prices on specific commodities do not necessarily forecast current profitability of options on futures contracts on those commodities, -- that currently known market news does not necessarily mean that a Concorde customer will make money by trading through Concorde as currently known market news is usually already factored into the underlying futures price, as well as the option value,
that, except possibly for in-the-money options, a rise in the price of the underlying futures contract does not typically correlate on a one-to-one ratio with a rise in the price of an option on that futures contract,
that stop loss orders are not always effective in limiting risk of loss,
that diversification of option positions does not necessarily limit risk of loss or increase profit potential for each option position purchased, and
that, under certain market conditions, a customer may find it difficult or impossible to liquidate a position since market conditions on the exchange where the order is placed may make it impossible to execute a liquidation of the position.
CFTC Acting Chairman Tull, in emphasizing the importance of the examples of prohibited misrepresentations and omissions contained in the order, observed:
"These types of misrepresentations, and to a greater extent, material omissions, lie at the core of the commodity options sales practices of many introducing brokers. By setting forth specific examples of prohibited misrepresentations and omissions, the consent order should serve not only to deter future unlawful conduct by Concorde, but also to put on notice other similarly situated operations that they must address such deceptive practices to avoid future actions by the CFTC."
Order Directs Concorde and Schlecht to Implement Internal Compliance Measures Specifically Designed to Deter Future Sales Violations
Finally the settlement order requires that Concorde and Schlecht to implement internal compliance measures specifically that are designed to deter future sales violations, including:
hiring a full time compliance officer, whose salary is in no way dependent on the level of Concorde's sales, to tape record and monitor regularly the sales activities of the firm and reporting the findings to Schlecht and the CFTC, upon the Commission's request, and
securing the services of a qualified independent consultant for a minimum of 5 years to tape record and monitor, independently and periodically, the sales activities of the firm and report the findings to Schlecht and the CFTC.
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