For Release:November 13, 1996
CFTC FILES THREE SEPARATE ADMINISTRATIVE COMPLAINTS RELATED TO GRAIN CONTRACTS, ALLEGING VIOLATIONS OF THE COMMODITY EXCHANGE ACT
WASHINGTON -- The Commodity Futures Trading Commission (CFTC) announced today the filing of three separate administrative complaints related to grain contracts that are alleged to have violated the Commodity Exchange Act (CEA).
In the first complaint, Southern Thumb Co-op, Inc., a cooperative grain elevator headquartered in Lapeer, Michigan, is charged with violating the prohibition against the offer of illegal, off-exchange agricultural options, and with fraud in connection with its marketing of the illegal instruments.
The second complaint charges Grain Land Cooperative of Blue Earth, Minnesota, with offering and entering into illegal, off-exchange futures contracts.
The third complaint charges Roger Wright of Mechanicsburg, Ohio, with fraud in connection with his marketing and promotion of, and his entry into, illegal, off-exchange futures and options contracts. Wright is also charged with registration violations. This complaint also charges A.G. Edwards and Sons Inc. of St. Louis, Missouri, and its employee, Philip Luxenburger, with aiding and abetting Wright's unregistered activities and with trading without proper authorization. The third complaint also charges Buckeye Countrymark Inc., a cooperative grain elevator located in Xenia, Ohio, with offering and entering into illegal, off-exchange futures and options contracts.
In the first CFTC complaint, Southern Thumb Co-op is alleged to have marketed illegal "short call option" and "long put option" programs to producers and to have recklessly misrepresented the risks associated with these options in violation of Section 4c(b) of the CEA, and CFTC regulations 32.2 and 33.10.
In the complaint against Grain Land Cooperative, the CFTC alleges that the elevator offered and sold so-called "hedge-to-arrive" contracts that constituted illegal, off-exchange futures contracts in violation of Section 4(a) of the CEA. In the third complaint, Wright is charged under the CEA and CFTC regulations with acting as an unregistered commodity trading advisor and with fraud for his misrepresentations in promoting and marketing to farmers the illegal, off-exchange futures and options contracts offered by Buckeye Countrymark. Buckeye Countrymark is also charged with violating Sections 4(a) and 4c(b) of the CEA and CFTC regulation 32.2 for its offer and entry into illegal, off-exchange futures and options contracts.
The CFTC's complaints institute public administrative proceedings to determine if the allegations in the complaints are true and, if so, what sanctions should be imposed. Possible sanctions include cease and desist orders, civil monetary penalties, registration restrictions where appropriate, and, where fraud is alleged, restitution to customers.
The complaints are based on information presented by the CFTC's Division of Enforcement, which gives the CFTC reason to believe the respondents have violated the CEA and CFTC regulations as alleged. The filing of these complaints does not represent a determination by the CFTC that there has been a violation of the CEA, nor that any sanctions or other remedies are warranted. Any such determination will await the development of a record at a hearing convened before a CFTC administrative law judge, who will then make appropriate findings of fact and conclusions of law. Under the CFTC's Rules of Practice, the respondents are required to answer the charges in the respective complaints within 20 days of service. Thereafter, the administrative law judge will set a date for a hearing.
The CFTC recognizes that there is widespread use in the grain industry of various grain contracts, some of which are termed "hedge-to-arrive" contracts, or "options." The decision to bring these actions is based solely on the facts relating to the specific contracts involved in these three cases.