UNITED STATES OF AMERICA
COMMODITY FUTURES TRADING COMMISSION
: CFTC Docket No.
In the Matter of :
: ORDER INSTITUTING
STEVEN JAY MARKS : PROCEEDINGS PURSUANT TO
: SECTIONS 6(c) AND 6(d)
: OF THE COMMODITY
: EXCHANGE ACT AND : FINDINGS AND ORDER IMPOSING : REMEDIAL SANCTIONS
The Commodity Futures Trading Commission ("Commission") has reason to believe that Steven Jay Marks ("Marks") has violated Section 4m of the Commodity Exchange Act, as amended ("Act"), 7 U.S.C. õ 6m, and Sections 4.31 and 4.36(d) of the Commission's regulations ("Regulations"), 17 C.F.R. õõ 4.31, 4.36(d) (1995). The Commission, therefore, deems it appropriate and in the public interest that public administrative proceedings be, and they hereby are, instituted to determine whether Marks engaged in the violations as set forth in this Order and to determine whether any order should be issued imposing remedial sanctions.
In anticipation of the institution of this administrative proceeding, respondent Marks has submitted an Offer of Settlement ("Offer") which the Commission has determined to accept. Without admitting or denying the findings in this Order, Marks acknowledges service of this Order Instituting Proceedings Pursuant to Sections 6(c) and 6(d) of the Commodity Exchange Act and Findings and Order Imposing Remedial Sanctions ("Order"); admits the jurisdiction ofthe Commission with respect to all matters set forth in the Order; waives (1) service of a complaint and notice of hearing, (2) a hearing, (3) all post-hearing procedures, (4) judicial review by any court, and (5) any objection to the staff's participation in the Commission's consideration of his Offer; stipulates that the record basis on which this Order is entered consists solely of this Order and the findings to which he has consented in his Offer, which are incorporated in this Order; waives all claims which he may possess under the Equal Access to Justice Act, 5 U.S.C. õ 504 (1994) and 28 U.S.C. õ 2412 (1994), as amended by Pub. L. No. 104-121, õõ 231-32, 110 Stat. 862-63, and Part 148 of the Regulations, 17 C.F.R. õõ 148.1 et seq., relating to, or arising from, this action; and consents to the Commission's issuance of this Order which, as set forth below, makes findings, orders Marks to cease and desist from violating the provisions of the Act and Commission Regulations he is found to have violated, requires Marks to refund all funds received from MarketPulse Online subscribers, and requires him to comply with specific additional undertakings. Marks consents to the use of the findings contained in this Order in this proceeding and in any other proceeding brought by the Commission or to which the Commission is a party.
The Commission finds the following:
Steven Jay Marks ("Marks") resides at 4 Tropical Park Road, Ocala, Florida 34482-6628. Marks is the publisher of MarketPulse Online. He is not currently registered with the Commission or the National Futures Association ("NFA") as a commodity trading advisor ("CTA") or in any other capacity. Marks has previously been associated with other registrants, two of which have been the subject of Commission and/or NFA disciplinary proceedings. Additionally, Marks is currently on the Commission's and NFA's sanctions-in-effect lists based on his failure to satisfy a Commission reparation award and an NFA arbitration award arising out of his earlier registered activities. As such, he is precluded from registration in any capacity under Section 8a(2) of the Act, 7 U.S.C. õ 12a(2).
From at least May 7, 1996, through the end of June 1996, Marks solicited members of the general public over the Internet to subscribe to his commodity trading advisory service called"MarketPulse Online." MarketPulse Online is an electronic newsletter containing market updates and trading recommendations concerning eight categories of commodity futures and options, including currencies, S&P 500, treasury bonds, grains, livestock, metals, raw materials and softs. In the electronic newsletter, Marks discusses anticipated market movements, recommends specific entry and exit points and/or buy and sell ranges for each of the eight groups of commodities, and provides detailed information concerning the placement of stop loss orders.
In an effort to solicit paying subscribers, Marks periodically offered, through financial-related electronic bulletin boards contained on Prodigy and America Online ("AOL"),free one-week trial memberships to MarketPulse Online. Marks transmitted daily issues of the newsletter to trial members via electronic mail ("e-mail"). At the end of the one-week trial period, Marks sent trial members e-mail messages inquiring whether they were interested in becoming paying subscribers. In addition to the daily electronic newsletter service, Marks also provided subscribers with his personal telephone number to call to receive individualized trading advice based on his systematic trading program. Marks charged subscribers $125 per month for his services, or $100 per month if they agreed to subscribe for a period of three or more months. Since May 7, 1996, Marks has obtained 20 subscribers to MarketPulse Online, and has provided free one-week trial memberships to at least 22 additional individuals.
At all relevant times, Marks has been providing his commodity trading advisory services over the Internet without being registered as a CTA with the Commission or the NFA. Duringthat same time period, Marks has not provided any of the trial members or subscribers with the mandatory Disclosure Document or filed it with the Commission as required by Commission Regulations 4.31 and 4.36(d), 17 C.F.R. õõ 4.31, 4.36(d) (1995).
C. Violations of the Act
The Act's registration requirements for CTAs, and its collateral regulations requiring CTAs to maintain certain books and records and to provide customers with particular disclosure documents, were designed specifically to ensure meaningful regulatory oversight and disclosure of facts material to an individual's decision to invest in commodity futures. See 7 U.S.C. õ 6l.
The courts have consistently recognized that the operation of an unregistered entity is a serious violation of the Act and a threat to the integrity of the commodity futures and options industry. See, e.g., CFTC v. British Am. Commodity Options Corp., 560 F.2d 135, 139-40 (2d Cir. 1977), cert. denied, 438 U.S. 905 (1978). The CTA registration requirement is particularly vital in connection with the Internet and the World-Wide Web ("Web"). In recent years, personal computers have gained widespread entry into the mass market, and advances in these computers and related electronic media technology have enabled increasing numbers of personal computer users to access the Internet and the Web.
The Internet and the Web present regulators such as the Commission with a complex set of issues that differ significantly from those presented by traditional forms of communication. Combined together, the features of the Internet and the Web afford unscrupulous opportunists with the ability to reach millions of people at various geographical locations at very low cost. Moreover, this new technology affords potential violators with the ability to hide their identities, commit unlawful deeds, and quickly disappear into cyberspace, leaving behind little or noevidence of wrongdoing.
1.Respondent Violated Section 4m of the Act
By providing commodity trading advice through his electronic newsletter service, Marks has been operating as a CTA. In furnishing his advisory service through instrumentalities of interstate commerce -- in this case the Internet and the telephone -- without the benefit of registration, Marks has violated Section 4m(1) of the Act, 7 U.S.C. õ 6m(1). See, e.g., In the Matter of Armstrong, [1992-1994 Transfer Binder] Comm. Fut. L. Rep. (CCH) ô 25,657 (CFTC Feb. 8, 1993), rev'd on other grounds sub nom., Armstrong v. CFTC, 12 F.3d 401 (3d Cir. 1993).
Marks does not fall within any of the recognized exemptions or exclusions to CTA registration. Although Sections 1a(5)(B)(iv) and (C) of the Act, 7 U.S.C. õõ 1a(5)(B)(iv), (C), exclude from registration certain publishers offering advisory services, here Marks' furnishing of MarketPulse Online was not "solely incidental to the conduct of [his] business or profession" for purposes of that exclusion. Rather, MarketPulse Online was the only service being offered by Marks. See Armstrong, ô 25,657 at 40,149. Marks also does not qualify for the exclusion set forth in Section 4m(1) of the Act, 7 U.S.C. õ 6m(1), for CTAs furnishing advice to no morethan fifteen persons during the course of the previous twelve months and not holding themselves out generally to the public as CTAs. Here, in the course of several weeks, Marks' subscriber base exceeded that threshold, and he expressly claimed to offer commodity trading advice. Armstrong, ô 25,657 at 40,149-50.
2.Respondent Violated Section 4.31 of the Regulations
Section 4.31 of the Regulations, 17 C.F.R. õ 4.31 (1995), requires that any CTA who intends to direct a client's commodity interest account or to guide a client's commodity interest trading by means of a systematic program that recommends specific transactions must provide the prospective client with a mandatory Disclosure Document and receive from the prospective client a signed acknowledgment confirming receipt of that Disclosure Document. Sections 4.34 and 4.35 of the Regulations, 17 C.F.R. õõ 4.34, 4.35 (1995), provides a detailed list of cautionary statements, risk disclosures, and performance disclosures required to be included in the Disclosure Document referred to in Section 4.31 of the Regulations.
By entering into an agreement with each subscriber under which he provided the subscribers with his telephone number to call to receive individualized trading advice based on his system, Marks was offering to guide his subscribers commodity interest trading by means of a systematic program that recommends specific transactions pursuant to Section 4.31 of the Regulations, 17 C.F.R. õ 4.31 (1995). Respondent Marks failed to deliver (and to receive acknowledgment of receipt of) the mandatory Disclosure Document to trial members and subscribers in violation of Section 4.31 of the Regulations.
3.Respondent Violated Section 4.36(d) of the Regulations
Section 4.36(d) of the Regulations, 17 C.F.R. õ 4.36(d) (1995), provides that a CTA"must file with the Commission two copies of the Disclosure Document for each trading program that it offers or that it intends to offer not less than 21 calendar days prior to the date the trading advisor first intends to deliver the Document to a prospective client in the trading program." Marks failed to file a Disclosure Document, including the required cautionary statements, risk disclosures, and performance disclosures, with the Commission at least 21 days prior to his solicitation of prospective clients. Accordingly, Marks has violated Section 4.36(d) of the Regulations, 17 C.F.R. õ 4.36(d) (1995).
D. Mitigating Circumstances Affecting Remedy
In fashioning an appropriate remedy in this case and, in particular, in foregoing the imposition of a civil monetary penalty against respondent Marks, the Commission has taken into consideration certain mitigating factors. First, the Commission's Internet surveillance program detected Marks' unregistered activities shortly after his initial solicitations for MarketPulse Online, thereby apparently minimizing customer injury. Second, immediately upon learning of the Commission's investigation, Marks offered his full cooperation to the Commission in an effort to rectify his prior unlawful conduct. Third, Marks initiated several ameliorative steps to correct his prior misconduct, including sending e-mail messages to his trial members and subscribers directing them to cooperate fully with the Commission, ceasing distributions of MarketPulse Online to trial members during the pendency of the investigation, and offering to refund subscription fees and to cover trading losses upon demand. Finally, Marks has agreed to make all reasonable efforts to satisfy the outstanding arbitration and reparation awards against him.
Accordingly, IT IS HEREBY ORDERED THAT:
1. Marks shall cease and desist from violating Section 4m of the Act, 7 U.S.C. õ 6m, and Sections 4.31 and 4.36(d) of the Regulations, 17 C.F.R. õõ 4.31, 4.36(d) (1995);
2. Marks shall refund all funds received from MarketPulse Online subscribers. Within sixty (60) days after entry of this Order, Marks shall provide the Commission with a sworn affidavit identifying all such subscribers and the amounts of the payments made by each subscriber, and attesting to the fact that all such fees collected from such subscribers have been refunded pursuant to this Order; and
3. Marks shall transmit an e-mail message to all former subscribers to MarketPulse Online within ten (10) days of the Commission's entry of the Order, notifying them that he has been ordered to cease and desist from operating his commodity trading advisory service in an unregistered capacity and to refund all subscription fees, and referring them to the Commission's Internet home page (http://www.cftc.gov) to obtain general information concerning the trading of commodity futures and specific information concerning this Order. Marks shall secure from each subscriber, and provide to the Commission, a copy of an e-mail responseacknowledging receipt of this e-mail message.
4. Marks shall make all reasonable efforts to satisfy the outstanding reparation and arbitration awards against him, including notifying the arbitration claimant and reparation complainant of his current home address and telephone number, the address and telephone number of his place of employment, and any changes thereto, until such time as the outstanding awards are satisfied.
By the Commission.
Jean A. Webb
Secretary to the Commission
Commodity Futures Trading Commission
Dated: ________________, 1996