Release:#3915-96 (CFTC Docket No. 95-5)
For Release:June 11, 1996
CFTC ADMINISTRATIVE LAW JUDGE ORDERS CIVIL MONETARY PENALTY OF
$1.77 MILLION, REVOCATION OF REGISTRATION, PERMANENT TRADING BAN, AND CEASE AND DESIST ORDER AGAINST MICHAEL F. STARYK OF FLORIDA
WASHINGTON -- The Commodity Futures Trading Commission (CFTC) announced today that on June 5, 1996, the Honorable Bruce C. Levine, CFTC Administrative Law Judge (ALJ), entered an Initial Decision ordering a civil monetary penalty of $1.77 million, revocation of registration, a permanent trading ban, and a cease and desist order against Michael F. Staryk of Boca Raton, Florida. (In the Matter of Michael F. Staryk, CFTC Docket No. 95-5.)
The ALJ's action stems from a complaint filed by the CFTC on February 7, 1995, charging that Staryk engaged in violations of the anti-fraud provisions of the Commodity Exchange Act (CEA) and CFTC regulations. The complaint alleged that, from August 1991 to the time of the Complaint's filing, Staryk engaged in fraud by misrepresentation and omission of material facts in connection with the solicitation of commodity options transactions (See CFTC News Release 3819-95, February 10, 1995).
Staryk Found to Have Made Fraudulent Representations of Risk and Profit in Connection With Gasoline and Heating Oil Options.
Specifically, the ALJ found that Staryk committed fraud by conveying a message to potential customers that, given the historical seasonal pricing trends in gasoline and heating oil, speculation in gasoline and heating oil options is significantly less risky and more likely to result in profits than speculation in options tied to non-seasonal markets.
In finding this message to be "blatantly false," the ALJ explained, "[t]ypical seasonal shifts in commodity prices, which are already accounted for in the futures prices, options prices, and strike prices, simply do not have any bearing on whether the value of an option will increase or decrease prior to its expiration."
Having established that Staryk misled his customers regarding the risk and likely profitability of gasoline and heating oil options, the ALJ went on to find that Staryk's misrepresentations and omissions of material fact violated the anti-fraud provision of the CEA through his "emphatic promotion" of the seasonal advantage of heating oil and gasoline options while admitting his knowledge that commodity options are not less risky in one market versus another. The ALJ stated:
Given his knowledge of the options markets, particularly gasoline and heating oil options, -- and given that Staryk's theories and strategies had failed in his own laboratory [$3.3 million in customer losses] -- this Court may and does infer that Staryk had knowledge that his representations were false or that at a minimum they were made with reckless disregard for the truth.
--The ALJ then entered summary disposition imposing a civil monetary penalty of "three times Staryk's wrongful gain" equalling $1.77 million, revoking Staryk's registration as an associated person, imposing a permanent trading prohibition, and entering a cease and desist order.
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