For Release: October 30, 1997
CFTC ALJ FINDS FIRST COMMERCIAL FINANCIAL GROUP, INC.
(FCFG), MARK E. REHN AND JOHN A. HERMANSON LIABLE FOR VIOLATING CAPITAL
REQUIREMENTS AND FILING FALSE REPORTS IN CONNECTION WITH CHECK-KITING
Judge Revokes Registrations, Enters Cease And Desist Orders And
Imposes Civil Monetary Penalties of $200,000 Each on FCFG And Rehn, $50,000
WASHINGTON -- In an Initial Decision issued on October 27, 1997, Commodity Futures Trading Commission Administrative Law Judge (ALJ) George H. Painter found that at various times between June 30, 1993 and August 31, 1994, First Commercial Financial Group (FCFG,) a futures commission merchant in Chicago, Illinois, failed to maintain adequate capital, operated while undercapitalized, filed false reports with the Commission, and failed to provide the Commission with notice when it was undercapitalized and below the Commission's early warning capital level.
The ALJ also found that FCFG's president, Mark Rehn of Western Springs, Illinois, was liable for the firm's violations as a controlling person of the firm and that John Hermanson of Lindenhurst, Illinois, the former head of a retail division of FCFG, aided and abetted some of the firm's violations.
The Commission's four-count administrative complaint in Docket No. 95-10, filed on May 2, 1995, charged that First Commercial, Rehn, and Hermanson had engaged in a series of financial schemes to artificially inflate FCFG's net capital. Central to the scheme was check-kiting, whereby Hermanson repeatedly wrote checks to FCFG at month's end which he could not cover, and FCFG would in turn "cover" the checks at the beginning of the following months. Following a hearing, the ALJ found that the Commission's Division of Enforcement had established virtually all of the allegations contained in the complaint and that respondents' accounts of the events were "nothing more than an unartfully contrived cover story."
In assessing sanctions, Judge Painter wrote in the Initial Decision that FCFG "chose deceit over disclosure as its response" to falling below capital requirements, that Rehn "chose disdain over deference as his attitude toward Commission requirements," and that Hermanson's actions "reflect a fundamental lack of integrity." The ALJ revoked each of the respondents' registrations, ordered the respondents to cease and desist from further violations, and ordered civil monetary penalties of $200,000 each against First Commercial and Rehn and $50,000 against Hermanson.
The respondents have 15 days from the entry of the ALJ's order to file an appeal with the Commission. If the decision is appealed, or if the Commission chooses to review the decision on its own initiative, the decision does not become final and the sanctions do not take effect pending the outcome of the Commission's review.