For Release: July 23, 1998
CFTC FILES CIVIL ANTI-FRAUD ACTION AGAINST THOMAS EDWARD KELLY, ANDREW DAVID RHEE AND REFLEX ASSET MANAGEMENT CORPORATION
CFTC Charges the Defendants with Fraud for Trading Commodity Futures Contracts Ahead of Kelly's Employer, John W. Henry & Co.; U.S. Attorney Files Parallel Criminal Information Arising from Cooperative Investigation
WASHINGTON - The Commodity Futures Trading Commission (CFTC) announced the filing of a two-count civil complaint on July 23, 1998, in the U.S. District Court for the Southern District of New York against Thomas Edward Kelly, of Boca Raton, Florida; Andrew David Rhee, of Miami Beach, Florida; and Reflex Asset Management Corporation (Reflex), located in Miami Beach, Florida.
Reflex is registered with the CFTC as a commodity pool operator and a commodity trading advisor. Rhee is registered as an associated person of Reflex and is the president, sole principal, and owner of Reflex. Kelly is not registered with the CFTC.
The filing of the CFTC complaint, alleging violations of the anti-fraud provisions of the Commodity Exchange Act (CEA), follows a cooperative investigative effort by the CFTC, the U.S. Attorney for the Southern District of New York, and the U.S. Postal Inspection Service.
The CFTC's complaint alleges that since 1995 Kelly, Rhee, and Reflex cheated, defrauded and willfully deceived Kelly's employer, John W. Henry and Co. (JWH), a registered commodity trading advisor and commodity pool operator. Specifically, the complaint alleges that Kelly stole material confidential non-public proprietary information concerning JWH's planned commodity futures trades and provided that information to Rhee. The complaint further alleges that often the positions taken by JWH in the futures markets are sufficiently large to have a short-term effect on the prices at which such commodity futures contracts are traded on CFTC-regulated futures exchanges. Using the stolen information, Rhee placed trades ahead of JWH's commodity futures trades and reaped profits of more than $2.5 million for himself, Reflex, and Kelly from the resulting market movement, the complaint alleges.
In addition, the complaint alleges that Rhee created a commodity futures trading performance record for himself and Reflex that he used to solicit new customers and retain existing customers, but he failed to reveal to these customers the material fact that the trading success reflected in that trading record was based upon the confidential information Kelly stole from JWH.
The CFTC seeks a permanent injunction against the defendants prohibiting them from violating provisions of federal commodity law as charged, disgorgement of all the defendants' ill-gotten gains, and civil monetary penalties against each defendant in amounts not to exceed the higher of $110,000 or triple the monetary gain to them for each violation of the CEA, in addition to other equitable relief as the court may deem appropriate.
Geoffrey Aronow, the Director of the CFTC's Division of Enforcement, stated the following about the Commission's action:
"Misappropriation of confidential information about a commodity pool's planned trades can harm the commodity pool, its customers, and others by moving the market adversely to the interest of the pool. This action demonstrates the Commission's commitment to act to protect customer confidence and market integrity."
On the same day that the CFTC's complaint was filed, the U.S. Attorney filed a criminal information against Rhee and Kelly concerning these same matters. Mr. Aronow expressed his appreciation to the U.S. Attorney and the U.S. Postal Inspection Service for their assistance in the investigation. Aronow also expressed his appreciation to John W. Henry & Co. for its cooperation throughout the investigation.