CFTC News Release: #4206-98 (98 Civ 5270)
November 18, 1998
New York District Court Orders Disgorgement of $2.6 Million in Frontrunning Scheme and Bars Thomas E. Kelly, Andrew David Rhee, and Reflex Asset Management Corporation From the Futures Industry
Washington -- The Commodity Futures Trading Commission (CFTC) announced today that on November 3, 1998, U.S. District Judge Jed S. Rakoff of the Southern District of New York entered consent orders of permanent injunction against Thomas E. Kelly of Boca Raton, Florida, Andrew David Rhee of Miami Beach, Florida, and Reflex Asset Management Corporation, a Delaware corporation located in Miami Beach, Florida.
The orders bar the defendants from any activity in the futures industry, permanently enjoin them from violations of federal commodities laws, and require disgorgement payments totaling approximately $2.6 million.
The court's orders stem from a two-count civil injunctive action filed by the CFTC on July 23, 1998 alleging that, from October 1995 through February 1998, the defendants cheated, defrauded and willfully deceived Kelly's employer, John W. Henry & Co. (JWH) and others (see CFTC News Release #4171-98, July 23, 1998).
Specifically, the CFTC complaint charged that Kelly stole material confidential non-public proprietary information concerning JWH's planned commodity futures trades and provided that information to Rhee. Rhee, in turn, allegedly placed trades -- ahead of JWH's commodity futures trades -- in Reflex's commodity pool account, his personal commodity trading account, and the accounts of several customers. This scheme resulted in profits for the defendants of approximately $4.7 million.
Further, the complaint alleged that Rhee created a commodity futures trading performance record for himself and Reflex, which they used to solicit new customers and retain existing customers, that omitted the material fact that the success reflected in the trading record was in large part based on the use of the confidential information Kelly stole from JWH.
Without admitting or denying the allegations of the complaint, Kelly, Rhee and Reflex have agreed to be enjoined permanently from further violating the provisions of the Commodity Exchange Act alleged in the complaint. The orders also prohibit all defendants from engaging in any activity in the futures industry for themselves or on behalf of others. Kelly and Rhee are ordered, jointly and severally, to disgorge $4,735,000, the amount by which they profited. Due to their current financial situations, the court waived all of that disgorgement but $291,938 as to Kelly and all but $2,308,578 as to Rhee.
The filing of the CFTC complaint had followed 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. On July 23, 1998, both Rhee and Kelly pled guilty to federal felony wire fraud charges brought by the U. S. Attorney based upon this same activity. Rhee and Kelly's sentencing in the related criminal action is scheduled for December 7, 1998.