UNITED STATES OF AMERICA
COMMODITY FUTURES TRADING COMMISSION
|In the Matter of:||)||CFTC Docket No. 98-4|
|COMPETITIVE STRATEGIES FOR||)||ORDER MAKING FINDINGS|
|AGRICULTURE, LTD.,||)||AND IMPOSING|
|CSA INVESTOR SERVICES, INC.,||)||REMEDIAL SANCTIONS|
|LEE DONALD AMUNDSON,||)||AS TO RESPONDENT|
|TERRY ALLAN DIRKSEN,||)||TERRY ALLAN DIRKSEN|
|JEFFREY JAMES WICHMANN,||)|
|WILLIAM EUGENE ARNOLD,||)|
|GREAT PLAINS CO-OP, and||)|
On December 22, 1997, the Commodity Futures Trading Commission ("Commission") filed a Complaint and Notice of Hearing ("Complaint") against Terry Allan Dirksen ("Dirksen"), among others. The six-count Complaint charges, inter alia, that Dirksen: 1) aided and abetted violations of Sections 4b(a), 4o(1)(A) and 4o(1)(B) of the Commodity Exchange Act, as amended ("Act"), 7 U.S.C. §§ 6b(a), 6o(1)(A) and 6o(1)(B) (1994); and 2) is liable as a controlling person for violations of Sections 4b(a), 4o(1)(A) and 4o(1)(B) of the Act.1
In order to dispose of the allegations and issues raised in the Complaint, Dirksen has submitted an Offer of Settlement ("Offer") which the Commission has determined to accept. Without admitting or denying any of the allegations of the Complaint or the findings herein, and prior to any adjudication on the merits, Dirksen acknowledges service of this Order Making Findings and Imposing Remedial Sanctions as to Respondent Terry Allan Dirksen ("Order"). Dirksen 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.2
The Commission finds the following:
From mid-1993 through mid-1995, CSA-Iowa and CSA-IB (collectively, "CSA"), provided agricultural market consulting and advisory services to agricultural producers in Nebraska. In connection with a settlement with CSA, the Commission previously found that CSA violated Section 4b(a), and is liable for violations of Sections 4o(1)(A) and 4o(1)(B), of the Act. See Order Making Findings and Imposing Remedial Sanctions as to Respondents Competitive Strategies for Agriculture, Ltd., CSA Investor Services, Inc., and Lee Donald Amundson, dated August 24, 1998 ("August 24, 1998 Order").
Dirksen negotiated the contractual relationship that established CSA's role in Nebraska and controlled many of CSA-Iowa's and CSA-IB's day-to-day operations, including hiring and firing decisions, setting salary and commission schedules, and managing corporate finances. Dirksen, therefore, is liable for CSA's fraud violations as a controlling person pursuant to Section 13(b) of the Act, 7 U.S.C. § 13c(b) (1994). Dirksen was familiar with CSA's written seminar materials and occasionally lectured at Nebraska seminars. Those seminars taught other consultants CSA's misleading strategies and recommendations and the consultants, in turn, presented this information to Nebraska producers. As a result of this involvement and other conduct set forth more fully below, Dirksen aided and abetted CSA's fraud violations pursuant to Section 13(a) of the Act, 7 U.S.C. § 13c(a) (1994).
Terry Allan Dirksen resides at 729 Logan Drive, Clarinda, Iowa 51632. Until October 8, 1996, he was co-owner and President and office manager of CSA-Iowa and CSA-IB, a registered introducing broker. Dirksen was a principal and registered associated person of CSA-IB from December 6, 1989 through October 8, 1996.
In November 1989, Dirksen and Amundson purchased an agricultural marketing business from an Iowa cooperative elevator and began doing business as CSA-Iowa. CSA-Iowa specialized in providing agricultural marketing and futures exchange trading advice to Iowa producers in return for an annual fee derived from the size of the client's farming operation. Concurrent with CSA-Iowa's formation, Dirksen and Amundson also formed a second corporation, CSA-IB, to provide commodity futures and options brokerage services for CSA-Iowa clients.
Dirksen was an owner of CSA-Iowa and CSA-IB and served as an officer and director of each company. As a co-owner, Dirksen shared responsibility for hiring and firing decisions, check signing, setting compensation and commission rates, and controlling the corporations' finances. Dirksen also reviewed account opening documents and equity runs for CSA.
Pursuant to a written agreement executed in mid-1993, CSA-Iowa provided the consultants operating out of a Nebraska office with support, training, and assistance, including assistance with marketing and promotional seminars discussing so-called hedge-to-arrive contracts ("HTAs") conducted in their trade area of central Nebraska. Dirksen negotiated the contractual arrangement to provide the consultants in that Nebraska office with training and assistance. Most Nebraska clients signed up with CSA to receive its marketing and trading advice after attending CSA seminars discussing HTAs and the commodity futures and options markets. Dirksen was familiar with CSA's written seminar materials and occasionally lectured at Nebraska seminars, which taught other consultants, who had little experience with HTAs before they began working with CSA, about HTAs and CSA's strategies and recommendations. These consultants then presented CSA's strategies and recommendations in seminars and personalized consultations with Nebraska clients and prospective clients. During some of these seminars, which were largely uniform in their content and recommendations, Dirksen promoted (and distributed written materials promoting) a strategy of using HTAs in combination with exchange-traded instruments to maximize profits. A full discussion of the misleading nature of CSA's seminars is contained in the August 24, 1998 Order, at pp. 4-5.
D. Legal Discussion
Dirksen Aided and Abetted Fraud Violations
To be liable for aiding and abetting pursuant to Section 13(a) of the Act, a person "must knowingly associate himself with an unlawful venture, participate in it as something that he wishes to bring about and seek by his actions to make it succeed." In re Richardson Securities, Inc., [1980-1982 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 21,145 at 24,646 (CFTC Jan. 21, 1981). As described above, Dirksen participated in the fraudulent solicitations of Nebraska clients and prospective clients as something he wished to bring about, and he benefited financially from the successful Nebraska sales efforts.3 Richardson, ¶ 21,145 at 24,646; In re Commodities International Corp., [Current Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 26,943 at 44,564 (CFTC March 18, 1997). By virtue of Dirksen's actions, he aided and abetted these fraud violations.
Dirksen Is Liable for the Fraud Violations of CSA-Iowa and CSA-IB as a Controlling Person
To be liable as a controlling person under Section 13(b) of the Act, a person must possess the requisite degree of control and either: 1) knowingly induce, directly or indirectly, the acts constituting the violation; or 2) fail to act in good faith. In re Apache Trading Corp., [1990-1992 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 25,251 at 38,794 (CFTC March 11, 1992). As described above, Dirksen jointly founded, owned, and managed all aspects of CSA-Iowa and CSA-IB. These factors establish his control for purposes of Section 13(b).4
Knowing inducement requires a showing that "the controlling person had actual or constructive knowledge of the core activities that constitute the violation at issue and allowed them to continue." Spiegel, ¶ 24,103 at 34,767 (footnote omitted). Dirksen was familiar with the content of the CSA seminars because he personally reviewed seminar materials and occasionally taught at the Nebraska seminars himself. He also knew that consultants in Nebraska for whom CSA is responsible would repeat the message of those seminars during personalized consultations with clients and prospective clients. Yet, he allowed them to continue misleading Nebraska clients and prospective clients.
Dirksen controlled CSA-Iowa and CSA-IB, and he knowingly induced the fraudulent misrepresentations and omissions respecting HTAs that were made to Nebraska clients and prospective clients for which CSA-Iowa and CSA-IB are responsible. He is, therefore, liable for the fraud violations of CSA-Iowa and CSA-IB as a controlling person pursuant to Section 13(b) of the Act.
FINDINGS OF VIOLATIONS
Solely on the basis of the consent evidenced by the Offer, and prior to any adjudication on the merits, the Commission finds that: 1) pursuant to Section 13(a) of the Act, Dirksen aided and abetted violations of Sections 4b(a), 4o(1)(A), and 4o(1)(B) of the Act; and 2) pursuant to Section 13(b) of the Act, Dirksen is liable as a controlling person for violations of Sections 4b(a), 4o(1)(A), and 4o(1)(B) of the Act.
OFFER OF SETTLEMENT
Dirksen has submitted an Offer in which, without admitting or denying the findings herein, he:
1. Admits the jurisdiction of the Commission with respect to all matters set forth in the Complaint and this Order;
2. Waives a hearing; all post-hearing procedures; judicial review by any court; any objection to the staff's participation in the Commission's consideration of his Offer; any claim of Double Jeopardy based upon the institution of this proceeding or the entry in this proceeding of any order imposing a civil monetary penalty or any other relief; and all claims which he may possess under the Equal Access to Justice Act, 5 U.S.C. § 504 (1994) and 28 U.S.C. § 2412 (1994), as amended by Pub. L. No. 104-121, §§ 231-232, 110 Stat. 862-863, and Part 148 of the Regulations, 17 C.F.R. §§ 148.1 et seq. (1997), relating to, or arising from, this action, and he shall not assert any right under the Equal Access to Justice Act to seek costs, fees, or other expenses relating to, or arising from, this proceeding;
3. Stipulates that the record basis on which this Order is entered consists solely of this Order and findings to which he has consented in the Offer, which is incorporated in this Order; and
4. Consents to the Commission's issuance of this Order which makes findings and:
a. Orders Dirksen to cease and desist from violating the provisions of the Act that he is found to have violated;
b. Orders Dirksen to comply with his undertakings set forth in the Offer; and
c. Orders Dirksen to pay a civil monetary penalty in the amount of ten thousand dollars ($10,000.00).
Accordingly, it is hereby ordered that:
1. Dirksen shall cease and desist from violating Sections 4b(a), 4o(1)(A), and 4o(1)(B) of the Act, 7 U.S.C. §§ 6b(a), 6o(1)(A) and 6o(1)(B) (1994);
2. Dirksen shall pay a civil monetary penalty in the amount of Ten Thousand Dollars ($10,000) within fifteen (15) days of the date of this Order, and such payment shall be made by U.S. postal money order, certified check, bank cashier's check, or bank money order, made payable to the Commodity Futures Trading Commission, and addressed to Dennese Posey, Division of Trading and Markets, Commodity Futures Trading Commission, 1155 21st Street, N.W., Washington, D.C. 20581, under cover of a letter that identifies Dirksen and the name and docket number of the proceeding. A copy of the cover letter and of the form of payment shall be simultaneously transmitted to Geoffrey Aronow, Director, Division of Enforcement, Commodity Futures Trading Commission, 1155 21st Street, N.W., Washington, D.C. 20581. Pursuant to Section 6(e)(2) of the Act, 7 U.S.C. § 9a(2) (1994), if Dirksen fails to pay the full amount of this penalty within fifteen (15) days of the due date, Dirksen shall be automatically prohibited from trading on all contract markets until he shows to the satisfaction of the Commission that payment of the full amount of the penalty with interest thereon to the date of payment has been made; and
3. Dirksen shall immediately comply with the following undertakings:
a. For a period of three (3) years from the date of this Order, Dirksen shall not apply for registration with the Commission in any capacity and shall not engage in any activity requiring such registration or act as an agent or officer of any person registered or required to be registered with the Commission;
b. Dirksen shall cooperate fully with the Division of Enforcement ("Division") in this proceeding, and in the ongoing investigation that led to the filing of the Complaint by, among other things: 1) responding promptly, completely, and truthfully to any inquiries or requests for information; 2) providing authentication of documents; 3) testifying completely, truthfully, and consistently with any prior sworn statements provided to the Division; and 4) not asserting privileges under the Fifth Amendment of the United States Constitution; and
c. Dirksen shall not take any action or make any public statement denying, directly or indirectly, any allegation in the Order or creating, or tending to create, the impression that the Order is without a factual basis; provided, however, that nothing in this provision affects Dirksen's testimonial obligations, or right to take contrary factual or legal positions, in other proceedings to which the Commission is not a party. Dirksen will undertake all steps necessary to assure that all of his agents and employees understand and comply with this agreement.
By the Commission
Jean A. Webb
Secretary of the Commission
Commodity Futures Trading Commission
Dated: September 24, 1998
1 The Commission previously issued a separate Commission Order accepting a Joint Offer of Settlement from two companies Dirksen controlled, Competitive Strategies for Agriculture, Ltd. ("CSA-Iowa") and CSA Investor Services, Inc. ("CSA-IB"), and Lee Donald Amundson ("Amundson"), finding violations of Sections 4b(a), 4o(1)(A), and 4o(1)(B) of the Act.
2 Dirksen does not consent to the use of his Offer or this Order, or the findings consented to in this Order, as the sole basis for any other proceeding brought by the Commission other than in a proceeding to enforce the terms of this Order. Dirksen does not consent to the use of his Offer or this Order, or the findings consented to in this Order, by any other person or entity in this or any other proceeding. The findings made in this Order are not binding on any other person or entity named as a defendant or respondent in this or any other proceeding.
3 All the revenues of CSA-Iowa and CSA-IB, after expenses, flowed to Amundson and Dirksen as co-owners of these closely-held companies. Dirksen earned approximately $10,000.00 in fees from Nebraska clients who entered into a type of HTA offered by Great Plains Co-op, a central Nebraska elevator. For further details concerning this type of HTA in particular, see the August 24, 1998 Order, at pp. 4-5.
4 See, e.g., In re Spiegel, [1987-1990 Transfer Binder] Comm. Fut. L. Rep. (CCH)
¶ 24,103 at 34,768 (CFTC Jan. 12, 1988) (respondent was the founder, president, sole shareholder and sole authorized signatory, and possessed the ultimate authority to hire and fire); In re GNP Commodities, Inc., [1990-1992 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 25,360 (CFTC Aug. 11, 1992) (respondent was founder, co-owner, chairman of the board and majority shareholder, had day-to-day control including hiring and firing decisions, set salary levels, resolved disputes regarding commissions, and supervised and gave instructions to top managers).