Release: 4096-98 (CFTC Docket 95-8 and 95-9)
For Release:January 12, 1998
RESPONDENTS ORDERED TO PAY $460,000 IN CIVIL FINES FOR ROLE IN
INTERNATIONAL COMMODITY SCHEMES AND BARRED FROM THE COMMODITIES INDUSTRY
FOR AIDING AND ABETTING FRAUD BY TWO GERMAN-BASED BROKERAGE FIRMS
WASHINGTON --The Commodity Futures Trading Commission (CFTC) announced today that it has issued an Opinion and Order Making Findings and Imposing Remedial Sanctions which imposes cease and desist orders, penalties and registration sanctions against three U.S. registered firms and their associated persons who were involved in fraudulent commodity schemes perpetrated by two German-based brokerage firms. The order settles two CFTC administrative complaints filed on March 21, 1995, alleging violations of the Commodity Exchange Act (CEA) and CFTC regulations in connection with the fraudulent activity, which victimized several hundred European investors (See CFTC News Release #3827-95, March 22, 1995)
CFTC complaint #95-9 named FSI Futures, Inc. (FSI), a registered
non-clearing futures commission merchant (FCM); Robin Rodriguez,
FSI's president and a registered associated person (AP); Grandview
Holdings Corporation, a registered introducing broker (IB); and J.
Michael King, Grandview's president and a registered AP -- all of New
York. CFTC complaint #95-8, in addition to naming FSI and Rodriguez, also
named Techno Trading, Inc., a registered IB, and Michael Hjalmer
Thomas, who is registered as a commodity trading advisor (CTA) and an
AP of Techno, and is also president and sole principal of Techno -- both of
Techno Trading Systems, Inc. and Michael Thomas Devised a Scheme That Defrauded Customers of $4.3 Million
CFTC complaint #95-8 involved a scheme perpetrated by HOSSE GmbH (and related firms) (HOSSE), an Essen, Germany-based brokerage firm, which solicited customers to trade in an options strategy known as "butterfly spreads." The CFTC found that in 1992, Thomas specifically devised the butterfly spread strategy to assist in generating commission income for himself and HOSSE.
The CFTC in its order finds that Thomas and Techno cheated and defrauded HOSSE's options customers in violation of Section 4c(b) of the CEA and regulation 33.10 by designing the butterfly spread trading strategy and caused customers to lose $4.3 million -- $3.7 million of which was attributable to the commissions. In addition, the order finds Thomas liable for fraud in violation of Section 4o (the CEA's anti-fraud provision relating to CTAs). Furthermore, the CFTC found that Techno and Thomas failed to supervise diligently their employee's handling of the HOSSE accounts.
The CFTC order also finds that FSI, the FCM carrying the HOSSE customer
accounts, and Rodriguez failed to supervise diligently the handling of the
HOSSE customer accounts because: FSI and Rodriguez were aware that the
HOSSE accounts were established for individual customers; FSI had knowledge
that HOSSE exercised discretion over the accounts; FSI and Rodriguez were
aware that Thomas and HOSSE were trading butterfly spreads at a high
commission rate; and FSI and Rodriguez were aware of the consistently
negative effect the strategy had on the ability of HOSSE customers to make
money over the long term; and that FSI and Rodriguez complied with Thomas'
"suspicious request" that HOSSE's commissions be paid out in cash, rather
than via customary wire transfers.
Grandview Holdings Corporation and J. Michael King Aided and Abetted Fraudulent Activities in Germany; Robin Rodriguez and FSI Futures, Inc. Failed to Supervise Futures Trading of American Trading & Consulting GmbH
CFTC Docket No. 95-9 involved a scheme by which American Trading & Consulting, GmbH (ATCO), a Hamburg, Germany-based brokerage firm which between June 1990 and July 1991 defrauded its customers by placing matched buy and sell orders for futures contracts on U.S. futures exchanges. It then assigned trades to particular accounts to create a desired pattern of profits and losses.
In the order, the CFTC finds that Grandview and King aided and abetted ATCO's fraud in violation of Section 4b of the CEA by directly transmitting ATCO's orders to FSI's clearing broker in a manner intended to disguise the scheme. The CFTC finds that "King, at a minimum, turned a `blind eye'" to the numerous indications of potential wrongdoing by the firm and ignored numerous irregularities in the handling of the firm's account.
The CFTC also finds that King's willingness to accommodate the unusual and suspicious conduct of ATCO contributed significantly to the victimization of hundreds of investors. The CFTC order therefore finds that Grandview failed to supervise the ATCO accounts.
The CFTC also finds that FSI and Rodriguez failed to supervise
diligently the handling of ATCO's account. Specifically, the CFTC found
that Rodriguez "ignored numerous irregularities in the handling of the
[ATCO] accounts." The CFTC order also finds that FSI failed accurately to
report financial results of the offsetting futures transactions placed
within ATCO's accounts in violation of Regulation 1.46 of the CEA.
FSI Futures, Inc. to Pay $450,000 in Civil Monetary Penalty and Withdraw from Registration as an FCM; Robin Rodriguez To Withdraw Registration as AP
The CFTC order requires FSI to pay a civil monetary in the amount of $200,000 for its role in HOSSE's scheme and $250,000 for its role in ATCO's scheme. The order also requires FSI and Rodriguez to cease and desist from failing to comply with Commission Regulation 1.46 and from failing to supervise diligently the activities of its partners, officers, employees and agents.
In addition, FSI agreed to withdraw its registration as a FCM and not to apply for registration with the Commission in any capacity, other than as an IB, and never to 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.
Rodriguez agreed to withdraw his registration as an AP and not to apply
for registration as an AP except as an AP of an IB, and not to act in any
capacity as a principal, AP, or as an agent or officer of any person and/or
entity registered or required to be registered as a FCM.
Grandview Holdings Corporation and J. Michael King Barred From Commodity Industry
The CFTC order requires Grandview and King to cease and desist from
engaging in fraud and from failing to supervise diligently the activities
of its partners, officers, employees and agents. The order also revokes the
registrations of Grandview and King, who agreed never to apply for
registration with the CFTC in any capacity. The CFTC notes the
appropriateness of ordering them to pay a monetary penalty but does not
impose one based on sworn representations concerning their financial
Thomas and Techno's Registrations Are Revoked; Thomas To Pay $10,000 In a Civil Monetary Penalty
The CFTC order requires Techno and Thomas to cease and desist from
engaging in fraud in connection with commodity options and from failing to
supervise diligently the activities of its partners, officers, employees
and agents. The order also requires Thomas to cease and desist from
engaging in fraud as a commodity trading advisor or commodity pool
operator. The CFTC order further revokes the registrations of Techno and
Thomas, who agree not to reapply for registration for five years and orders
Thomas to pay a civil monetary penalty of $548,000, all but $10,000 of
which is waived based upon Thomas' demonstrated inability to pay more.
Thomas further agrees not to reapply for registration at the expiration of
five years unless he has paid the rest of the civil monetary penalty,
Criminal Prosecutions in Germany as to the ATCO and HOSSE Customer Frauds
The Commission acknowledges the assistance of the Hamburg and Essen Germany police authorities and affiliated public prosecutors. A number of other individuals responsible for the ATCO and HOSSE customer frauds, none of whom was named by the CFTC, were charged and convicted criminally.