IN THE UNITED STATES DISTRICT COURT

FOR THE

NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

________________________________________________________

)
COMMODITY FUTURES TRADING COMMISSION, )

PRESS RELEASE NO. 4208-98

Plaintiff,

)

v.

)
RONALD J. SWARTZ, )
individually and doing business as )
Vertrix, Inc., and VERTRIX, INC., )
a dissolved Illinois corporation, )

Defendants.

)

________________________________________________________

)

 

COMPLAINT FOR INJUNCTIVE AND OTHER EQUITABLE RELIEF AND FOR

CIVIL PENALTIES UNDER THE COMMODITY EXCHANGE ACT

I. SUMMARY

1. Beginning in August 1997 or earlier and continuing through the present, the defendants, Ronald J. Swartz, individually and doing business as defendant Vertrix, Inc. ("Vertrix"), and Vertrix, a dissolved Illinois corporation, have fraudulently solicited and accepted at least $165,000 from members of the public residing in this district for participation interests in a fictitious commodity pool, and at least another $80,000 for investment in commodity futures trading accounts over which Swartz exercised complete discretion to trade the investors' money. The defendants knowingly misrepresented that they had a highly profitable track record and that their current commodity pool was similarly profitable. In fact, the defendants' track record was disastrous, and there was no pool. The defendants have quickly lost the funds they received from the new investors through trading or misappropriation, but have lied to the investors about the performance of their commodity futures investments. The schemes to defraud can continue only if the defendants are free to solicit and accept additional funds from new investors.

2. Thus, the defendants have engaged, are engaging, and are about to engage in acts and practices which violate Sections 4b(a)(i), 4b(a)(ii) and 4o(1) of the Commodity Exchange Act, as amended ("Act"), 7 U.S.C. §§ 6b(a)(i), 6b(a)(ii) and 6o(1) (1994), and Commission Regulations 4.20, 4.30 and 4.31(a), 17 C.F.R. §§ 4.20, 4.30 and 4.31(a) (1998).

3. Accordingly, pursuant to Section 6c of the Act, 7 U.S.C. § 13a-1 (1994), the plaintiff Commodity Futures Trading Commission ("Commission" or "CFTC") brings this action to enjoin such acts and practices, and to compel compliance with the provisions of the Act. In addition, the Commission seeks civil penalties and an accounting, disgorgement, restitution, rescission and such other equitable relief as the Court may deem necessary or appropriate.

4. Given the defendants' pattern of fraudulent activity, unless restrained and enjoined by this Court, the defendants are likely to continue to engage in the acts and practices alleged in this Complaint, as more fully described below.

II. JURISDICTION AND VENUE

5. The Act establishes a comprehensive system for regulating the purchase and sale of commodity futures contracts and options. This Court has jurisdiction over this action pursuant to Section 6c of the Act, 7 U.S.C. § 13a-1, which authorizes the Commission to seek injunctive relief against any person whenever it shall appear to the Commission that such person has engaged, is engaging, or is about to engage in any act or practice constituting a violation of any provision of the Act or any rule, regulation or order thereunder.

6. Venue properly lies with this Court pursuant to Section 6c of the Act, 7 U.S.C. § 13a-1(e) (1994), in that the defendants are found in, inhabit, or transact business in this district, and the acts and practices in violation of the Act have occurred, are occurring, or are about to occur within this district.

III. THE PARTIES

7. Plaintiff Commission is an independent federal regulatory agency charged with the responsibility for administering and enforcing the provisions of the Act, 7 U.S.C. §§ 1 et seq. (1994), and the Regulations promulgated under it, 17 C.F.R. §§ 1 et seq. (1998).

8. Defendant Ronald J. Swartz resides at 1340 C Green Willow Lane, Glenview, Illinois 60025 and holds himself out to the public as the President and principal of Vertrix. At all times relevant to this Complaint, Swartz has been registered with the Commission as an associated person ("AP") of Vertrix and has transacted business in this district.

9. Defendant Vertrix, Inc. is registered with the Commission as a commodity trading advisor ("CTA") with its last registered business address at 30 South Wacker Drive, Suite 1213, in Chicago, Illinois. Vertrix was first incorporated as an Illinois corporation with Swartz as its president on or about January 22, 1993, but dissolved as of June 1, 1995. Vertrix was reincorporated as an Illinois corporation on April 30, 1996, but again was dissolved, this time as of September 2, 1997. At all times relevant to the Complaint, Swartz has done business under Vertrix's name regardless of whether Vertrix was in good corporate standing with the State of Illinois.

IV. FACTS

A.  Statutory Background

10. A futures commission merchant ("FCM") is defined in Section 1a(12) of the Act, 7 U.S.C. § 1a(12), as an individual, association, partnership, corporation, or trust that: (i) is engaged in soliciting or in accepting orders for the purchase or sale of any commodity for future delivery or on or subject to the rules of any contract market; and (ii) in or in connection with such solicitation or acceptance of orders, accepts any money, securities, or property (or extends credit in lieu thereof) to margin, guarantee, or secure any trades or contracts

11. A CTA is defined in Section 1a(5)(A) of the Act, 7 U.S.C. § 1a(5)(A), as any person who for compensation or profit, engages in the business of advising others as to the value of or the advisability of trading in: (i) any contract of sale of a commodity for future delivery made or to be made on or subject to the rules of a contract market; (ii) any commodity option authorized under Section 4c of the Act, 7 U.S.C. § 6c; or (iii) any leverage transaction authorized under Section 19 of the Act, 7 U.S.C. § 23; or a person who for compensation or profit, and as part of a regular business, issues or promulgates analyses or reports concerning any of the activities referred to above.

12. A commodity pool is defined in Commission Regulation 4.10(d)(1), 17 C.F.R. § 4.10(d)(1), as any investment trust, syndicate or similar form of enterprise engaged in the business of investing its pooled funds in trading commodity futures and options.

13. A commodity pool operator ("CPO") is defined in Section 1a(4) of the Act, 7 U.S.C. § 1(a)(4), as any person engaged in a business that is of the nature of an investment trust, syndicate, or similar form of enterprise, and who, in connection therewith, solicits, accepts or receives from others, funds, securities, or property, either directly or through capital contributions, the sale of stock or other forms of securities or otherwise, for the purpose of trading in any commodity for future delivery on or subject to the rules of any contract market..

14. An AP is a person associated with any FCM, introducing broker ("IB"), CTA, CPO or leverage transaction merchant as a partner, officer, employee, consultant or agent (or any person occupying a similar status or performing similar functions), in any capacity that involves: (i) the solicitation or acceptance of customers' orders, discretionary accounts, or participation in a commodity pool (other than in a clerical capacity); or (ii) the supervision of any person or persons so engaged.

15. The National Futures Association ("NFA") is a futures association registered with the Commission pursuant to Section 17 of the Act, 7 U.S.C. § 21 (1994). The NFA is a not-for-profit membership corporation that serves as an industry self-regulatory organization. Its membership is comprised of FCMs, CTAs, CPOs, IBs and other futures professionals registered with the Commission. The NFA is responsible, under Commission oversight, for certain aspects of the regulation of these futures entities and their APs. It focuses primarily on the qualifications and proficiency, financial condition, retail sales practices, and business conduct of its members. The Commission has delegated to NFA the authority to review and approve promotional material used by its members, including disclosure documents prepared by CTAs and CPOs.

B.  The Vertrix Disclosure Document

16. Swartz and Vertrix prepared, or had prepared on their behalf, a disclosure document for Vertrix dated July 1, 1996 ("Disclosure Document"), which purported to provide information about Vertrix in its capacity as a CTA, Vertrix's principals, and its trading program. The Disclosure Document also purported to show performance information concerning commodity futures trading accounts over which Vertrix had power of attorney. The most recent performance information contained in the Disclosure Document represented in "Table A" that Swartz had managed $304,785.83 through four accounts from January 1, 1995 through June 30, 1996, and obtained an "annual rate of return" of 251.3 percent during 1995 and 144.1 percent during the first six months of 1996.

17. The NFA commenced an examination of Vertrix on or about November 11, 1996. In connection with that examination, NFA staff examined the performance information set forth in Vertrix's July 1, 1996 CTA Disclosure Document.

18. In verbal and written communications between November 1996 and January 1997, the NFA advised Swartz that the performance information set forth in "Table A" of the Disclosure Document was "unsupportable" and instructed him to submit revised performance information to the NFA. The NFA also advised Swartz that he could not distribute or otherwise use the "deficient" Disclosure Document in connection with any solicitation of the public until NFA had received and approved the revised document.

19. Swartz never provided the NFA with the supporting documentation for the performance information in "Table A" or a revised and updated disclosure document for Vertrix. As shown below, Swartz and Vertrix continued to use the deficient Disclosure Document.

C.  The Commodity Pool Scheme

20. From at least August 1997 and continuing through the present, Swartz and Vertrix, acting through Swartz, have solicited members of the public to invest in a commodity pool they purportedly operate ("the Pool") by, among other things, making presentations at investment seminars, conducting individual meetings with potential investors, and making telephone solicitations.

21. Touting his use of a trading system he called "Dynamic Symmetry," Swartz exaggerated the likelihood of profits and minimized the risk of loss of investing in the Pool.

22. As a result of these solicitations, Swartz and Vertrix received and accepted at least $165,000 from at least eight individuals for investment in the Pool.

23. In connection with his solicitation and acceptance of money for investment in the Pool, Swartz distributed or showed the Disclosure Document to one or more potential pool participants, even though the Disclosure Document pertains only to Vertrix in its capacity as a CTA and does not provide information pertaining to the Pool. Swartz directed the attention of potential investors to the performance information contained in the Disclosure Document.

24. The performance information contained in the Disclosure Document was false and misleading.

25. Moreover, in distributing and showing the Disclosure Document, Swartz failed to inform potential pool participants about several material facts, including that:

a) In connection with an examination of Vertrix that the NFA had commenced in November 1996, NFA staff had advised Swartz that:

(1) NFA required Swartz and Vertrix to update and revise the performance results in Table A and provide the revised information to the NFA for its review; and

(2) Swartz and Vertrix could not use the Disclosure Document to solicit potential investors until the deficiencies in the document were corrected;

b) Swartz had not complied with the NFA's request to provide it with revised CTA performance information for Vertrix; and

c) the Disclosure Document provided information only about Vertrix's activities and performance as a CTA, but did not provide disclosure for the Pool as prescribed by Commission Regulation 4.24, 17 C.F.R. § 4.24 (1998).

26. Swartz also showed or distributed to potential pool participants copies of monthly statements on Vertrix letterhead showing purported trading profits that he claimed the Pool had achieved in recent months.

27. This performance information was false and had no reasonable basis in fact.

28. In addition to touting the performance information reported in the Disclosure Document and the monthly statements for the Pool, Swartz made oral misrepresentations of material fact in connection with his solicitation and acceptance of investment funds from prospective pool participants. They included, but were not limited to, representations that:

a) Swartz had not lost money trading the Dynamic Symmetry system over any one-year period;

b) Swartz had been successful trading commodity futures for twenty years and had a profitable track record as a CTA;

c) the Pool was consistently profitable and had achieved an annual return in excess of 200%;

d) investors could withdraw their funds from the Pool with two to five days notice;

e) his trading system was designed so that trading for the Pool would stop if trading losses reached or exceeded 20 percent of initial equity, at which point the defendants would contact the investors for authority to continue trading; and

f) by July 1998, the Pool had amassed $22 million in investments.

29. In connection with their solicitation and acceptance of funds for the Pool, Swartz and Vertrix also failed to inform potential pool participants of, among others, the following material facts:

a) during 1996 they lost more than $1.3 million trading commodity futures in trading accounts over which Swartz or Vertrix had a fully disclosed power of attorney at Vision, Ltd., an FCM;

b) between July 1996 and August 1998, they lost more than $26,000 trading commodity futures in trading accounts opened in Swartz's own name;

c) between July 1996 and August 1998, they lost more than $100,000 trading commodity futures in trading accounts jointly owned by Swartz and other investors;

d) between July 1996 and August 1998, they lost more than $190,000 trading commodity futures in trading accounts over which Swartz or Vertrix had a fully disclosed power of attorney at FCMs other than Vision, Ltd.; and

e) they did not operate a trading account in the Pool's name at any FCM.

30. Swartz instructed the potential investors to make their investment checks payable directly to Swartz, Vertrix or other persons, rather than in the name of the Pool. Swartz deposited the pool participants' funds into a bank account held in his own name or in the name of Vertrix, not in the name of the Pool. On information and belief, Swartz used the bank account to pay corporate and personal debts and expenses and to pay his salary, thereby misappropriating some or all of the Pool participants' funds to his own use.

31. Swartz instructed at least one potential Pool participant to provide Swartz with a cashiers' check made payable to an FCM designated by Swartz, but showing Swartz as the remitter. Swartz deposited those funds with the FCM for credit to a joint commodity futures trading account owned by Swartz and another investor.

32. Between at least September 1997 and July 1998, Swartz prepared and mailed false statements to the Pool participants on a monthly basis concerning his operation of the Pool. The submissions included three types of documents:

a) cover letters that purported to summarize the trading activity in the Pool, including the "principle [sic] account size of the pool," the gross profits earned by the Pool during the month, and the percent return on Pool investments for the month.

b) documents captioned "Statements of Account," which purported to set forth the individual pool participant's deposits, withdrawals and share of profits and losses in the Pool; and

c) documents captioned "Trading Results," which reported the monthly trading activity Swartz purportedly engaged in for the Pool.

33. The information Swartz reported concerning the net asset value of the Pool, the trading profits realized for the Pool and the rates of return earned by the Pool were false and had no reasonable basis in fact.

34. The following chart summarizes the false performance information Swartz provided in the monthly statements he sent to the Pool participants:

TRADING MONTH

"PRINCIPLE [sic] ACCOUNT SIZE" OF POOL

DOLLAR PROFIT RETURNED FOR MONTH

PERCENT PROFIT RETURNED FOR MONTH

September 1997  

$14,043.75

8.26%

October 1997  

$48,281.25

28.4%

November 1997  

$1,453.75

0.8%

December 1997

$257,369.05

$14,853.75

7.43%

January 1998

$309, 869.05

$21,995.00

7.09%

February 1998

$386,869.05

$12,302.50

3.18%

March 1998

$386,869.00

$11,177.50

2.89%

April 1998

$424,944.56

$34,835.00

8.19%

May 1998

$424,944.56

$25,377.50

5.97%

June 1998

$434,944.56

$39,040.00

8.97%

TOTAL

 

$223,360.00

 

35. Swartz's representations in the monthly statements about the Pool were false and had no reasonable basis in fact. Among other things:

a) neither Swartz nor Vertrix operated a commodity trading account in the Pool's name at any FCM;

b) neither Swartz nor Vertrix operated a commodity trading account for the Pool under any other name at any FCM; and

c) the only commodity trading accounts at any FCM in which Swartz had an ownership interest or over which Swartz or Vertrix had a fully disclosed power of attorney lost money during the period Swartz allegedly operated the Pool.

36. Since investing in the Pool, several investors have requested Swartz and Vertrix to redeem all or a portion of their Pool participation interests.

37. To date, Swartz and Vertrix have failed to honor the Pool participants' requests to redeem all or a portion of their participation interests. On information and belief, Swartz and Vertrix have returned funds to only one Pool participant, and only returned a portion of the funds sought by that investor.

D.  Joint Trading Agreement Schemes

38. Beginning in October 1997 or earlier, Swartz solicited potential investors to open joint commodity futures trading accounts with Swartz in which Swartz would invest a portion of his own funds and would have a power of attorney. Swartz distributed or showed the Disclosure Document to at least one of the potential investors for investment in a joint trading account.

39. As a result of these solicitations, at least two investors gave Swartz at least $80,000 that Swartz promised to use to trade in the commodity futures market. Swartz opened joint trading accounts with those two investors.

40. In connection with his solicitation and acceptance of funds for investment in joint trading accounts, Swartz made at least one or more misrepresentations of fact to one or more potential investors, including representations that Swartz:

a) had a profitable track record directing trading for commodity trading accounts;

b) had been trading profitably on behalf of the Pool;

c) would guarantee the investor against loss, or would guarantee to limit losses to a stated amount; and

d) would have a personal stake in the joint trading account by investing his own funds in the account.

41. In connection with his solicitation and acceptance of funds for investment in the joint trading accounts, Swartz and Vertrix also failed to inform one or more potential investors of, among others, the following material facts:

a) during 1996, they lost more than $1.3 million trading commodity futures in trading accounts over which Swartz or Vertrix had a fully disclosed power of attorney at Vision, Ltd., an FCM;

b) between July 1996 and August 1998, they lost more than $26,000 trading commodity futures in trading accounts opened in Swartz's own name;

c) between July 1996 and August 1998, they lost more than $100,000 trading commodity futures in joint trading accounts owned by Swartz and other investors; and

d) between July 1996 and August 1998, they lost more than $190,000 trading commodity futures in trading accounts over which Swartz or Vertrix had a fully disclosed power of attorney at FCMs other than Vision, Ltd.

42. In connection with his handling of one or more of the joint accounts, Swartz engaged in one or more fraudulent acts. Among other things, Swartz:

a) used investor funds to open a joint account at an FCM without identifying the investor as a joint account owner;

b) withdrew funds from the account for his own benefit when there had been no trading profits;

c) used another investor's funds as his contribution toward the joint trading account rather than depositing his own funds;

d) failed to halt trading when the account sustained trading losses exceeding the specified percent of initial account equity; and

e) misrepresented the account's trading performance to the investor.

V. VIOLATIONS OF THE COMMODITY EXCHANGE ACT

COUNT I

VIOLATIONS OF SECTION 4b(a)(i) OF THE ACT:

FRAUD BY MISAPPROPRIATION AND MISREPRESENTATION

43. Paragraphs 1 through 42 are re-alleged and incorporated herein.

44. Beginning in at least 1997 and continuing through the present, defendants Swartz, individually, as an AP of Vertrix, and doing business as Vertrix, and Vertrix have violated Section 4b(a)(i) of the Act, 7 U.S.C. § 6b(a)(i), in that they cheated or defrauded or attempted to cheat or defraud other persons by, among other things: (i) issuing or showing false disclosure documents to prospective investors; (ii) misrepresenting and omitting material facts while soliciting investments in commodity futures and options; (iii) misrepresenting the profits, losses, balances and use of funds or other property he received from investors; (iv) misappropriating investors' funds; and (v) preparing and mailing documents containing false information.

45. Swartz and Vertrix engaged in this conduct in or in connection with orders to make, or the making of, contracts of sale of commodities for future delivery, made, or to be made, for or on behalf of other persons where such contracts for future delivery were or may have been used for (a) hedging any transaction in interstate commerce in such commodity, or the products or byproducts thereof, or (b) determining the price basis of any transaction in interstate commerce in such commodity, or (c) delivering any such commodity sold, shipped, or received in interstate commerce for the fulfillment thereof.

COUNT II

VIOLATIONS OF SECTION 4b(a)(ii) OF THE ACT:

FRAUD BY FALSE STATEMENTS AND FALSE DISCLOSURE DOCUMENTS

46. Paragraphs 1 through 45 are re-alleged and incorporated herein.

47. Beginning in at least August 1997, defendants Swartz, individually, as an AP of Vertrix, and doing business as Vertrix, and Vertrix have violated Section 4b(a)(ii) of the Act, 7 U.S.C. § 6b(a)(ii), in that they willfully made or caused to be made false reports or statements and disseminated them to current and potential investors by, among other things:

a) distributing or showing the Disclosure Document, which misrepresented past trading performance and omitted material information regarding Swartz and Vertrix;

b) mailing correspondence to participants in the Pool that included false information concerning the net asset value of the Pool, the gross profits earned by the Pool during the preceding month, and the percent return on Pool investments for the month;

c) mailing monthly "Statements of Account" that included false information concerning the amount and status of the individual pool participants' investments in the Pool; and

d) mailing monthly "Trading Results" documents that falsely described purported trading results, profits and accumulated funds in the Pool.

48. Swartz and Vertrix engaged in this conduct in or in connection with orders to make, or the making of, contracts of sale of commodities for future delivery, made, or to be made, for or on behalf of other persons where such contracts for future delivery were or may have been used for (a) hedging any transaction in interstate commerce in such commodity, or the products or byproducts thereof, or (b) determining the price basis of any transaction in interstate commerce in such commodity, or (c) delivering any such commodity sold, shipped, or received in interstate Commission for the fulfillment thereof.

COUNT III

VIOLATIONS OF SECTION 4o(1) OF THE ACT:

FRAUD BY COMMODITY TRADING ADVISORS

AND COMMODITY POOL OPERATORS

49. Paragraphs 1 through 48 are re-alleged and incorporated herein.

50. Beginning in at least August 1997 and continuing through the present, defendants Swartz, while acting as a CTA individually and doing business as Vertrix, or as an AP of Vertrix, and Vertrix, in its capacity as a CTA, have violated Section 4o(1) of the Act, 7 U.S.C. § 6o(1), in that they directly or indirectly employed or are employing a device, scheme, or artifice to defraud investors or prospective investors, or have engaged or are engaging in transactions, practices or a course of business which operated as a fraud or deceit upon investors or prospective investors by using the mails or other means or instrumentalities of interstate commerce. Their fraudulent acts included, but were not limited to: (i) issuing or showing false disclosure documents to prospective investors; (ii) misrepresenting and omitting to state material facts to prospective and actual investors; (iii) misrepresenting the profits, losses, balances and use of funds or other property the received from investors; (iv) misappropriating investors' funds; and (v) preparing and mailing documents containing false information.

51. Beginning in at least August 1997 and continuing through the present, defendants Swartz, while acting as a CPO individually and doing business as Vertrix, or as an AP of Vertrix while acting as a CPO, and Vertrix, while acting as a CPO, have violated Section 4o(1) of the Act, 7 U.S.C. § 6o(1), in that they directly or indirectly employed or are employing a device, scheme, or artifice to defraud pool participants or prospective pool participants, or have engaged or are engaging in transactions, practices or a course of business which operated as a fraud or deceit upon pool participants or prospective pool participants by using the mails or other means or instrumentalities of interstate commerce. Their fraudulent acts included, but were not limited to: (i) issuing or showing false disclosure documents to prospective pool participants; (ii) misrepresenting and omitting to state material facts to prospective and actual pool participants; (iii) misrepresenting the profits, losses, balances and use of funds or other property he received from investors; (iv) misappropriating investors' funds; and (v) preparing and mailing documents containing false information.

COUNT IV

VIOLATION OF COMMISSION REGULATION 4.20:

MISHANDLING PROPERTY BY COMMODITY POOL OPERATORS

52. Paragraphs 1 through 51 are re-alleged and incorporated herein.

53. Pursuant to Commission Regulation 4.20(a), 17 C.F.R. § 4.20(a), a CPO must operate its pool as an entity cognizable as a legal entity separate from that of the pool operator. Pursuant to Commission Regulation 4.20(b), 17 C.F.R. § 4.20(b), all funds, securities or other property received by a CPO from an existing or prospective pool participant for the purchase of an interest in a pool that it operates or that it intends to operate must be received in the pool's name. Pursuant to Commission Regulation 4.20(c), 17 C.F.R. § 4.20(c), no CPO may commingle the property of any pool that it operates or that it intends to operate with the property of any other person.

54. Swartz and Vertrix failed to operate their Pool as a separate legal entity, in violation of Commission Regulation 4.20(a), 17 C.F.R. § 4.20(a).

55. Swartz and Vertrix received or intended to receive funds for the Pool in their own names, and not in the Pool's name, in violation of Commission Regulation 4.20(b), 17 C.F.R. § 4.20(b).

56. Swartz and Vertrix commingled property of the Pool with their own property or the property of others, in violation of Commission Regulation 4.20(c), 17 C.F.R. § 4.20(c).

COUNT V

VIOLATION OF COMMISSION REGULATION 4.30:

MISHANDLING PROPERTY BY COMMODITY TRADING ADVISORS

57. Paragraphs 1 through 56 are re-alleged and incorporated herein.

58. Pursuant to Commission Regulation 4.30, 17 C.F.R. § 4.30, a CTA may not solicit, accept or receive from an existing or prospective client, funds in the trading advisor's name to purchase any commodity interest of the client.

59. Swartz and Vertrix solicited, accepted and received funds from prospective clients in Swartz and Vertrix's own names, in violation of Commission Regulation 4.30, 17 C.F.R. § 4.30.

COUNT VI

VIOLATION OF COMMISSION REGULATION 4.31:

DELIVERING A FALSE AND MISLEADING CTA DISCLOSURE DOCUMENT

60. Paragraphs 1 through 59 are re-alleged and incorporated herein.

61. Pursuant to Commission Regulation 4.31(a), 17 C.F.R. § 4.31(a), no CTA registered or required to be registered under the Act may solicit a prospective client, or enter into an agreement with a prospective client to direct the client's commodity interest account or to guide the client's commodity interest trading by means of a systematic program that recommends specific transactions, unless the CTA at or before the time it engages in the solicitation or enters into the agreement, delivers or causes to be delivered to the prospective client a disclosure document for the trading program pursuant to which the trading advisor seeks to direct the client's account or to guide the client's trading, containing the information set forth in Commission Regulations 4.34 and 4.35, 17 C.F.R. § 4.34 and 4.35.

62. In soliciting prospective clients or entering into agreements with prospective clients to direct the clients' commodity interest accounts or to guide the clients' commodity interest trading by means of a systematic program that recommended specific transactions, Swartz and Vertrix delivered to prospective clients Vertrix's Disclosure Document dated July 1, 1996, which contained false and misleading performance disclosures about Vertrix's trading program and did not otherwise contain the information set forth in Commission Regulations 4.34 and 4.35, 17 C.F.R. § 4.34 and 4.35, in violation of Commission Regulation 4.31(a), 17 C.F.R. § 4.31(a).

VI. RELIEF REQUESTED

WHEREFORE, Plaintiff respectfully requests that this Court, as authorized by Section 6c of the Act, 7 U.S.C. § 13a-1, and pursuant to its own equitable powers enter:

A. An order of permanent injunction enjoining Swartz, individually and doing business as Vertrix, Inc., and Vertrix, Inc., all persons insofar as they are acting in the capacity of agents, servants, employees, successors, assigns, or attorneys of Swartz or Vertrix, Inc., and all persons insofar as they are acting in active concert or participation with Swartz or Vertrix, Inc. who receive actual notice of the Order by personal service or otherwise, from directly or indirectly:

1. Cheating or defrauding or attempting to cheat or defraud other persons, in or in connection with any order to make, or the making of, any contract of sale of any commodity for future delivery, made, or to be made, for or on behalf of any other person if such contract for future delivery is or may be used for (a) hedging any transaction in interstate commerce in such commodity or the products or byproducts thereof, or (b) determining the price basis of any transaction in interstate commerce in such commodity, or (c) delivering any such commodity sold, shipped, or received in interstate commerce for the fulfillment thereof, in violation of Section 4b(a)(i) of the Act, 7 U.S.C. § 6b(a)(i);

2. Willfully to make or cause to be made to other persons any false report or statement thereof, or willfully to enter or cause to be entered for such persons any false record thereof, in or in connection with any order to make, or the making of, any contract of sale of any commodity for future delivery, made, or to be made, for or on behalf of any other person if such contract for future delivery is or may be used for (a) hedging any transaction in interstate commerce in such commodity or the products or byproducts thereof, or (b) determining the price basis of any transaction in interstate commerce in such commodity, or (c) delivering any such commodity sold, shipped, or received in interstate commerce for the fulfillment thereof, in violation of Section 4b(a)(ii) of the Act, 7 U.S.C. § 6b(a)(ii);

3. Employing any device, scheme, or artifice to defraud any client or participant or prospective client or participant, or engaging in any transaction, practice, or course of business which operates as a fraud or deceit upon any client or participant or prospective client or participant, by use of the mails or any means or instrumentality of interstate commerce, in violation of Section 4o(1) of the Act, 7 U.S.C. § 6o(1);

4. While acting as a commodity pool operator registered or required to be registered under the Act, failing to operate any pool as an entity cognizable as a legal entity separate from that of the pool operator, in violation of Commission Regulation 4.20(a), 17 C.F.R. § 4.20(a);

5. While acting as a commodity pool operator registered or required to be registered under the Act, failing to receive in the pool's name all funds, securities or other property from an existing or prospective pool participant for the purchase of an interest or as an assessment (whether voluntary or involuntary) on an interest in any pool that it operates or that it intends to operate, in violation of Commission Regulation 4.20(b), 17 C.F.R. § 4.20(b);

6. While acting as a commodity pool operator registered or required to be registered under the Act, commingling the property of any pool that it operates or that it intends to operate with the property of any other person, in violation of Commission Regulation 4.20(c), 17 C.F.R. § 4.20(c);

7. While acting as a commodity trading advisor registered or required to be registered under the Act, soliciting, accepting or receiving from an existing or prospective client funds, securities or other property in the trading advisor's name, in violation of Commission Regulation 4.30, 17 C.F.R. § 4.30;

8. While acting as a commodity trading advisor registered or required to be registered under the Act, soliciting a prospective client, or entering into an agreement with a prospective client to direct the client's commodity interest account or to guide the client's commodity interest trading by means of a systematic program that recommends specific transactions, unless the commodity trading advisor at or before the time it engages in the solicitation or enters into the agreement, delivers or causes to be delivered to the prospective client a disclosure document for the trading program pursuant to which the trading advisor seeks to direct the client's account or to guide the client's trading, containing the information set forth in Commission Regulations 4.34 and 4.35, 17 C.F.R. § 4.34 and 4.35, in violation of Commission Regulation 4.31(a), 17 C.F.R. § 4.31(a); and

9. Engaging in any commodity related activity, including soliciting new customers or customer funds;

B. An order requiring the defendants and any successors thereof to disgorge all benefits received from acts or practices which constitute violations of the Act as described herein, including pre-judgment interest;

C. An order requiring the defendants to make restitution to every customer whose funds were received or utilized by him as a result of acts and practices which constituted violations of the Act, as described herein, including pre-judgment interest;

D. An order requiring the defendants to pay civil penalties under the Act, in an amount of not more than the higher of $100,000 or triple the monetary gain to that defendant for each violation of the Act committed prior to November 27, 1996, or $110,000 or triple the monetary gain to that defendant for each violation of the Act committed after that date;

E. An order directing that the defendants make an accounting to the court of all their assets and liabilities, together with all funds they received from and paid to investors and other persons in connection with commodity futures transactions or purported commodity futures transactions, and all disbursements for any purpose whatsoever of funds received from commodity investors, including salaries, commissions, fees, loans and other disbursements of money and property of any kind, from October 1994 to and including the date of such accounting;

F. An order requiring the defendants to pay costs and fees as permitted by 28 U.S.C. §§ 1920 and 2412(a)(2); and

G. Such other equitable relief as the court may deem necessary or appropriate under the circumstances.

 

 

Date: November 20, 1998 Respectfully submitted,

COMMODITY FUTURES TRADING COMMISSION

300 South Riverside Plaza, Suite 1600N

Chicago, IL 60606-6615

(312) 886-6303 (Williamson)

(312) 353-9004 (Berkowitz)

(312) 353-4502 facsimile

ATTORNEYS FOR PLAINTIFF

_______________________________

Scott R. Williamson

Senior Trial Attorney

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Darlene M. Oliver

Trial Attorney

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Elizabeth M. Streit

Senior Trial Attorney

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Susan A. Berkowitz

Regional Counsel