Release: #4230-99 (CFTC Docket #99-6)
For Release: January 13, 1999
CFTC FILES ADMINISTRATIVE COMPLAINT AGAINST FARMERS COOPERATIVE COMPANY AND THREE EMPLOYEES CHARGING VIOLATIONS OF THE COMMODITY EXCHANGE ACT AND REGULATIONS
WASHINGTON -- The Commodity Futures Trading Commission (CFTC) announced today the filing of a five-count administrative complaint naming Farmers Cooperative Company (Farmers Co-op), a cooperative grain elevator located in Farnhamville, Iowa, and three elevator employees, Richard Houge, John McPherson, and Larry Peterson.
The complaint, filed January 12, 1999, charges that Farmers Co-op, aided and abetted by Houge and Peterson, violated Section 4(a) of the Commodity Exchange Act (CEA) by offering and entering into "hedge-to-arrive" (HTA) grain contracts which constituted contracts for the purchase and sale of a commodity for future delivery, but which were not conducted on a designated contract market. According to the complaint, Farmers Co-op permitted farmers to buy back their HTA contracts at any time before delivery was required under the contract and thereby extinguish their delivery obligations by means other than the actual delivery of grain.
In addition, the complaint charges that Farmers Co-op, aided and abetted by Houge and Peterson, violated Section 4c(b) of the CEA and Commission regulations 32.2 and 33.3(b) by offering and entering into illegal off-exchange agricultural options contracts. The off-exchange agricultural options contracts obligated the farmers to sell grain to the co-op by a specified date at a fixed price if the co-op exercised the options. Farmers Co-op also permitted producers to buy back their options, thereby extinguishing the producers' obligations under the options.
The complaint also charges that Farmers Co-op, aided and abetted by Houge, McPherson and Peterson, operated as an unregistered futures commission merchant in violation of section 4d(1) of the CEA by extending credit to farmers for the purpose of placing and maintaining farmers' orders to buy and sell exchange-traded put and call options, and certain exchange-traded futures contracts.
Finally, the complaint charges that Farmers Co-op, aided and abetted by the three employees, failed to provide risk disclosure statements and monthly profit and loss statements to the farmers who were allowed to buy and sell the exchange-traded futures and options contracts, in violation of CFTC regulations 1.33(a) and 1.55.
A public hearing has been ordered to determine if the charges in the complaint are true, and, if so, what sanctions, if any, are appropriate and in the public interest. Possible sanctions include an order directing the respondents to cease and desist from violating the CEA and Commission regulations, civil monetary penalties of not more than the higher of $100,000 or triple the monetary gain for each violation, and restitution to farmers where appropriate.
CFTC Commissioner Barbara P. Holum dissented.
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