Release : #4241-99 (CFTC Docket No. 99-7)
For Release: March 4, 1999
CFTC FILES ENFORCEMENT ACTION ALLEGING COMMODITY OPTIONS FRAUD AGAINST DUNHILL FINANCIAL GROUP, INC., MARK HUTCHERSON AND KEVIN JACKAM; RESPONDENTS ALLEGEDLY SOLICITED CUSTOMERS OVER THE INTERNET; CFTC Action Also Alleges New Millennium Promotions, Michael Thomas, and Forrest Dayton, Jr. Violated CFTC Registration Requirements
WASHINGTON -- The Commodity Futures Trading Commission (CFTC) announced today the filing of a four-count administrative complaint alleging that Dunhill Financial Group, Inc. (Dunhill); Mark Hutcherson, Dunhill's Sales Manager; and Kevin Jackam, Dunhill's Compliance Officer, all of the Atlanta, Georgia area, violated anti-fraud provisions of the Commodity Exchange Act (CEA) and CFTC regulations by fraudulently soliciting prospective customers to open accounts to trade options on commodity futures contracts.
The CFTC complaint alleges that Dunhill, Hutcherson, and Jackam made false, deceptive, and misleading statements regarding the trading of commodity options in publicly disseminated advertisements over the Internet, on the radio, in promotional materials sent to customers, and in direct telephone solicitations of prospective customers.
The complaint also alleges that New Millennium Promotions (New Millennium), Michael Thomas and Forrest Dayton, Jr., also of the Atlanta, Georgia area, violated the CEA's registration requirements and CFTC regulations. The complaint alleges that New Millennium, without being registered, operated as an introducing broker (IB) by soliciting prospective customers over the Internet on Dunhill's behalf in return for a fee paid by Dunhill. Thomas and Dayton are charged with failing to register as associated persons of New Millennium.
Specifically, the CFTC complaint alleges that Dunhill, Hutcherson, and Jackam fraudulently misrepresented, among other things, that customers who purchase options on futures contracts will profit from seasonal and other existing and known supply and demand forces that affect the prices of certain commodities in the cash market. The complaint further alleges that Dunhill, Hutcherson, and Jackam made fraudulent misrepresentations, and omitted disclosing material facts, concerning:such that they:
-- misrepresented the likelihood of profit from trading commodity options;
-- misrepresented the risk of loss involved in trading commodity options; and
-- failed to disclose the amount of commissions charged to customers and the substantial impact that commissions had upon the customer's ability to earn a profit on options trading.
The complaint further alleges that at least 91.4 percent of the customer accounts opened by Dunhill from October 1995 through September 1998 lost money, and that total net losses, including commissions, were in excess of $9.3 million.
Dunhill, Hutcherson, Jackam, NMP and Thomas are also charged with failing to exercise diligently their supervisory responsibilities. Dunhill has been registered with the CFTC as an independent IB since September 27, 1995.
Geoffrey Aronow, the Director of the Commission's Division of Enforcement, commented: "This proceeding presents a striking example of the many ways that people can now solicit business from the public, including the use of Internet websites and ‘spam' e-mail messages. As we see here, these new methods allow people to reach out to millions of people quickly and cheaply. This case demonstrates the Commission's ability and commitment to respond to these new methods when we believe that they are being used in an improper manner to cheat, defraud, and otherwise violate the law."
The CFTC's complaint institutes a public administrative proceeding to determine if the allegations 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 CFTC regulations, civil monetary penalties of not more than the higher of $100,000 or triple the monetary gain for each violation ($110,000 for each violation committed after November 27, 1996), and restitution to customers of damages proximately caused by the violations of the respondents.
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