For Release: August 10, 1999
CFTC FILES AN ENFORCEMENT ACTION AGAINST AND ACCEPTS OFFER OF SETTLEMENT FROM WOLCOTT & LINCOLN L.L.C. AND DAVID GIBSON
CFTC Finds That Wolcott & Lincoln, An FCM, Improperly Handled Customer Money, Violated Recordkeeping Requirements, Filed False Reports and Failed To Supervise Diligently; Gibson, As Manager of Wolcott & Lincoln, Is Also Found Liable.
WASHINGTON - The Commodity Futures Trading Commission (CFTC) announced today that it issued an order instituting and simultaneously settling an administrative proceeding against Wolcott & Lincoln Futures, L.L.C., a registered futures commission merchant (FCM), and David Gibson, of Shawnee Mission, Kansas, the manager of Wolcott & Lincoln.
The CFTC order finds that Wolcott & Lincoln, formerly known as
Wolcott & Lincoln Futures, Inc., mishandled customer funds; willfully
filed inaccurate and improperly executed reports with the CFTC; violated
CFTC recordkeeping requirements; and breached its duty to supervise
diligently the handling of customer funds. The order also finds Gibson
liable for Wolcott & Lincoln's violations. The CFTC's order, among
other things, revokes Wolcott & Lincoln's FCM registration, imposes a
$50,000 civil monetary penalty and requires Gibson to comply with extensive
undertakings. Wolcott & Lincoln and Gibson consented to the issuance of
the order without admitting or denying the findings contained in it.
According to the CFTC's order, in January 1995, Wolcott & Lincoln transferred its customer accounts to LIT Division of First Options of Chicago, Inc. (FOC), a Chicago firm registered with the CFTC as a FCM. FOC formed a Kansas City branch office (W&L Division) which was staffed by former Wolcott & Lincoln employees and handled the former Wolcott & Lincoln customer accounts, according to the order. Wolcott & Lincoln survived as a legal entity and a registered FCM.
The CFTC's order finds that although Wolcott & Lincoln purported to be inactive, Wolcott & Lincoln's bank accounts continued to be used to pass new funds from customers to the trading accounts that had been transferred to FOC, and that in 1995, Wolcott & Lincoln ignored proper procedures and regulatory requirements with respect to the segregation and transfer of customer funds, allowing customer funds to be commingled with the funds of others, in violation of Section 4d(2) of the CEA and Commission Regulation 1.20; willfully filed with the CFTC inaccurate and improperly executed forms which were supposed to identify funds held in segregation for customers, in violation of Section 6(c) of the CEA and Commission Regulation 1.10; and failed to maintain required segregation records and other records and failed to issue commodity statements to customers, in violation of Section 4g of the CEA and Commission Regulations 1.10, 1.18, 1.31, 1.32 and 1.33. Further, the CFTC order finds Gibson liable for all of Wolcott & Lincoln's violations, as a controlling person of that firm, pursuant to Section 13(b) of the CEA.
The CFTC's order also finds that, in 1994 and 1995, Wolcott & Lincoln and Gibson failed to supervise diligently Wolcott & Lincoln's employees, agents and officers, in violation of Commission Regulation 166.3, by, among other things, failing to develop or implement an adequate supervisory system, particularly as it relates to handling customer money. The order further finds that Gibson similarly did not supervise diligently FOC's W&L Division.
As consented to, the CFTC's order:
1. directs Wolcott & Lincoln and Gibson to cease and desist from further violations of the CEA and Commission Regulations;
2. orders them to pay
jointly and severally a civil monetary penalty in the amount of $50,000;
3. evokes the FCM registration of Wolcott & Lincoln; and
4. requires Gibson to comply with his undertakings to:
-- close and permanently discontinue the FCM business of Wolcott & Lincoln;
-- have E.D. & F. Man International, Inc., the current owner of the W&L Division, which remains under Gibson's management, review and, if necessary, further develop the policies, procedures and organizational structure of the W&L Division to ensure that they are reasonably designed to deter, detect, discipline and correct conduct of the type that was found in the CFTC's order to violate the CEA and the Commission's Regulations;
-- develop written policies and procedures and a defined organizational structure for any FCM or introducing broker Gibson seeks to register or of which Gibson becomes a principal or manager in the future; and
-- attend eight hours of formal training this year and next regarding the regulatory obligations of branch offices and FCMs.