For Release: November 8, 1999
CFTC FILES CIVIL INJUNCTIVE COMPLAINT IN FEDERAL COURT IN LOS ANGELES AGAINST S. JAY GOLDINGER AND CAPITAL INSIGHT BROKERAGE, INC., CHARGING A FRAUDULENT TRADE ALLOCATION SCHEME
DEFENDANTS AGREE TO ENTRY OF PERMANENT INJUNCTION AND $6 MILLION DISGORGEMENT ORDER
WASHINGTON -- The Commodity Futures Trading Commission (CFTC) announced the filing on November 8, 1999, of a five-count civil injunctive complaint in the United States District Court for the Central District of California against S. Jay Goldinger and Capital Insight Brokerage, Inc., both of Beverly Hills, California, alleging that Goldinger and Capital Insight violated anti-fraud, registration, and record-keeping provisions of the Commodity Exchange Act and Commission Regulations. The complaint alleges that Goldinger was paid approximately $6 million in commissions generated from trading customers' futures and options accounts. This action is the result of a coordinated investigation with the Securities and Exchange Commission (SEC) and the U.S. Attorney's Office for the Central District of California, and the Federal Bureau of Investigation (FBI). Concurrently with the filing of the CFTC's action, the SEC is filing a civil injunctive action against Goldinger based on related conduct involving transactions in securities.
In a proposed consent order of permanent injunction and other equitable relief which was presented to the Court today, Goldinger and Capital Insight have agreed to disgorge $6 million in ill-gotten gains and to be permanently enjoined from further violations of the Commodity Exchange Act and CFTC regulations.
The CFTC complaint alleges that during 1994 and 1995, Goldinger, who was the President and owner of Capital Insight, engaged in a fraudulent trade allocation scheme whereby he assigned profitable trades to certain customer accounts and losing trades to other customers. Goldinger allegedly directed the trading of millions of dollars of U.S. Treasury bond futures and options contracts in approximately seventy customer accounts.
The CFTC's complaint alleges that Goldinger placed his U.S. Treasury Bond futures and options on futures trades through a floor broker on the Chicago Board of Trade. Goldinger allegedly was able to make these fraudulent trade allocations because he failed to provide to the floor broker the customer account identification information for his trades until after he knew the prices at which the trades had been confirmed.
The Commission further alleges that Goldinger misrepresented to customers that he engaged in a low-risk trading strategy using T-bond futures and options trading to hedge customer trades in the cash T-bond market, failed to disclose to customers that he was trading pursuant to his fraudulent allocation scheme, transmitted customer orders for execution without giving account identification until a later time and sent false trading statements to customers which misrepresented customer profits and losses.
The complaint further alleges that Capital Insight failed to register with the CFTC as a commodity trading advisor and failed to prepare written records, including account identification of customer orders, immediately on receipt of such orders.
Phyllis J. Cela, Acting Director of the CFTC's Division of Enforcement, commented:
This case presents the benefits of cooperative law enforcement to address fraudulent activity across the financial markets. Our partnership with the US Attorney's Office, the SEC and the FBI resulted in a clear and effective response to a sophisticated fraudulent scheme.
This is the third matter filed by the CFTC related to Goldinger's allocation scheme. Previously, the Commission instituted In the Matter of Refco, Inc., CFTC Docket No. 99-12 (see CFTC News Release #4269-99, May 24, 1999), and In the Matter of Constantine Mitsopoulos, Margaret Dull, Lisa Budicak, and Richard Marisie, CFTC Docket 99-17 (see CFTC News Release #4317-99, September 30, 1999).
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