UNITED STATES OF AMERICA
Before the
COMMODITY FUTURES TRADING COMMISSION

_____________________________________________________
)
In the Matter of: ) CFTC Docket No. 00-28
)
��International Trading Systems Ltd., ) ORDER INSTITUTING PROCEEDINGS
��International Trading Systems Australia PTY Limited, ) PURSUANT TO SECTIONS 6(c) and 6(d)
��Richard Swannell, ) OF THE COMMODITY EXCHANGE ACT,
�� ) AS AMENDED, MAKING FINDINGS AND

Respondents.

) IMPOSING SANCTIONS
_____________________________________________________ )

I.

The Commodity Futures Trading Commission (the "Commission") has reason to believe that International Trading Systems, Ltd. ("ITSL"), International Trading Systems, Australia PTY, Limited ("ITSA"), and Richard Swannell ("Swannell") have violated Sections 4(b)(a)(i) and (iii) and 4o(1) of the Commodity Exchange Act (the "Act"), 7 U.S.C. ��6b(a)(i) and (iii) and 6o(1) (1994) and Section 4.41(a) and (b) of the Commission's Regulations, 17 C.F.R. �4.41(a) and (b) (2000). Therefore, the Commission deems it appropriate and in the public interest that administrative proceedings be, and hereby are, instituted to determined whether ITSL, ITSA and Swannell engaged in the violations set forth in this Order and to determine whether any Order should be issued imposing remedial sanctions.

II.

In anticipation of the institution of this administrative proceeding, Respondents have submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept. Without admitting or denying the findings in this Order, and prior to any adjudication on the merits, Respondents acknowledge service of this Order. Respondents consent to the use of the findings in this Order in this or any other proceedings brought by the Commission or to which the Commission is a party.1

III.

The Commission finds the following:

A. Summary

Since at least November 1998 until July 2000, respondents have sold software programs to United States customers that generate recommendations for trading commodity futures on United States boards of trade through an Internet Web site. On the Web site respondents "guarantee" that purchasers of their software programs will double their money year after year and falsely imply that over the past several years, respondents' trading systems have produced "exceptional and consistent" returns in actual trading. In fact, none or virtually none of the customers who use Respondents' systems have doubled their money in any one-year period, and the past performance results touted on the Web site are the product of hypothetical, rather than actual, trading. Additionally, Respondents fail to accompany the performance claims with the statement prescribed by the Commission's Regulations concerning the inherent limitations of claims based on hypothetical performance.

Respondents also prominently feature a testimonial from a systems purchaser who purportedly made substantial profits in only a few months of trading and continues to profit each day. Respondents fail to disclose, however, that after the successful trades, the customer experienced substantial trading losses and no longer uses Respondents' trading systems in the recommended manner.

Respondents' activities in fraudulently advertising their trading systems violate Sections 4b(a)(i) and (iii) and 4o(1) of the Act, and Section 4.41(a) of the Commission's Regulations, and their failure to provide the required statement concerning performance results based on hypothetical trading violates Section 4.41(b) of the Commission's Regulations.2

B. Respondents

None of the respondents is registered with the Commission in any capacity. 3

C. Facts

Since at least November 1, 1998 until July 2000, Respondents have sold through their Web site (www.internationaltrading.com, which is registered through Network Solutions, Inc. in Virginia and administered through Addy & Associates in Florida) a software package consisting of five "fully automated, mechanical trading systems" referred to as "The Collective." On a daily basis, purchasers of the software can input certain market information, and the trading systems will then generate specific instructions that can be sent to a broker. This system is marketed primarily to United States customers.

Respondents make various guarantees about the profits customers are likely to achieve by trading commodity futures based on The Collective's recommendations. For instance, through their Web site, respondents claim that:

� We guarantee that you will double your investment capital every year with our mechanical trading systems!

� The Collective is a software package guaranteed to position you in the top few percent of the world's best traders on a consistent basis.

� Each trading system in The Collective is guaranteed to increase the value of the recommended portfolio by a minimum of 100% (including the cost of brokerage and slippage in the first 12 months after purchase). . . . If the return is 99% or less, we will refund the total purchase price for that system and you can keep the software!

In fact, none or virtually none of the customers who purchase The Collective double their investment capital in any one year of futures trading, let alone "every year."

Through numerous graphs that purport to depict the historical performance of the Collective for commodity futures available only through United States boards of trade, respondents also misrepresent the past profits they have achieved. These graphs represent portfolios that purportedly have traded "across all futures markets" based on the recommendations made by respondents' systems and have experienced dramatic increases in value since 1994. Respondents further claim that after the trading systems were "released" on October 1, 1998, "each trading system has shown the same exceptional and consistent returns as before release." Thus, these graphs and the accompanying text falsely imply that the performance claims appearing on respondents' Web site were the product of actual trading, at least after the systems were "released." In fact, respondents have never used any of their own funds to trade commodity futures based on The Collective's recommendations. Instead, all the performance results depicted in the graphs are the product of simulated or hypothetical trading. Moreover, respondents' performance claims are not accompanied by the cautionary statement prescribed by Regulation 4.41(b) concerning the inherent limitations of performance results based on hypothetical trading.

Respondents' Web site prominently features a testimonial from a customer who purchased and used The Collective. The testimonial purports to have been written "at 2:30pm on April 30th [1999]", and discusses the customer's trading experience from the beginning of January 1999. According to the testimonial, the customer "turned $72,000 into $202,000 in the first 100 days of trading," and his "account continues to grow each day." The testimonial also reports that the customer lost money when he temporarily departed from the trading systems' recommendations. While it is true that the customer experienced gains and losses that approximate the claims in the testimonial, his account has not continued to grow. In fact, respondents have knowledge that, subsequent to the customer's successful trades, he suffered substantial trading losses while trading as directed by The Collective, and, indeed, the customer no longer relies on The Collective trading signals.

D. Legal Discussion

1. Respondents Violated Sections 4b(a) (i) and (iii) of the Act

Sections 4b(a)(i) and (iii) of the Act provide that it shall be unlawful, in or in connection with any order to make or the making of a futures contract, for or on behalf of any other person, (i) to cheat or defraud, or attempt to cheat or defraud, such other person, or (iii) willfully to deceive or attempt to deceive such other person by any means whatsoever in regard to any such order or contract or the disposition or execution of any such order or contract, or in regard to any act of agency performed with respect to such order or contract for such person. Misrepresentations and omissions of material facts made with scienter regarding futures transactions constitute fraud under Section 4b(a) of the Act.4 Additionally, Sections 4b(a)(i) and (iii) require that the material misrepresentations and omissions of material facts be made "in connection" with futures transactions.5

Respondents violated Sections 4b(a)(i) and (iii) by guaranteeing that purchasers of The Collective will double their investment capital in a one-year period, and double it again in each successive year. CFTC v. Commonwealth Financial Group, Inc., 874 F. Supp. 1345, 1354 (S.D. Fla. 1994) (finding that statements to potential customers such as "the likelihood of possible profit is near certain," or "over the last seven years every $10,000 invested has netted an average of as much as $50,000 in profits based on the underlying futures" exceeded "mere optimism" and violated Section 4b of the Act); CFTC v. Crown Commodity Options, Ltd., 434 F. Supp. 911 (S.D.N.Y. 1977)(sales pitches were misleading and inaccurate when "they conveyed the distinct impression that extraordinary short-term profits were all but certain to be realized by investors"). The fact that respondents expressly back some (but notably, not all) of these guarantees with a promise to refund the purchase price of the trading systems does not change the fraudulent character of these statements, even if respondents honored customer requests for refunds. R&W Technical Services, Ltd. v. CFTC, 205 F.3d 165, 170 (5th Cir. 2000) ("[T]he existence of a limited refund policy coupled with extravagant claims of false profits only confirms that the petitioners misrepresented the existence of substantial risks inherent in futures trading.").

Respondents have also violated Section 4b(a)(i) and (iii) by representing that historical performance results were based on actual trading, while knowing that, in fact, they were the product of hypothetical trading. "Because simulated results inherently overstate the reliability and validity of an investment system, and because extravagant claims understate the inherent risks in commodities trading, a reasonable investor would find [such] fraudulent misrepresentations to be material." R&W Technical Services, 205 F.3d at 170; see also CFTC v. Skorupskas, 605 F. Supp. 923, 933 (E.D. Mich. 1985) (solicitations aided through use of false or deceitful performance tables violated Section 4b(a)).

Finally, Respondents have violated Section 4b(a)(i) and (iii) in their use of a customer testimonial, in which the customer reports that he made profitable trades over a few-month period and that his account continued to grow. Respondents fail to disclose that the customer subsequently experienced substantial losses and then stopped using respondents' trading system. Additionally, Respondents fail to disclose that the profits achieved by the customer who furnished the testimonial was not typical for purchasers of The Collective. In re First National Trading Corp., [1992-1994 Transfer Binder] Comm. Fut. L. Rep. (CCH) � 26,142 at 41,788 n.20 (CFTC July 20, 1994) (use of literally true statement as sales inducement had effect of misleading customers as to likelihood of achieving profits); Swickard v. A.G. Edwards & Sons, [1984-1986 Transfer Binder] Comm. Fut. L. Rep. (CCH) � 22,522 at 30,275 (CFTC March 7, 1985) ("fraud can occur through an incomplete representation or 'half-truth'").

2. Respondents Violated Section 4o(1) of the Act and Section 4.41 of the Regulations

Section 4o(1) of the Act prohibits CTAs from (a) employing any device, scheme or artifice to defraud any client or participant or prospective client or participant, or (b) 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. Section 4.41(a) of the Regulations prohibits a CTA or principal thereof from advertising in a fraudulent or misleading manner. Section 4.41(b) of the Regulations makes it unlawful for a CTA to fail to include the required warnings about the limitations of trading performance numbers based upon hypothetical or simulated data. 6

In order to establish a violation of Section 4o of the Act and Section 4.41 of the Regulations, the Division must prove that the respondent was (i) a CTA or, with respect to Section 4.41 of the Regulations, a principal thereof, and (ii) either (a) employed any device, scheme, or artifice to defraud any client or prospective client, or (b) engaged in any transaction, practice, or course of business which operates as a fraud or deceit upon any client or prospective client. Section 4o(1) of the Act which also requires the use of the mails or any means or instrumentality of interstate commerce, prohibits both registered and unregistered CTAs from defrauding their clients.7 Section 4.41 of the Regulations also applies to all CTAs, regardless of whether those CTAs are required to be registered.

Under Section 1a(5) of the Act, in order to establish that someone is a CTA, it must be shown that the person (i) advised another about the value or advisability of trading in futures contracts, (ii) "either directly or through publications, writings or electronic media," (iii) for compensation or profit. Section 1a(5) of the Act, 7 U.S.C. � 1a(5).8 Respondents gave commodity futures trading advice for compensation or profit and, therefore, are CTAs. 9

By falsely representing the profits that customers will achieve by following the recommendations of The Collective, and by falsely representing that historical performance results are based on actual, rather than hypothetical trading, respondents have violated Section 4o(1) of the Act and Section 4.41(a) of the Regulations for the same reasons as they violate Sections 4b(a)(i) and (iii) of the Act. In re R&W Technical Services, Comm. Fut. L. Rep. (CCH) �27,582 (CFTC March 16, 1999) ("Because we have found that [respondents] violated Section 4b(a) of the Act and that they acted as CTAs, further analysis is not needed to conclude that [respondents] also violated Section 4o(1) of the Act"), aff'd in relevant part, R& W Technical Services v. CFTC, 205 F.3d 165 (5th Cir. 2000). Respondents also violated Section 4.41(b) of the Regulations by presenting hypothetical or simulated performance results without accompanying those results with the prescribed cautionary statement.

IV.

Findings of Violations

Solely on the basis of the consent evidenced by the Offer, and prior to any adjudication of the merits by the Commission, the Commission finds that Respondents violated Sections 4b(a)(i) and (iii) and 4o(1), and Commission Regulation 4.41(a) and (b).

V.

Offer of Settlement

Respondents have submitted an Offer of Settlement ("Offer") in which they, without admitting or denying the findings in this Order:

A. Admit the jurisdiction of the Commission with respect to all matters set forth in the Order;

B. Acknowledge service of this Order;

C. Waive:

1. the filing and service of a Complaint and Notice of Hearing;

2. a hearing;

3. all post-hearing procedures;

4. judicial review by any court;

5. any objection to the staff's participation in the Commission's consideration of the Offer;

6. any claim of Double Jeopardy based upon the institution of this proceeding or the entry of any order imposing a civil penalty or any other relief; and,

7. all claims which ITSL, ITSA or Swannell may possess under the Equal Access to Justice Act, 5 U.S.C. �504 (1994) and 28 U.S.C.�2412 (1994) as amended by Pub. L. No. 104-121, �� 231-32, 110 Stat. 847 and Part 148 of the Commission's Regulations, 17 C.F.R. �148.1 et.seq. (2000) relating to or arising from the Order;

D. Stipulate that the record basis on which the Order may be entered consists solely of the Order and the findings consented to in the Offer, which are incorporated in the Order; and

E. Consent to the Commission's issuance of this Order, which makes findings and:

1. orders respondents to cease and desist from violating Sections 4b(a)(i) and (iii) and 4o(1) of the Commodity Exchange Act (the "Act"), as amended, 7 U.S.C. �� 6b(a)(i) and (iii) and 6o(1) (1994), and Sections 4.41(a) and (b) of the Commission's Regulations, 17 C.F.R. �4.41(a) and (b) (2000);

2. orders respondents to pay, jointly and severally, Ten Thousand Dollars ($10,000.00), which represents a civil monetary penalty. ITSL, ITSA and Swannell shall pay the total amount within ten (10) days of the date of the Order by electronic funds transfer, or by U.S. Postal money order, certified check, bank cashier's check, or bank money order, made payable to the Commodity Futures Trading Commission and sent to Dennese Posey, or her successor, Division of Trading and Markets, Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, N.W., Washington D.C. 20581, under cover of a letter that identifies ITSL and the name and docket number of the proceeding; respondents shall simultaneously transmit a copy of the cover letter and the form of payment to Director, Division of Enforcement, Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, N.W., Washington D.C. 20581; and,

3. orders respondents to comply with their undertakings as set forth in the Order.

4. orders Swannell to serve a copy of this order, by certified mail, on any person who purchases from him ownership, licensing, or distribution rights concerning ITSL, ITSA, the Collective software trading system, or the domain name, www.internationaltrading.com.

VI.

Order

Accordingly, IT IS HEREBY ORDERED THAT:

A. Respondents cease and desist from violating Sections 4b(a)(i) and (iii) of the Commodity Exchange Act (the "Act"), as amended, 7 U.S.C. �� 6b(a)(i) and (iii) (1994), and Section 4o(1) of the Act, as amended, 7 U.S.C. � 6o(1) (1994) and Sections 4.41(a) and (b) of the Commission's Regulations, 17 C.F.R. � 4.41(a) and (b) (2000);

B. Respondents pay, jointly and severally, a civil penalty of $10,000. They shall pay the total amount within ten days of the date of the Order by electronic funds transfer, or by U.S. postal money order, certified check, bank cashier's check, or bank money order, made payable to the Commodity Futures Trading Commission, and sent to Dennese Posey, Division of Trading and Markets, Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, N.W., Washington, D.C. 20581, under cover of a letter that identifies Trendy and the name and docket number of the proceeding; Respondents shall simultaneously transmit a copy of the cover letter and the form of payment to Director, Division of Enforcement, Commodity Futures Trading Commission, 1155 21st Street, N.W., Washington, D.C. 20581. In accordance with Section 6(e)(2) of the Act, 7 U.S.C. � 9a(2) (1994), if Respondents fail to pay the full amount of this civil penalty within fifteen (15) days of the due date, they shall be automatically prohibited from trading on all contract markets until they show to the satisfaction of the Commission that payment of the full amount of the civil penalty with interest thereon to the date of payment has been made; and,

C. Respondents shall comply with the following undertakings:

1. Respondents shall not misrepresent, expressly or by implication:

a. the performance, profits or results achieved by, or the results that can be achieved by, users, including him/herself, of any commodity futures or options trading system or advisory service; and

b. the risks associated with trading pursuant to any commodity futures or options trading system or advisory service;

2. Respondents shall not present the performance of any simulated or hypothetical commodity interest account, transaction in a commodity interest or series of transactions in a commodity interest unless such performance is accompanied by the following statement, as required by 17 C.F.R. � 4.41(b):

Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not actually been executed, the results may have under- or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown.

In doing so, Respondents shall clearly identify those hypothetical or simulated performance results which were based, in whole or in part, on hypothetical trading results.

3. Respondents shall not make any representation of financial benefits associated with any commodity futures or options trading system or advisory service without first disclosing, prominently and conspicuously, that futures trading involves high risks with the potential for substantial losses.

4. Respondents shall not represent, expressly or by implication:

a. the performance, profits or results achieved by, or the results that can be achieved by, users, including him/herself, of any commodity futures or options trading system or advisory service;

b. the risks associated with trading using any commodity futures or options trading system or advisory service;

c. that the experience represented by any user, testimonial or endorsement of the commodity futures or options trading system or advisory service represents the typical or ordinary experience of members of the public who use the system or advisory service; unless: (i) Respondents possess and rely upon a reasonable basis substantiating the representation at the time it is made; and (ii) for two (2) years after the last date of the dissemination of any such representation, Respondents maintain all advertisements and promotional materials containing such representation and all materials that were relied upon or that otherwise substantiated such representation at the time it was made, and make such materials immediately available to the Division of Enforcement for inspection and copying upon request.

5. Neither Respondents nor any of their agents or employees under their authority or control shall take any action or make any public statement denying, directly or indirectly, any findings or conclusions in this Order or creating, or tending to create, the impression that this Order is without a factual basis; provided, however, that nothing in this provision affects Respondent's (1) testimonial obligations; or (2) right to take contrary factual or legal positions in other proceedings to which the Commission is not a party. Respondents will undertake all steps necessary to assure that all of his agents and employees under his authority and control understand and comply with this undertaking.

6. orders Swannell to serve a copy of this order, by certified mail, on any person who purchases from him ownership, licensing, or distribution rights concerning ITSL, ITSA, the Collective software trading system, or the domain name, www.internationaltrading.com.

Unless otherwise specified, the provisions of this Order shall be effective on this date.

By the Commission.
Dated: September 6, 2000 ______________________
Jean A. Webb
Secretary to the Commission

Commodity Futures Trading Commission


NOTES:

1 Respondents do not consent to the use of the Offer or this Order, or the findings herein, as the sole basis for any other proceeding brought by the Commission. Respondents do not consent to the use of the Offer or the Order, or the findings herein, by any other party in any other proceeding. The findings consented to in the Offer or made in the Order are not binding on any other person or entity in any other proceeding before the Commission.

2 The Internet is a highly beneficial medium that facilitates the dissemination of information, but which also enables potential violators to reach millions of people worldwide quickly and at very low cost. By this proceeding and the other proceedings being filed contemporaneously, as well as the ten proceedings brought on May 1, 2000, the Commission is addressing fraud committed on the Internet to promote the integrity of representations made on the Web concerning commodity futures and options trading systems.

3 On July 12, 2000, the ownership of the domain name and control of the URL www.internationaltrading.com was transferred from Richard Swannell to International Trading Systems, Inc., a United States corporation incorporated in Delaware with its principal place of business in Florida. The violations discussed in this order predated that transfer.

4 In the Matter of R&W Technical Services, Inc., [Current Transfer Binder] Comm. Fut. L. Rep. (CCH) �27,582 at 47,740-47,741 (CFTC Mar. 16, 1999), aff'd in relevant part, R&W Technical Svcs., Inc. v. CFTC, 205 F.3d 165 (5th Cir. 2000). See, e.g., Saxe v. E.F. Hutton, 789 F.2d 105, 110 (2d Cir. 1986); Kelley v. Carr, 442 F. Supp. 346, 351-54 (W.D. Mich. 1977), aff'd in part, rev'd in part, 691 F.2d 800 (6th Cir. 1980); CFTC v. J.S. Love Associates Options, Ltd., 422 F. Supp. 652, 655 (S.D.N.Y. 1976).

5 Fraudulent statements that induce members of the public to purchase software that generates specific buy and sell signals for commodity futures trading satisfy the "in connection with" requirement of Section 4b(a). R&W Technical Svcs., 205 F.3d at 173. See also Hirk v. Agri-Research Council, Inc., 561 F.2d 96 (7th Cir. 1977) (noting that the "in or in connection with" requirement should be interpreted flexibly to include deceptive conduct that occurs prior to the opening of an actual commodity trading account).

6 Section 4.41(b) of the Regulations provides, in relevant part: "(1) No person may present the performance of any simulated or hypothetical commodity interest account, transaction in a commodity interest or a series of transactions in a commodity interest ... unless such performance is accompanied by one of the following: (i) The following statement: 'Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not actually been executed, the results may have under- or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve the profits or losses similar to those shown'; or (ii) A statement prescribed pursuant to rules promulgated by a registered futures association pursuant to Section 17(j) of the Act; (2) If the presentation of such simulated or hypothetical performance is other than oral, the prescribed statement must be prominently displayed."

7 CFTC v. Savage, 611 F.2d 270, 281 (9th Cir. 1979) (enforcement action charging defendant with making false reports to customers, engaging in "wash" trades and holding himself out to the public as a CTA without being registered with the Commission).

8 Section 1a(5) specifically excludes from the definition of a CTA anyone who is "the publisher or producer of any print or electronic data of general and regular dissemination, including its employees" if such publisher's or producer's provision of commodity futures trading advice is "solely incidental to the conduct of [its] business or profession," and thus Section 4o(1) of the Act and Section 4.41 of the Regulations do not apply to such persons. This exclusion is designed to protect incidental publishers of advice, such as general magazines and newspapers, not publishers who specifically concentrate on commodities advice. R&W Technical Svcs., 205 F.3d at 174.

9 See CFTC v. British American Commodity Options Corp., 560 F.2d 135, 141 (2d Cir. 1977), cert. denied, 438 U.S. 905 (1978) (a firm that "offer[ed] opinions and advice, and issued analyses and reports concerning the value of commodities" to customers, was a CTA under the Act); Gaudette v. Panos, 644 F. Supp. 826, 839 (D. Mass. 1986) (defendants who represented their advisory skills to be exemplary, suggested that plaintiffs open a commodity account and then recommended certain futures contracts for investment were CTAs).