Release: 4502-01 (401-CV-0250-A)

For Release: March 28, 2001


Complaint Alleges that Brown Fraudulently Solicited Customers While Acting as an Unregistered Commodity Trading Advisor and Violated Registration and Disclosure Requirements

WASHINGTON -- The Commodity Futures Trading Commission (CFTC) announced today that on March 27, 2001, it filed a seven-count complaint in the United States District Court for the Northern District of Texas (Fort Worth Division) against James Spencer Brown of Fort Worth, Texas.

The complaint alleges that Brown committed fraud by, among other things, making false claims concerning the profitability of his commodity futures trading while soliciting customers to allow him to manage their commodity futures trading investments. The complaint also alleges that Brown presented the performance record of his trading program without indicating that the claimed profitable results were based on hypothetical trading and that he failed to register as a commodity trading advisor (CTA), and to provide required disclosure documents, all in violation of a prior CFTC order issued against him in 1996.

The CFTC complaint alleges that, on September 3, 1996, the CFTC issued an order by consent, against Brown, finding that he had violated the Commodity Exchange Act (CEA) and Commission regulations by: (1) acting as a CTA without being registered as such; (2) failing to submit required disclosure documents; and (3) advertising the performance of commodity futures accounts based on hypothetical trading without including a required cautionary statement indicating the limitations of hypothetical trading results. (See CFTC News Release 3935-96, September 9, 1996.) The CFTC’s order required him to cease and desist from further such violations of the CEA and CFTC regulations.

The CFTC’s complaint further alleges that subsequently, Brown violated all of the provisions of that order and he committed fraud in his solicitations of prospective clients. Specifically, the complaint alleges that, from approximately late 1996 through 1999, while acting as an unregistered CTA in violation of the 1996 order, Brown solicited prospective clients to open commodity futures trading accounts for him to manage by representing that he had been profitably trading for his clients, when, in fact, he had lost money trading for clients as well as for himself. Brown allegedly did not disclose those losses to prospective clients.

In addition, the complaint alleges that Brown represented to one or more prospective clients that his trading program had consistently produced returns on investment with an annual average in excess of 325 percent, without disclosing that this purported rate of return was based on hypothetical trading results, not actual trading results. The complaint also alleges that he failed to submit required disclosure documents to the CFTC and to his prospective clients and did not disclose the fact that the CFTC had issued the September 1996 order against him. Under Brown’s management, Brown’s clients allegedly lost more than $170,000 trading commodity futures.

The CFTC is seeking a permanent injunction prohibiting Brown from violating the CEA and CFTC regulations, as well as the CFTC’s 1996 order. The CFTC is also seeking an order prohibiting Brown from trading on or subject to the rules of any contract market, and other equitable relief, including disgorgement of profits, rescission, restitution, and a civil monetary penalty of up to $110,000 or triple the monetary gain to the defendant, whichever is greater, for each violation of the CEA and CFTC regulations.

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