Release: 4523-01 (CFTC Docket No. 01-09)
For Release: June 6, 2001


CFTC Alleges That Madison Financial Group Told Salesmen To “Make Up A Story” To Solicit Customers

WASHINGTON – The Commodity Futures Trading Commission (CFTC) announced today the filing of a two-count administrative complaint against Madison Financial Group LLC (Madison), a registered Introducing Broker, of Los Angeles, California, and its two principals, Richard A. Cohen (Cohen) of Los Angeles, and Ronald G. Scott (Scott) of Beverly, California.

The CFTC complaint alleges that, from April 1998 to March 2001, Madison, at the direction of Cohen and Scott, fraudulently solicited customers to open commodity option accounts with Madison and to trade options on commodity futures contracts by:

  1. misrepresenting the likelihood that customers would realize large profits from trading commodity options;
  2. misrepresenting and failing to disclose the risk involved in trading commodity options;
  3. misrepresenting the performance record of its customers; and
  4. making numerous misrepresentations of specific facts calculated to cause customers to effect specific trades.

According to the complaint, Cohen and Scott instructed Madison employees to “make up a story” when soliciting customers during high-pressure telephone solicitations.

In particular, the complaint alleges that Cohen and Scott directed Madison's employees to falsely overstate Madison's performance record -- such as stating that Madison Associated Persons (APs) achieved highly profitable results for their customers and that customers were making money trading at Madison -- even though Cohen and Scott knew or recklessly disregarded the fact that Madison's customers did not make the profits that Madison's employees described to customers.

In contrast to the claims that Madison had a successful track record, according to the complaint, from May 1998 through February 2001:

  1. Madison opened over 2,800 accounts with about $20 million in customer funds;
  2. Approximately ninety-seven percent (97%) of these accounts suffered net losses; and
  3. Total net losses in Madison's accounts were in excess of $17 million, while Madison made over $9 million in commissions and fees.

The CFTC alleges that such conduct violates section 4c(b) of the Commodity Exchange Act and Commission regulation 33.10. The complaint also alleges that Madison, Cohen, and Scott, failed to supervise diligently the solicitation and handling of customer accounts in violation of section 166.3 of the Commission's regulations.

A public hearing has been ordered in the administrative action to determine whether the allegations are true and, if so, what sanctions are appropriate and in the public interest. Possible sanctions include cease and desist orders, restitution to defrauded customers, civil monetary penalties, trading prohibitions and registration revocations, suspensions or restrictions.

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