The fledgling National Futures Association, the futures industry's self-regulatory body, and the Commodity Futures Trading Commission last week took what both bodies consider an important first step to stop a commodity broker accused of misusing customers' funds.
The NFA issued a "membership responsibility action" preventing the Chicago-based Whitehall Investors International Inc. from soliciting or accepting new customer accounts and adding to the accounts of current customers. The firm may only liquidate current accounts.
Simultaneously, the CFTC went to U.S. District Court in Chicago for an order that temporarily froze the assets of Whitehall and several of its officers and principals. The CFTC said the brokerage firm excessively traded customer accounts merely to generate commissions, traded on behalf of customers without their authorization and undertook fraudulent sales practices.
The court order beefs up the NFA action, the agency said, preventing Whitehall from thumbing its nose at the NFA. The order was served on all "persons and institutions in possession of funds or assets belonging to Whitehall and its public customers," the CFTC said.
Self-regulation -- in which an industry body sets standards and enforces them -- has a long tradition in the securities industry. The stock exchanges and the National Association of Securities Dealers have been policing stock trading for decades. Although the commodity exchanges policed the trading activities of their members on the floor -- albeit with a credibility and reliability that has been criticized by many -- until the NFA got going last year, there was no such watchdog mechanism for brokers and other futures industry participants who are not members of an exchange.***
BAD CITATION . . . The CFTC, in a pamphlet called "Economic Purposes of Futures Trading," recommends 10 other texts that readers can refer to to learn more about the subject. One of the books is "Modern Commodity Futures Trading" by Gerald Gold.
What the pamphlet fails to say is that the CFTC found that Gold was illegally selling commodity options and barred him from selling the products.
Last February, Gold submitted a "settlement offer" to the commission in which, without admitting or denying guilt, he consented to the finding and the prohibition on selling commodity options. The settlement offer is a common method regulatory agencies use to get the relief they seek without the expense of a long proceeding.
A CFTC spokesman said the agency's internal computer system was not up to snuff when the pamphlet was last revised, and its editors did not know the agency's enforcement officials had cited Gold.
The pamphlet is now being reprinted, she said. Gold's book will not be on the recommended reading list in the new edition.***
CFTC LOSES MORE THAN CASE . . . The CFTC sought a permanent injunction last summer against Lincolnwood Inc. to punish the firm, which is in liquidation, and an employe for failing to turn over records.
Not only did the CFTC fail to get the injunction, but U.S. District Court Judge Kevin Duffy ordered the agency to pay Lincolnwood's court costs, about $6,000. The judge cited the Equal Access to Justice Act, which requires the government to absorb the defendant's court costs when a judge determines its case is not substantially justified.
Duffy noted Lincolnwood had complied thousands of times in the past with CFTC requests and accused the agency of being "willfully obtuse."
The $6,000 award is tiny, but similar cases pending against the CFTC could cost it scores more money. -- James L. Rowe Jr.