Commodities Firm Charged With Fraud : CFTC Says Company Misled Customers

Federal commodities regulators charged a major futures firm Monday with building its $30-million-a-year business atop a pattern of fraudulent claims and misleading promises made to customers solicited over the telephone.

In a six-count administrative complaint, the Commodity Futures Trading Commission charged First Commodity Corp. of Boston, its two top officers and 10 current or former branch managers with misrepresenting virtually every aspect of their business in trying to attract customers to invest in the risky futures markets. Among the possible penalties are fines of up to $100,000 for each violation, revocation of the firm’s licenses and banning it from all futures markets.

In a 1980 settlement of a fraud complaint from the same agency, First Commodity paid penalties and made restitution to customers totaling $900,000. The CFTC had also charged First Commodity and its principals, Donald and Richard Schleicher, with fraud in a federal lawsuit settled out of court in 1976.

Agency’s Charges

Among other things, the CFTC says in its latest complaint, the firm misrepresents the likelihood of customers turning a profit, the expertise and experience of its salesmen, the quality and size of its research department, the firm’s performance record, the fees it charges and the risk of trading futures through the firm. The firm also sends fraudulent advertising and promotional material to customers, the CFTC said. Some of these practices violate the terms of its 1980 settlement, the agency added.

“We’re alleging this is the way they did business,” CFTC enforcement director Dennis Klejna said.

Hendrik Maas, First Commodity’s president, said Monday that the firm “emphatically denies there’s a violation of any previous order.”

He acknowledged that the company does most of its business by telephone but added that “we deal with more speculative retail clients than anyone else in the industry, and most people lose money in a speculative investment.” Maas is not specifically named in the CFTC complaint.

First Commodity maintains nine branch offices, including those in Santa Barbara, Mountain View and Larkspur, Calif., but solicits customers throughout the country by telephone. The telephone sales generate $80 million to $100 million in customer investments annually, the CFTC said, and gross fees and commissions of $30 million a year. Maas said the company has about 7,500 currently active accounts.

Other Agency Actions

In other actions announced Monday, the CFTC said it imposed penalties totaling $250,000--among the largest such fines ever--on Shatkin Trading, its chairman and several of its traders for setting up fraudulent trading accounts in certificates of deposit and Treasury bond futures. The accounts were designed to simulate heavy trading activity in those futures without actually trading, an illegal maneuver known as “wash selling.”

The CFTC on Monday also announced that it had settled administrative complaints against six futures firms for infractions of its record-keeping rules in connection with customer accounts that traded silver futures during the celebrated silver “squeeze” of 1979 and 1980. The firms largely agreed to maintain improved record systems and each paid a modest fine.

The firms and their fines are: Merrill Lynch & Co., $35,000; Paine Webber Jackson & Curtis, $22,500; E. F. Hutton, $20,000; Mel Schnell Co., $5,000; Mintz-Marcus-Gold & Co., $5,000, and United Equities, $2,500.