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May 23, 2003

Weekly Advisory
Commodity Futures Trading Commission - Three Lafayette Centre - 1155 21st Street, NW
Washington, DC 20581 Telephone: (202) 418-5080 - Facsimile: (202) 418-5525
Homepage: http://www.cftc.gov


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Events
On May 28, 2003, CFTC Chairman James Newsome will speak at the FIA’s Law & Compliance Luncheon, Union League Club, Chicago, Illinois. Chairman Newsome will share the Commission’s views of and priorities for U.S. commodity futures and option markets.

Commission Meetings
On May 16, 2003, the Commission held a closed briefing to discuss surveillance matters.

On May 23, 2003, the Commission will hold a closed meeting to discuss surveillance matters.

Statement
Release: May 21, 2003

Commodity Futures Trading Commission Chairman James E. Newsome, in response to the BSE announcement in Alberta, Canada said, "Anytime major news enters the marketplace that leads to significant price volatility, the CFTC increases our market surveillance and coordination with other appropriate authorities. We have done both in this case. It is important to note that futures markets have built-in mechanisms, such as circuit breakers and trading halts, to handle extreme situations in an orderly fashion. At this point, we have no reason to believe the market is responding to anything other than economic fundamentals of supply and demand. Confirmation of this BSE case is a market fundamental.

CFTC News Releases
Release: #4788-03
For Release: May 20, 2003

CFTC CLAIMS MCGRAW-HILL COMPANIES FLOUTED FEDERAL AGENCY SUBPOENAS

Commodity Regulator Asks US District Court for Order Requiring McGraw-Hill To Provide Documents Demanded By Energy Investigation Subpoenas

WASHINGTON, D.C. -- The U.S. Commodity Futures Trading Commission (CFTC) today announced the filing of an application to enforce compliance with two document subpoenas issued to the McGraw-Hill Companies (McGraw-Hill) as part of an ongoing CFTC investigation of corrupt energy trading practices. The application was filed in the U.S. District Court for the Southern District of Texas.

The application, filed on May 19, 2003, states that McGraw-Hill obtains energy price information from energy trading companies and uses it to create surveys or indexes of natural gas prices for various natural gas trading hubs throughout the United States. Platts, a division of McGraw-Hill, calculates these indexes, which are then used by market participants, including natural gas futures traders, for price discovery and for assessing price risks. The CFTC’s subpoena enforcement action alleges that McGraw-Hill failed to comply with two CFTC subpoenas seeking documents related to trade data submitted by various energy trading companies to McGraw-Hill.

The CFTC’s subpoenas were issued as part of a broad investigation of energy trading practices, including public news reports that the false reporting of trade data to McGraw-Hill and the possible manipulation of its indexes were rampant throughout the natural gas industry. To date, the CFTC has issued orders finding that traders for Dynegy Marketing and Trade, West Coast Power LLC and El Paso Merchant Energy, L.P. made false reports to McGraw-Hill. These companies were fined a total of $25 million in connection with these orders. Other companies have made public disclosures to the same effect.

Gregory G. Mocek, Director of the CFTC’s Division of Enforcement, stated:

“This action is part of our vigorous pursuit of all forms of misconduct that violate the Commodity Exchange Act. We expect and demand full compliance with our subpoenas. McGraw-Hill claims that it is cooperating with government regulators. Unfortunately, its definition of cooperation falls far short of the meaning of cooperation.”

McGraw-Hill has been ordered to appear before the Honorable Lynn N. Hughes on June 2nd at 3:30 pm, to show cause, if there be any, why it should not be ordered by the Court to produce documents as required by the subpoenas.

The following staff of the Division of Enforcement were responsible for this action: Elizabeth Brennan, Gregory Compa, Joseph Rosenberg, Linda Peng, David MacGregor, Steven Ringer, Lenel Hickson, Stephen J. Obie, Vincent McGonagle, and Gregory G. Mocek.

Media Contact:
Gregory G. Mocek
Director of the Division of Enforcement
(202) 418 – 5378

Release: #4789-03
For Release: May 21, 2003

COMMODITY SOFTWARE VENDOR CHARGED WITH VIOLATING CFTC ORDER

Defendant Swannell Sold His Elliott Wave Analyzer Software Programs Through His Website

WASHINGTON D.C. – The Commodity Futures Trading Commission (CFTC) announced today the recent filing of a two-count civil injunctive complaint in federal district court in Los Angeles against Richard Swannell of Australia, charging that Swannell, who sells commodity trading software online (see CFTC News Release 4442-00, September 7, 2000), violated a September 6, 2000, Commission consent order to which he had voluntarily agreed.

That consent order required Swannell to refrain from presenting hypothetical trading results without warning of the inherent limitations of hypothetical trading, and to clearly identify when trading results were based wholly or partially on simulated or hypothetical trading. The order also prohibited Swannell from making any representations of financial benefits associated with any commodity futures or options trading system without first disclosing “prominently and conspicuously, that futures trading involves high risk with the potential for substantial losses.”

Specifically, the complaint charges, among other things, that Swannell violated the order by using hypothetical trading results to sell his Elliott Wave Analyzer software programs and seminars without disclosing that the trading results were not the result of actual trading. Within the past six months, Swannell's website has included statements that the software is "84.9% accurate- Statistically Proven" and that "the Elliott Wave Analyzer 3 can accurately forecast market movement," according to the complaint.The complaint further alleges that these statements are based upon hypothetical trading but that Swannell failed to disclose this fact and failed to prominently display a warning regarding the limitations of simulated or hypothetical trading results as required by CFTC regulations. In addition, the complaint charges that Swannell did not prominently display a warning of the risks of futures trading, as required by the order.

In its continuing litigation against Swannell, the CFTC is seeking a permanent injunction, repayment of ill-gotten gains, and civil monetary penalties.

The CFTC appreciates the assistance of the Australian Securities & Investments Commission.

The following staff of the CFTC Division of Enforcement were responsible for this action: Robert Hildum, Tim Mulreany, Ken Koh, Jacqueline Hamra Mesa, and Paul Hayeck.

The CFTC Issued a Consumer Advisory-Alert on Websites Selling Commodity Trading Systems

For more information on Commodity Trading Systems, see the CFTC’s Consumer Advisory-Alert of May 1, 2000: Beware of Websites Selling Commodity Trading Systems that Guarantee High Profits with Minimal Risks.

Media Case Contact:
Paul G. Hayeck
Associate Director
CFTC Division of Enforcement
(202) 418-5312

Seriatim Actions
On May 21, 2003, the Commission authorized for publication in the Federal Register a release amending the guidance contained in Appendix C of Part 40 of the Commission’s regulations, and redesignating Appendix C as Appendix D of Part 30.

Federal Register Notices
No CFTC Federal Register Notices were published during this period.

Comment Periods
Note: The Commission must receive all Comment Letters no later than the closing date specified in the applicable Federal Register release. Any request for an extension of the comment period must be made in writing — before the expiration of the comment period — to the Commission's Office of the Secretariat.


No Comment Periods were open during this period.

Initial Decisions
Kenneth A. Rogers v. Carol Ann Hurley, Michael Timothy McCarthy, and Refco, L.L.C., (d.b.a Lind-Waldock Division of Refco, L.L.C.) Filed May 15, 2003. After a careful review of the record, it was determined that complainant had demonstrated by a preponderance of the evidence that respondents Refco and Hurley had violated section 4b(a)(2)(ii) and (iii) of the CEAct, causing complainant damages in the amount of $6,729.29. Also, it was concluded that complainant had not established any violations by respondent McCarthy. Therefore, the complaint against McCarthy was dismissed. Based on the violations found, respondents Hurley and Refco were ordered to pay reparations to the complainant in the amount of $6,729.29, plus costs of $50.00. Joel R. Maillie, Judgment Officer. CFTC Docket No. 03-R019.

Lawrence Sanchez v. Bruce Norman Crown, Lori Ann Denn, Investors Trading Group, LC, and TechNet Trading, Incorporated. Filed May 16, 2003. After a careful review of the record it was determined that Lawrence Sanchez established that: Lori Ann Denn had violated section 4c(b) of the CEAct and Commission rules 33.7 and 33.10; that Bruce Norman Crown had violated section 4c(b) of the CEAct and Commission rules 33.10 and 166.3; that these violations, separately and together, caused $24,396 in damages; that Investors Trading Group, LC was liable for the violations of Denn and Crown pursuant to section 2(a)(1)(A) of the CEAct; and that TechNet Trading, Incorporated was liable as the guarantor of Investors Trading Group. Accordingly, Lori Ann Denn, Bruce Norman Crown, Investors Trading Group, LC and TechNet Trading, Incorporated were ordered to pay Lawrence Sanchez reparations of $24,396, plus interest on that amount at 1.23%, compounded annually from February 29, 2000, to the date of payment, plus $125 in costs for the filing fee. Liability shall be joint and several. Philip V. McGuire, Judgment Officer. CFTC Docket No. 02-R50.

Robert S. Young v. Alaron Trading Corporation, and Barry Scott Isaacson. Filed May 19, 2003. After a careful review of the parties’ submissions, it was concluded that the weight of evidence supported the conclusion that respondent Alaron Trading Corporation had violated Commission rule 166.2 and section 4b of the CEAct, and that this violation proximately caused $3,662.50 in damages. Accordingly, Alaron Trading Corporation was ordered to pay Robert S. Young reparations of $3,662.20, plus $50 in costs for the filing fee. Philip V. McGuire, Judgment Officer. CFTC Docket No. 03-R008.

Opinions and Orders
In the Matter of Ronald G. Scott. Filed May 19, 2003. Respondent submitted an offer of settlement, which the Commission determined to accept. Respondent acknowledged service of the order making findings and imposing remedial sections, and, without admitting or denying the findings of fact or conclusions of law, consented to the use of the findings contained in the order in this proceeding and in any other proceeding brought by the Commission or to which the Commission was a party. Accordingly, it was ordered that: 1) respondent cease and desist from violating the CEAct and Commission regulations as charged; 2) respondent’s registration as an AP of Madison be revoked; 3) respondent be prohibited from trading on or subject to the rules of any registered entity, and all registered entities shall refuse him all privileges; 4) respondent pay restitution in an amount up to $890,000, plus prejudgment interest of $97,611.28; 5) respondent shall pay a contingent monetary penalty in an amount of up to $110,000; and (6) respondent shall comply with the undertakings set forth in his offer. CFTC Docket No. 01-09.

CFTC Letters
03-23; Exemption; May 5, 2003; The Division of Clearing and Intermediary Oversight provided exemptive relief to a registered CPO from the disclosure and periodic and annual reporting requirements of Rules 4.7(b)(1), 4.7(b)(2) and 4.7(b)(3) in connection with its operation of a master fund that has as its sole participants feeder funds that are operated by the CPO or another CPO with the same ownership and management. This relief is subject to, among other things: (1) the CPOs retaining identical management and ownership; (2) participation in the Master Fund being limited to the Feeder Funds, and any fund for which the CPOs are the sole CPOs; and (3) the annual reports of the Feeder Funds containing financial statements that include, among other information, the fees associated with the operation of the applicable Master Fund. [Regulation 4.7(b)(1), 4.7(b)(2) and 4.7(b)(3)] (DCIO).

03-24; Exemption; May 5, 2003; The Division of Clearing and Intermediary Oversight provided exemptive relief to a registered CPO from the periodic and annual reporting requirements of Rules 4.7(b)(2) and 4.7(b)(3) in connection with its operation of a master fund that has as its sole participants a feeder fund that is operated by the CPO and a feeder fund that is operated by CPOs with the same ownership and management. This relief is subject to, among other things: (1) the CPOs retaining identical management and ownership; (2) participation in the Master Fund being limited to the Feeder Funds, and any fund for which the CPOs are the sole CPOs, and (3) the annual reports of the Feeder Funds containing financial statements that include, among other information, the fees associated with the operation of the applicable Master Fund. [Regulation 4.7(b)(2) and 4.7(b)(3)] (DCIO).


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Updated May 29, 2003