Nebraska Federal Court orders payment of USD 325,000 in restitution to farmers injured by commodity trading program
The United States District Court for the District of Nebraska this week entered a consent order of permanent injunction settling the CFTC's charges against Commercial Hedge Services, Inc (CHS) of North Platte, Nebraska; Lawrence J. Volf; Prime Trading Company, Inc (PTC); Sherman County Management, Inc (SCM); Sherman County Bank (SCB); and PT Holdings Inc (PTH), all of Loup City, Nebraska.
The order, among other things, provides that the defendants are jointly and severally liable to pay USD 325,000 in restitution and a USD 100,000 civil monetary penalty.
The order stems from a CFTC complaint filed May 4, 2004, and amended on November 24, 2004, which alleged, in part, that CHS, PTC, and Volf managed the commodity hedge trading accounts of approximately 90 farmers and, in that capacity, engaged in unauthorized and speculative trading. The CFTC's amended complaint also charged that SCM and SCB were liable for CHS', PTC's, and Volf's actions and that PTH was liable as PTC's successor corporation.
According to the order, in approximately 1999, CHS, PTC, and Volf began a trading program for the benefit of agricultural customers of SCB and other farmers. The trading program assisted farmers in purchasing and selling futures and options contracts associated with their corn farming operations.
However, from the inception of the trading program until approximately February 2003, the majority of PTC customers did not provide CHS or PTC with powers of attorney to trade their accounts. Moreover, prior to placing trades on behalf of the farmers, CHS, PTC, and Volf failed to obtain customer authorization for the precise commodity and the exact amount of the commodity to be purchased or sold within the proximate time that the trades were placed.
The order finds that as a result of these acts, CHS, PTC, and Volf engaged in unauthorized trading. The order further states that CHS, PTC, and Volf explained to farmers that, among other things, the trading program was intended to hedge the risk of a fall in the price of corn. Despite this, CHS, PTC, and Volf made 14 trades for farmers that were not bona fide hedge transactions under CFTC regulations.
In addition to requiring the defendants to pay monetary penalties, for three years from the date of the order: 1) CHS, PTC, and Volf are banned from trading any commodity interest on any entity regulated by the CFTC for others; 2) SCM is banned from holding an equity interest in any entity that engages in any commodity-related activity; and 3) SCB is banned from employing any person or entity that is registered with the CFTC and/or engages in any trading of commodity interests for others. Finally, the order holds both SCM and SCB liable for Volf's actions, and SCM is further liable for PTC's conduct.
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