« ForrigeFortsett »
Illoin our melwat meer wer we lowed in erst male lue credit to thr Trrower of the limited SLRICH, doncribed as lollows:
CONTRACTOR SERVICES FOR SUBSCRIPTION AND BOOK PURCHASES Mr. WHITTEN. We note that the Commission library has begun using contractors for subscription and certain book purchases in order to limit the need for additional library staff. What was the total cost of contractors for fiscal year 1984?
Ms. PHILLIPS. In fiscal year 1984, the Commission awarded two contracts for subscription and book purchases-one for $15,000 and the other $8,500. I might add that the use of these services not only reduced the workload of our library staff but also the workload of our administrative services personnel.
TRAVEL EXPENSES FOR FY 1984 AND FY 1985
Mr. WHITTEN. What was the total cost of travel for the Commission during 1984? What is the expected cost of travel for fiscal year 1985?
Ms. PHILLIPS. In fiscal year 1984, we spent $646,000 for travel. It is expected that we will spend $590,000 in fiscal year 1985.
IMPACT OF NFA ON REGISTRATION TRAVEL COSTS Mr. WHITTEN. Has travel been reduced or increased as a result of the transfer of registration processing to NFA?
Ms. PHILLIPS. During the transfer of registration processing to the National Futures Association, the CFTC incurred additional travel costs which were related strictly to conversion activities. It is estimated that approximately $20,000 was spent in 1984 and $15,000 in 1985 for that purpose. However, subsequent to the incurrence of these costs, it is expected that registration related travel will be primarily for the purposes of oversight, liaison with NFA and the management of CFTC personnel in Chicago. Consequently, the level of registration travel in fiscal year 1986 should be somewhat lower than 1985. In this regard, I should point out that our fiscal year 1986 budget request reflects a reduction in Commissionwide travel expenses of $81,000.
CONVERSION FROM TIME-SHARED SYSTEMS TO AS-5000 Mr. WHITTEN. Please describe for us how the conversion of systems from time-share resources to the AS-5000 has worked out.
Ms. PHILLIPS. The Commission's conversion from time-shared resources to the AS-5000 computer has been extremely successful. All systems were converted on or ahead of schedule and within planned personnel resource levels. The conversions were planned and executed in a manner so that the affected program offices experienced no lapse in service. The decrease in processing turnaround times resulting from conversion to the AS-5000 has been of great benefit to the Commission. This has been particularly significant in achieving more timely production of daily surveillance reports, and jobs that require processing of substantial data volumes and have tape processing requirements. The Commission can now directly control processing priorities. In the past, the processing turnaround time was frequently affected by the processing workloads of other agencies and the time-shared facilities processing
REDUCTION OF ADP STAFF
Mr. WHITTEN. Your explanatory notes were based generally on an across-the-board 15 percent personnel cut in each one of your operation elements. We also note that under ADP you took a 15 percent cut in your user support staff. Under general discussion on each one of your operation elements in the explanatory notes you cite ADP support as being particularly helpful. Has your more recent review indicated a more efficient way to cut personnel rather than in the area of ADP?
Ms. PHILLIPS. The Commission is currently reviewing all of its functions, including support functions such as ADP, to determine how resources should be allocated in FY 1986. While the Commission has benefitted from improved ADP services, it is unlikely that any area will escape cutbacks completely if the Commission is required to reduce its staff by 15 percent.
Mr. WHITTEN. Under the enforcement category you refer to the term “wash trades.” Please describe what this means.
Ms. PHILLIPS. Section 4c(a) of the Act makes it unlawful to engage in transactions that are, or are of the character of, or commonly known to the trade, as wash sales. This provision has been in the Commodity Exchange Act since 1936. Administrative and judicial decisions have generally defined wash sales as transactions giving the appearance of bona fide purchases or sales but in fact avoiding any legitimate positions in the market.
MORE PENDING INVESTIGATIONS Mr. WHITTEN. All through the explanatory notes you discuss the special emphasis placed on enforcement. Yet, you start 1985 with 32 more investigations pending than in 1984. How do you explain this increase?
Ms. PHILLIPS. During FY 84 the Division of Enforcement was involved in a concentrated hiring campaign. For example, the Division went from 108 at the beginning of FY 84 to 130 at the beginning of FY 85. The larger staff was able to open and pursue more new investigations.
Mr. WHITTEN. We note that $3,500,800 was obtained in civil penalty assessments during fiscal year 1984. For what purposes were these penalties assessed and in what amounts?
[The information follows:] The $3,500,800 civil penalties assessed in 1984 were for the following types of vio lations: CPO/CTA fraud.
$1,393,000 Trade practices
956,000 FCM fraud.
Mr. WHITTEN. Please describe for us the two criminal contempt actions that took place in fiscal year 1984.
Ms. PHILLIPS. As indicated in the Explanatory Notes, the Commission obtained two criminal contempt convictions in FY 1984. In addition, a conviction was obtained in a third case in FY 1985. All three actions involved individuals who had previously been enjoined by federal court orders obtained by the Commission as a result of the operation and management of illegal “boiler rooms” which sold off-exchange precious metals futures contracts to the public from the South Florida area.
I will provide details of these cases for the record. [The information follows:) In the first case, U.S. ex rel. CFTC v. David L. Bentley, Crim. No. 84-6049 NCR (S.D. Fla. 1984), the Commission filed a motion in United States District Court for the Southern District of Florida on April 26, 1984 seeking an order to show cause why David L. Bentley should not be held in criminal contempt of the earlier permanent injunction issued against him in CFTC v. American Commodity Group, et al., Civ. No. 82-6108-NCR (S.D. Fla. 1982). The Court signed the order to show cause, appointed Commission attorneys to prosecute the contempt action, issued a writ of arrest and set bail at $500,000. The order to show cause was issued on the basis of evidence developed by the Commission and officials of the State of Florida which established that Bentley had changed the name and location of his “boiler room” operation which he continued to manage under an assumed name in direct violation of the prior court order. On April 30, 1984, Bentley surrendered himself and was placed in federal custody where he remained until June 8, 1984. On that date, he pled guilty to the charge and was immediately sentenced to six months in prison, the maximum period of incarceration for the offense, and placed on supervised probation for a period of two years. The prison sentence was suspended except for the time served by Bentley since his arrest. As a special condition of probation, Bentley was prohibited from engaging in the precious metals business or telephone solicitation for the period of probation.
In the second case, U.S. ex. rel. CFTC v. James V. Fanning, Crim. No. 84-279WMH (S.D. Fla. 1984) the Commission on May 1, 1984, sought and obtained a similar order to show cause why James V. Fanning should not be held in criminal contempt for his violation of an order of preliminary injunction issued against him in CFTC v. JVF Investments, Inc., et al., Civ. No. 83-8018-WMH (S.D. Fla. 1983). That order preliminarily enjoined Fanning from the offer and sale of off-exchange futures contracts. The court signed the order to show cause, appointed Commission attorneys to prosecute the criminal contempt and issued a writ of arrest. On May 3, 1984, Fanning surrendered himself and was placed on personal bond. On July 19, 1984, Fanning pled guilty to the misdemeanor charge, and on August 30, 1984, was sentenced to three years supervised probation with special conditions that he perform community service work and that he refrain from any business involving the solicitation of the public for the purchase of precious metals.
The third criminal contempt action filed by the Commission in fiscal year 1984 was U.S. ex. rel CFTC v. Jack L. Rose, Crim. No. 84-6124-NCR (S.D. Fla. 1984). In that case, the Commission developed evidence which established that Rose was the behind-the-scenes “kingpin” of a nationwide network of precious metals “boiler rooms” headquartered in South Florida, which placed Rose in direct violation of a permanent injunction obtained in CFTC v. American Commodity Group, et al., Civ. No. 82-6108-NCR (S.D. Fla. 1982). On August 24, 1984, the day the Commission filed its motion, the Court signed the order to show cause, appointed Commission attorneys to prosecute the criminal contempt case, issued a writ of arrest for Rose and set bail at $500,000. On August 31, 1984, Rose was arrested by agents of the Federal Bureau of Investigation. Rose pled guilty to this charge on October 24, 1984 and was sentenced to serve 120 days incarceration. Rose began serving this sentence on De
LARGE SCALE SCHEMES TO DEFRAUD
Mr. WHITTEN. We note that the enforcement program is focusing on proving its ability to investigate and prosecute large scale, sophisticated schemes to defraud commodity customers. Does this mean the small operator is much more likely to get away with these actions?
Ms. Phillips. The commitment of resources to large scale cases is not being made at the sacrifice of smaller scale cases. Of course, all assignments are reflective of the resources available in the aggregate. Priorities must be set within those constraints. The enforcement program has always looked to investigate and, if appropriate, prosecute large scale schemes to defraud. However, because of the large number of investigations to be done, it has generally been difficult to employ a sufficient number of persons on any one investigation. Because of the recent increase in staff size, the enforcement program has been able to assign certain people to handle a limited number of large scale investigations. Moreover, by employing a sufficient number of people on a large scale investigation in order to do it reasonable quickly, the people on the investigation are able to complete the investigations and go on to new matters much sooner than before. Thus, the total number of staff-hours for the large scale investigations may be no higher than before, yet the investigations should be completed far more quickly.
ACCOMPLISHMENTS OF THE STATE/FEDERAL LIAISON UNIT—FY 1984
Mr. WHITTEN. What were the accomplishments last year of the State/Federal Liaison Unit?
Ms. PHILLIPS. During fiscal year 1984, the State/Federal Liaison Unit worked closely with over a dozen state and federal agencies as part of its cooperative enforcement effort. That effort has been, and continues to be directed primarily against off-exchange activities and unregistered entities in the commodities area.
Last year, the State/Federal Liaison Unit succeeded in closing down an extensive network of precious metals boiler rooms centered in Florida, Louisiana and California. The Unit obtained the assistance of the FBI, and the state of Florida in this matter. Coordinated civil and criminal actions by the Unit and the FBI resulted in the freezing of corporate and personal assets of 10 defendants, an order halting their illegal sales activity and the simultaneous execution of search warrants on the defendants' sales offices in two states. The Unit also filed a criminal contempt action against the mastermind behind that illegal operation, which resulted in his conviction and incarceration.
In fiscal year 1984, the State/Federal Liaison Unit began a comprehensive review of suspected boiler rooms located throughout the country. In the course of that review, which extended into fiscal year 1985, information and assistance was obtained from and given to the securities offices of many states, including Florida, Arizona, California, Michigan, Georgia, Texas, Nevada, New York and Colorado. The FBI and the SEC also were very helpful to the Unit in that review. The Unit distributed a compilation of suspected boiler rooms to all 50 states and has opened numerous investigations as a