C.F.T.C. v. R.J. Fitzgerald & Co., Inc.
| Decision Date | 21 May 2001 |
| Docket Number | No. 99-Civ-1558-T-MSS.,99-Civ-1558-T-MSS. |
| Citation | 173 F.Supp.2d 1295 |
| Parties | COMMODITY FUTURES TRADING COMMISSION, Plaintiff, v. R.J. FITZGERALD & CO., INC.; Raymond Fitzgerald; Leiza Fitzgerald; Greg Burnett; Al Coringrato; and Chuck Kowalski, Defendants. |
| Court | U.S. District Court — Middle District of Florida |
Stephen M. Humenik, David A. Reed, Commodity Futures Trading Commission, Washington, DC, Joan M. Manley, Peter M. Haas, Washington, DC, for plaintiff.
Constantine John Gekas, Alenna K. Bolin, Gekas & Associates, Ltd., Chicago, IL, for defendants.
This case was tried on February 26 — March 19, 20011. The court has reviewed the parties' submissions, the evidence and testimony presented at trial, as well as the designated exhibits. Pursuant to Fed. R.Civ.P. 52, the Court makes the following findings of fact and conclusions of law.
1. R.J. Fitzgerald & Co., Inc. was a fullservice introducing broker during all times relevant to the allegations brought here. It was guaranteed2 by futures and commodities merchant, Iowa Grain beginning in 1992 and at all relevant periods. R.J. Fitzgerald & Co., Inc. ("RJFCO") was opened in November 1992 and unquestionably opened as a successful introducing broker from 1992 until at least 1998. It operated as a legitimate business whose primary market focus was to serve small accounts customers with relatively little experience in the commodities market.
2. Raymond James Fitzgerald was at all times the sole shareholder, owner and operator of RJFCO. He was principally responsible for all decisions, actions, and trading recommendations made or entered into by the firm. He expressly approved by his endorsement virtually all trades entered by brokers on behalf of clients of the firm.
3. Leiza Fitzgerald was not a principal, shareholder officer, owner or operator of RJFCO at any time, nor was she responsible for any supervisory duties during her several absences due to illness, accidents, pregnancy complications, childbirth and sick leave. When she was not on leave, her responsibilities were limited to the preparation of training materials and for training the sales brokers. She diligently sought and obtained approval of RJFCO's training materials from Iowa Grain compliance officers.
4. Greg Burnett was an associated person ("AP") with RJFCO holding both a Series 3 and Series 30 license. His responsibility was primarily to supervise the broker/traders. His supervisory experience was extensive though mostly limited to the securities market. Prior to joining RJFCO, Burnett was employed as a registered representative with the firm F.N. Wolf and held both Series 7 and Series 62 licenses. Burnett next went to the securities firm Olde Financial, where he started as a registered representative and was promoted up the ranks to registered representative in charge, branch manager, and, ultimately, to regional manager over seven branch offices. His responsibilities included broker hiring, compliance monitoring and audits, trade approvals, suitability determinations and branch office audits. Throughout his career in securities, he dealt with the options market extensively. During his tenure at Olde Financial he obtained his Series 24 (NASD principal's license) and Series 8 licenses (Branch Manager license) and received all the compliance training attendant with such licensure. After resigning from Olde due to personal problems, Burnett briefly did consulting work, for Morgan Stanley Dean Witter, on compliance issues. His next post was as trading supervisor for RJFCO, where he approved trade tickets, monitored telephone calls, directly observed the traders and eventually managed client accounts. During his tenure at RJFCO he held both the Series 3 and Series 30 licenses, and as part of his training for RJFCO, he spent a week at Iowa Grain observing operations, including compliance procedures. He also underwent additional training on compliance rules specific to the commodities market in connection with obtaining these licenses. He was well qualified to serve as supervisor of traders and brokers at RJFCO.
5. Chuck Kowalski was RJFCO's chief market analyst during all relevant time periods. His responsibility was to study the various commodities markets and develop firm recommended trades or trading strategies, which were then proposed to clients through the broker/traders. All such recommendations were then considered for approval by Raymond Fitzgerald subject to the client's ultimate approval. Kowalski had at his disposal sufficient market resources to aid in fundamental as well as technical analysis of the commodity market. In developing trade recommendations, Kowalski typically relied on the following sources: the Future Source Technical (a trading software program for technical analysis), the Wall Street Journal, Barons, Investor's Business Daily, the Hightower Report, Smith Barney, 20 different Internet sites for 20 different market (with some overlap). He also consulted, in some instances, with another analyst available to the firm, Jim Dahir.
6. The other brokers and traders at RJFCO had access to much of the same information though they relied upon Mr. Kowalski's trade recommendations in many instances, particularly in the trades that lie at the center of this dispute. Traders were not, however, required to accept and only recommend Kowalski's developed firm trades. Brokers were permitted to and often did, recommend trades and strategies other than those chosen by Kowalski, with the approval of Raymond Fitzgerald. In addition, some clients directed their own trades. All trades were pre-approved by clients before they were placed.
7. RJFCO operated in perhaps a unique manner in that it employed one team of sales brokers primarily responsible for generating customers via telephone solicitations. As a separate function, a second team of broker/traders handled all of the actual trades and account monitoring functions. Both sets of brokers were required to be Series 3 licensed. Despite the Commission's suggestions during its opening statements of the trial, no evidence was adduced at trial to establish that this bifurcated system of account management was for a nefarious or improper purpose. Mr. Fitzgerald and Mr. Kowalski testified persuasively that the purpose was to have less experienced brokers solicit clients while slightly more or significantly more experienced brokers interfaced with clients on issues related to trading and account monitoring and to allow traders to focus on trades, not on customer solicitation or "cold calling." Defendants established that the bifurcated system worked as designed with newer brokers having no substantial involvement in account trading and management.
8. Because all RJFCO brokers and supervisors were required to be licensed as Series 3 commodity brokers, all were required to pass the NFA Series 3 Exam before serving as a sales or trading broker. In addition, all RJFCO supervisors were required to and did take and pass the National Association of Securities Dealers/NFA Series 30 Branch Office Manager Exam. Both the Series 3 and Series 30 examinations dealt extensively with NFA rules and regulations. The Series 30 materials dealt extensively with compliance issues. RJFCO supplied to incoming employees the Series 3 Exam preparation manual and trained brokers in preparation for the exam. This training, conducted for most of the relevant period by Fred Fykes, was extensive and thorough, covering a wide range of topics, such as futures trading theory, basic functions terminology, futures margins, option premium price limits, futures settlements, types of orders, customer accounts, price analysis, basic calculations, hedging commodity futures, speculating in financial monetary futures, speculating in commodity futures, options hedging, CFTC and NFA regulations. Traders were also required to watch a four hour compliance video and complete a workbook based on the videotape as part of a continued professional education requirement.
9. Every new employee of RJFCO received a copy of RJFCO's compliance manual along with instructions to read and acknowledge that they read it, and all agreed to abide by it. Adequate and reasonable procedures were in place to ensure that brokers followed the mandates of these compliance standards.
10. The company diligently trained its employees to follow the standards of the industry as established in NFA regulations. For instance, the company had a policy, which it consistently stressed to its employees, against guaranteeing profits to prospective customers and clients. No evidence was offered to the contrary.
11. RJFCO's assertions to consumers of its resources, experience, credentials and services offered and rendered though somewhat exaggerated by sales puffing, were largely substantiated at trial and were in no way false, misleading or deceptive or intended to be so.
12. Prior to the time period alleged in this action, RJFCO had a very competitive and very clean compliance record. Evidence established very few formal complaints lodged against RJFCO with the NFA and only slightly more informal complaints and reparation demands by clients.
13. The Commodity and Futures Trading Commission ("CFTC"), the National Futures Association ("NFA") and Iowa Grain conducted periodic audits with the firm, finding no significant irregularities in operations or compliance in the time periods that predate the window period challenged in this enforcement action. Such audits occurred on August 12, 1996, nine months after inception of the alleged scheme to defraud, again at the end of 1997 and at the end of April 1998. Iowa Grain's principal compliance officer during the relevant time period was Anne Farris. Ms. Farris preapproved all promotional material now challenged by the CFTC in this action except the video version of the...
To continue reading
Request your trial
-
Commodity Futures Trading v. R.J. Fitzgerald & Co.
...fact and conclusions of law, ruling in favor of all Defendants on all counts in the Amended Complaint. See CFTC v. R.J. Fitzgerald & Co., Inc., 173 F.Supp.2d 1295 (M.D.Fla. 2001). CFTC appeals, essentially arguing that regardless of the Court's factual findings based on witness credibility,......
-
U.S. Commodity Futures Trading Comm'n v. Vincent Patrick Mccrudden, Managed Accounts Asset Mgmt., LLC
...these reputable firms and professionals. And even then, they would have tostill prove I acted not just "negligent, but also reckless". 173 F. Supp 2d 1295 Commodity Futures Trading Commission v. R. J. Fitzgerald & Co. (5/01).Id. Defendant McCrudden's positions about whether he is relying on......