Page 1 

Commodity Futures Trading Commission 

CEA CASES 

NAME: SY B. GAIBER & CO., SY B. GAIBER, AND MICHAEL R. HEMPEL 

CITATION: 31 Agric. Dec. 474 

DOCKET NUMBER: 165 

DATE: APRIL 12, 1972 

DOCUMENT TYPE: DECISION AND ORDER 

(No. 14,515) 

In re SY B. GAIBER & CO., SY B. GAIBER, and MICHAEL R. HEMPEL. CEA Docket No. 

165. Decided April 12, 1972. 

Financial requirements -- False reports -- Denial of trading privileges for 

two years

Respondents are prohibited from trading on all the contract markets for a 

period of two years for violations of the act and the regulations in failing to 

meet minimum financial requirements and making false reports, etc. 

Earl L. Saunders for Commodity Exchange Authority. 

Emanuel Gordon, Chicago, Ill., for respondents. 

Dorothea A. Baker, Hearing Examiner. 

Decision by Donald A. Campbell, Judicial Officer

DECISION AND ORDER

This is a proceeding under the Commodity Exchange Act (7 U.S.C. Chapter 1, 

1970 ed.). The respondents did not except to the Recommended Decision, and the 

complainant excepted only as to the recommended sanction. In these 

circumstances, and after consideration of the entire record, the first 36 pages 

of the Recommended Decision are adopted as the final decision herein, followed 

by the Judicial Officer's additional conclusions and order. 

HEARING EXAMINER'S RECOMMENDED DECISION

PRELIMINARY STATEMENT

This is an administrative proceeding under the Commodity Exchange Act (7 

U.S.C. Chapter 1, 1970 ed.), hereinafter sometimes 

referred to as the Act, instituted by a complaint and notice of hearing issued 

by the Assistant Secretary of Agriculture and filed herein on February 12, 1970. 

The Respondents are Sy B. Gaiber & Co., a partnership, and the two partners in 

the firm, Sy B. Gaiber and Michael R. Hempel. 

The complaint charges the Respondents with having willfully violated Sections 

4f and 6(b) of the Act and Sections 1.17 and 1.35 of the Regulations issued 

thereunder (17 CFR §§ 1.17 and 1.35). It is alleged that Respondents lacked 

approximately $ 9,000 on March 31, 1969, $ 28,000 on June 30, 1969, and $ 55,000 

on August 4, 1969, of having enough funds to meet the minimum financial 

requirements and it is further alleged that in response to inquiries of the 

Commodity Exchange Authority as to the Respondent partnership's financial 

condition, the Respondents knowingly made false and misleading statements and 

submitted false and misleading reports to the Authority with respect to the 
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source of $ 27,000 that had been deposited during June 1969, in the general 

funds bank account of the Respondent partnership. 

On March 24, 1970, the respondents filed an answer in response to the 

complaint wherein they denied any willful or intentional violation of the Act or 

the Regulations by reason of the matters alleged. Specifically, paragraph I n1 

of the complaint was admitted and, by way of further answer, the Respondents 

stated: 

"* * * that the individuals named and the partnership are not now nor have 

they been since October 31, 1969, acting in the capacity of a futures commission 

merchant under or subject to the Commodity Exchange Act, nor are said 

individuals or the partnership presently engaged, or have they been so engaged 

since October 31, 1969, in trading in commodities for future delivery, for the 

accounts of customers, holding for such customers sums of money, representing 

the deposits 

of margin buy [sic] and trading profits accruing to such customers." 

n1 The admissions contained in paragraph I of the complaint are to the 

effect: 

"Respondents Sy B. Gaiber and Michael R. Hempel, individuals, are now, 

and were at all times material to this complaint, the sole partners in an 

Illinois partnership doing business under the firm name of Sy B. Gaiber & 

Co., with offices at 343 South Dearborn Street, Chicago, Illinois 60604. 

At all times material herein up to November 4, 1969, the said partnership, 

acting in the capacity of futures commission merchant under the Commodity 

Exchange Act, was engaged in trading in commodities for future delivery for 

the accounts of customers and holding for such customers sums of money, 

representing deposits of margin by and trading profits accruing to such 

customers. During the year 1969, the said partnership was registered as a 

futures commission merchant under the Commodity Exchange Act. In 

accordance with the provisions of section 4f of the said Act (7 U.S.C. 6f, 

Supp. IV, 1969) and section 1.16 of the Regulations thereunder (17 CFR 

1.16), such registration expired on December 31, 1969, and the said 

partnership is not now so registered." 

With respect to paragraph II of the complaint a denial was made and it was 

averred, among other things, that the Respondent, Sy B. Gaiber & Co., 

"* * * will affirmatively state that as of October 31, 1969, it had ceased 

all activities as a registered futures commission merchant and, further, does 

specifically state that on or about March 31, 1969, it was advised by 

representatives of the Commodity Exchange Authority that it had fallen below the 

minimum financial requirements commonly called 'safety factor', but that on or 

about April 1, 1969, it deposited sufficient funds to meet said minimum 

financial requirements; said Respondent further states that representatives of 

the Commodity Exchange Authority advised it during August of 1969, that the 

Respondent failed to meet certain minimum financial requirements as of June 30, 

1969, however, at the time of said advice, Respondent did, in fact, meet the 

minimum financial requirements and, therefore, there was nothing which 

Respondent was required to do with respect to such failure. * * *" 

The allegations of false statements and false reports set forth in paragraph 

III of the complaint were denied and a response was made that "if the statements 

and reports as alleged in said paragraph 3 were in fact made, they were made 

based upon the advice and counsel of the representatives, agents or officials of 

the Commodity Exchange Authority," and that Respondents acted in reliance 

thereon; that "at the request of the representatives, agents or officials of the 

Commodity Exchange Authority, Respondents have obtained and previously submitted 

or caused to be submitted, to the Commodity Exchange Authority statements from 

various persons relating to the $ 21,000.00 [sic] n2 in question, which 
Page 3 

statements show that said funds were given to the individual Respondents as 

contributions or gifts with no expectation of any consideration therefor or of 

the repayment of said funds." 

n2 This is obviously a typographical error. Should be $ 27,000.00. 

It is further alleged in the answer that the matters set forth in the 

complaint were moot and of no effect since Respondents had "ceased to act in 

capacity of futures commission merchants as of October 31, 1969, and are, 

therefore, not trading on or subject to the Rules of any Commodity market nor 

are they engaged 

in any acts or commodities which could constitute a violation of the Commodity 

Exchange Act or the regulations pertaining thereto in any manner." 

As pointed out by Complainant, the provisions of section 4f(2) of the Act set 

forth certain conditions under which the minimum financial requirements will be 

considered met where the registrant is a member of a contract market and 

conforms to minimum financial standards and related reporting requirements set 

by such contract market in its bylaws, rules, regulations or resolutions and 

approved by the Secretary of Agriculture as adequate to effectuate the purposes 

of the Act. In this case the Respondents were members only of the Chicago Open 

Board of Trade, which has submitted no minimum financial standards to the 

Secretary of Agriculture for approval. Testimony at the hearing indicates that 

the Chicago Open Board of Trade had not established minimum financial 

requirements which had been approved by Secretary of Agriculture as adequate to 

effectuate the purposes of section 4f of the Act. No reliance or claim has been 

made by Respondents on such provisions and, indeed, none properly could be made. 

An oral hearing was held at Chicago, Illinois, on April 22, 23, 24, 28 and 

29, 1970, before Dorothea A. Baker, Hearing Examiner, Office of Hearing 

Examiners, United States Department of Agriculture. The Respondents were 

represented by Emanuel Gordon, Esquire, Chicago, Illinois. Earl L. Saunders, 

Esquire, Office of the General Counsel, United States Department of Agriculture, 

appeared as counsel for the Complainant. Both sides offered oral and 

documentary evidence. The record contains 902 pages of oral testimony and 39 

exhibits, n3 many of which consist of multiple documents. In due course the 

parties filed briefs. 

n3 Exhibits R-B, RC-1 and RC-2 (the originals of which were introduced 

at the hearing) were withdrawn by Respondents' counsel for the purpose of 

substituting photostatic copies thereof; no such photostatic copies were 

ever received. Although the absence of these exhibits had no consequence 

on this decision, the failure of Respondent to honor his agreement, whereby 

he withdrew the original exhibits for the purpose of substituting true and 

accurate copies thereof, should preclude the reliance on, or use of, by 

Respondents of these exhibits in any further administrative or Judicial 

review of this proceeding. 

PROPOSED FINDINGS OF FACT

1. As is herein pertinent and material, the Respondent, Sy B. Gaiber & Co., 

was an Illinois partnership composed solely of the individual Respondents Sy B. 

Gaiber and Michael R. Hempel. At all times material herein up to on or about 

October 24, 1969, the 

individual Respondents were members of the Chicago Open Board of Trade, and up 

to on or about October 31, 1969, the Respondent partnership, acting in the 

capacity of futures commission merchant under the Commodity Exchange Act, was 

engaged in trading in commodities for future delivery for the accounts of 
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customers and holding for such customers sums of money, representing deposits of 

margin by and trading profits accruing to such customers. Throughout the year 

1969, the Respondent partnership was registered as a futures commission merchant 

under the Commodity Exchange Act. In accordance with the provisions of section 

4f of the Act and the applicable regulations thereunder, such registration 

expired on December 31, 1969, and the Respondent partnership is no longer a 

registrant under the Act. 

2. The Secretary of Agriculture, pursuant to statutory authority, has issued 

regulations under the Act prescribing minimum financial requirements which must 

be met by registered futures commission merchants (Title 17, Chap. I, Sec. 1.17, 

Code of Federal Regulations). 

3. Pursuant to special call of the Commodity Exchange Authority, the 

Respondent partnership submitted Form 1-FR, Statement of Financial Condition, as 

of March 31, 1969, which was marked received as of April 16, 1969, by 

Complainant's employees. The instructions for preparing the form, and which 

were incorporated therein, set forth, among other things, 

"Note: Before completing the form it is suggested that the applicant or 

registrant review thoroughly sections 1.10 and 1.17 of the regulations under the 

Commodity Exchange Act. Section 1.10 pertains to reporting of financial data 

and other filing requirements. Section 1.17 contains the minimum financial 

requirements prescribed for applicants and registered futures commission 

merchants." 

* * * 

"Financial Statement -- The financial statement must be based upon the 

applicant's or registrant's accounting records. All accounting records, 

schedules and other memoranda which support amounts shown on the financial 

statement must be retained in accordance with section 1.31 of the regulations." 

Pursuant to requirements of the regulations, Respondent partnership submitted 

Form 1-FR (received July 30, 1969), Statement 

of Financial Condition, as of June 30, 1969. The instructions for preparing the 

form were similar to those set forth above. 

4. In the ordinary course of their official duties of examining books and 

records of registered futures commission merchants, representatives of the 

Commodity Exchange Authority conducted two audits of Respondents' books and 

records as of March 31, 1969, and June 30, 1969 and one record examination as of 

August 4, 1969. 

5. The audit investigation as of March 31, 1969 disclosed that the Respondent 

partnership failed to meet the minimum financial requirements in the amount of $ 

8,927.62, and on June 13, 1969, such underfinanced condition of Respondent 

partnership was brought to the attention of Respondent Sy B. Gaiber. Respondent 

Gaiber indicated that under the circumstances he felt that he had no alternative 

but to deposit the necessary money so that Sy B. Gaiber & Co. (Respondent 

partnership) would meet the minimum financial requirements, and during a 

subsequent discussion with one of Complainant's representatives on June 16, 

1969, indicated that by the end of June he would have more than enough money 

deposited into the partnership so that he would have no trouble whatsoever 

meeting the financial requirements. 

6. The record evidence establishes that as of March 31, 1969, the Respondent 

partnership failed to meet the minimum financial requirements of section 1.17 of 

the regulations issued under the Act. 

7. On June 26 and 30, 1969, a representative of the Commodity Exchange 

Authority visited the Chicago office of Respondent Sy B. Gaiber & Co. for the 

purpose of determining whether the firm had acquired sufficient funds to remedy 

its underfinanced condition. On June 26, 1969, Respondent Sy B. Gaiber told 

such representative that $ 6,000 had been deposited into the capital account of 
Page 5 

the Respondent partnership on June 23, and on June 30, 1969 Respondent Gaiber 

further stated that an additional sum of $ 21,000 had been deposited into such 

account on the same day, June 30. Respondent Gaiber presented to the Commodity 

Exchange Authority's representative for his inspection, the Respondents' records 

of such deposits. These consisted of the entries of the amounts of the deposits 

in the Respondent partnership's general funds checkbook and two deposit slips -- 

one dated June 23, in the amount of $ 6,000, and the other dated June 30, in the 

amount of $ 21,000. With respect to the sources of the money 

deposited, the two deposit slips contained notations such as "Continental $ 

11,000," "Milwaukee $ 8,000," and "Money order $ 2,000." When the Commodity 

Exchange Authority's representative asked Respondent Gaiber to explain these 

sources, he replied that "they were from outside interests," and were "the 

personal contributions of both himself and Michael Hempel." 

8. On July 1, 1969, the Commodity Exchange Authority's representatives met 

with Respondent Sy B. Gaiber in a further effort to determine the source of the 

$ 27,000 in question. During the meeting on July 1, Respondent Gaiber stated 

that the entire $ 27,000 had been contributed by Respondent Michael R. Hempel 

and his brother William, his sister and father, and that they were to receive in 

return for their money shares of stock in Sy B. Gaiber & Co., Inc., a new 

corporation. n4 On July 8, 1969, James J. McCarthy, Jr., Chief of the 

Registration and Audit Branch in the Chicago office of the Commodity Exchange 

Authority, told Respondent Sy B. Gaiber, with respect to the $ 27,000, that "if 

these funds were for shares of stock in a corporation, that they could not be 

considered as part of the capital of Sy B. Gaiber & Company." Respondent Gaiber 

replied that the $ 27,000 "would eventually be exchanged for shares of stock in 

a corporation but at the time that the funds were obtained in June 1969, they 

were for the capital of the partnership." Respondent Gaiber then asked "what 

proof is required by the Commodity Exchange Authority to show that these funds 

were part of the partnership's capital in June of 1969," and Mr. McCarthy 

replied that in his view the $ 27,000 "wolud have to be considered as a current 

liability of the partnership unless he (Respondent Gaiber) got written 

documentation from the people who had sent in these funds that the partnership 

of Gaiber & Company had no liabilities whatsoever to these individuals." It was 

understood by Respondent Gaiber that said $ 27,000 could not be subject to any 

liability on the part of the partnership to the depositor. 

n4 During the hearing the Respondents abandoned their contention (as 

pled in the answer) that the $ 27,000 in question represented 

"contributions or gifts." 

9. On or about July 10, 1969, the Respondents submitted three letters to the 

Commodity Exchange Authority signed by Respondent Michael R. Hempel, William 

Hempel and Jerome P. Chernoff, respectively. William Hempel is the brother of 

Respondent Michael R. Hempel and was employed during 1969 as a bookkeeper by 

Respondent Sy B. Gaiber & Co. Jerome P. Chernoff was employed during 1969 by the 

Respondent partnership as the 

manager of its branch office in Milwaukee, Wisconsin. According to these 

letters, Respondent Michael R. Hempel, William Hempel and Jerome P. Chernoff 

deposited $ 11,000, $ 10,000, and $ 6,000, respectively, with the Respondent 

partnership "for their capital account." Each such letter was handwritten on the 

letterhead of "Sy B. Gaiber & Co." and except for the names of the signers and 

the amounts "deposited," the letters were identical. The letter signed by 

Respondent Michael R. Hempel is as follows: 

"July 10th 1969 

U.S. Department of Agriculture C.E.A. 
Page 6 

141 Jackson 

Chicago Illinois 60604 

Gentlemen: 

This letter will serve as my affidavit that I have deposited in Sy B. Gaiber 

& Co the amount of $ 11,000 for their capital account. Sy B. Gaiber & Co. has 

no obligation of repayment to me and I have no claim against Sy B. Gaiber & Co. 

now, or will ever make any claim against this money now or at any time in the 

future. 

/s/ MICHAEL R. HEMPEL" 

10. The Respondents' books and records, as of June 30, 1969, were the subject 

of an audit examination in July 1969, and in the course of said examination, on 

July 22, 1969, the Commodity Exchange Authority's representative learned from 

certain financial data of Respondents that the $ 27,000 in question had been 

received from the following nine different individuals: 

Lawrence H. Hempel $ 2,000

Anna Hempel 2,000

Orthwin Gallitz 2,000

William Hempel 3,000

Terry Zastrow 2,000

Jerome Chernoff 3,000

James Boening 4,000

Amy Boening 2,000

Bruno Bregantini 7,000

Michael Hempel, William Hempel and Lawrence A. Hempel are brothers and Anna 

Hempel is their mother. Orthwin Gallitz is William Hempel's brother-in-law. 

None of the remaining 

persons in the group from whom the $ 27,000 was received are related to the 

Hempel family. 

Such information as to the source of the $ 27,000 was contrary to the three 

signed statements (as set forth in Finding of Fact 9) previously submitted to 

the Commodity Exchange Authority that the $ 27,000 had been deposited by 

Respondent Michael R. Hempel, William Hempel, and Jerome P. Chernoff in the 

respective amounts of $ 11,000, $ 10,000, and $ 6,000, "for the capital account" 

of Respondent partnership. This contradiction was brought to the attention of 

Respondent Sy B. Gaiber on the same day by representatives of the Commodity 

Exchange Authority. When asked to explain these discrepancies, Respondent 

Gaiber said that "when he had obtained the three statements for [the Commodity 

Exchange Authority] he thought that it would be easier that way, since all of 

the other individuals were either related to Michael or William Hempel, or were 

friends of Jerome Chernoff." Respondent Gaiber said that "substatements would be 

obtained within a week" and asked "what should appear on these statements." He 

was advised that employees of the Commodity Exchange Authority could not tell 

him what should appear on the statements, and, that he should consult an 

attorney. Respondent Gaiber had been advised previously that the $ 27,000 would 

have to be considered as a current liability of the Respondent partnership 

unless documentation was received from the people who had sent in the funds that 

the Respondent partnership had no liabilities whatsoever to these individuals. 

11. On or about July 27, 1969, the Respondents submitted four letters to the 

Commodity Exchange Authority. One letter was signed by Jessica Gallitz and 

Orthwin Gallitz and the other three letters were signed by Anna Hempel, Lawrence 

H. Hempel and William Hempel, respectively. According to these letters, Jessica 

Gallitz and Orthwin Gallitz had deposited $ 2,000, and Anna Hempel, Lawrence H. 

Hempel and William Hempel had deposited $ 2,000, $ 2,000, and $ 3,000, 

respectively, with Respondent Sy B. Gaiber & Co. "for their Capital Account." 
Page 7 

Each such letter was typewritten on the letterhead of "Sy B. Gaiber & Co." and 

except for the names of the signers and the amounts "deposited," the letters 

were identical. The letter signed by William Hempel is as follows: 

"July 25, 1969 

Mr. J. McCarthy 

c/o C.E.A. 

U.S. Department of Agriculture 

141 W. Jackson Boulevard 

Chicago, Illinois 

Dear Mr. McCarthy: 

This letter will serve as my affidavit that I have deposited with Sy B. 

Gaiber & Co. the amount of $ 3,000.00 for their Capital Account. 

Sy B. Gaiber & Co. (a partnership) has no obligations of repayment to me and 

I have no claims against Sy B. Gaiber & Co. This money is to be used as capital 

without any claims or liens from me. 

/s/ William Hempel 

If husband and wife, both sign." 

12. On October 12, 1969, the Respondents submitted five additional letters to 

the Commodity Exchange Authority. One letter bore the signatures, Brunno 

Bregantini and Anna Bregantini, and the other four letters bore the following 

signatures, respectively, James Boening, Amy Boening, Terry Zastrow and Jerome 

Chernoff. According to these letters, Brunno Bregantini and Anna Bregantini had 

deposited $ 7,000 with the Respondent partnership, and James Boening, Amy 

Boening, Terry Zastrow and Jerome Chernoff had deposited $ 4,000, $ 2,000, $ 

2,000, and $ 3,000, respectively, with the Respondent partnership. Except for 

the signatures and the amounts "deposited," the letters were identical. The 

letter bearing the signature of James Boening is as follows: 

"October, 1969 

Mr. James McCarthy 

c/o Commodity Exchange Authority 

United States Department of Agriculture 

141 West Jackson Boulevard 

Chicago, Illinois 

Dear Mr. McCarthy: 

The intent of this letter is to state to you that the undersigned has 

heretofore deposited with Sy B. Gaiber & Co., a partnership, the sum of four 

thousand ($ 4,000.00) dollars. The undersigned has no claim against Sy B. 

Gaiber & Co. by 

 

reason of the deposit of said sum into the partnership of Sy B. Gaiber & Co., 

nor is Sy B. Gaiber & Co., a partnership, obligated to make a return of said sum 

to the undersigned in any manner whatsoever. 

Very truly yours, 
Page 8 

/s/ James Boening 

JAMES BOENING 

JB:epb" 

13. Mr. Boening, an attorney, appeared as a witness at the hearing and 

testified in substance, among other things, that with respect to $ 6,000 put up 

by him and his wife (of the $ 27,000 in issue), such amount was for the purchase 

of 2,000 shares of stock on June 23, 1969 (for $ 4,000), and, on behalf of his 

wife, for the purchase of 1,000 shares (for $ 2,000) on the same date. The $ 

6,000 was submitted with the belief and expectation that he was purchasing 

shares of stock in a corporation, to be newly formed (Sy B. Gaiber & Co., Inc.). 

He was unaware of the existence of any partnership. It was not until some time 

later that he may have become aware of the partnership and the witness was 

definitely under the impression that the investment he had made for himself and 

on behalf of his wife was for the purpose of purchasing stock in the 

corporation. Although Mr. Boening eventually recovered $ 5,250 of his 

investment, nevertheless, this was achieved only after he was "pressured" into 

signing a release to the partnership. The witness's testimony in this regard 

leaves us with no doubt that this witness had no intention of ever investing in 

the Respondent partnership and that he signed the release to the partnership in 

order to "protect" his investment. The witness Boening and his wife are not 

related in any way to the Respondents, Gaiber and Hempel, nor to Mr. Chernoff. 

14. The evidence shows that as of June 30, 1969 and August 4, 1969, the 

Respondent partnership had overstated its current assets by including funds in 

the amounts of $ 27,000 and $ 17,000 (as of the August 4, 1969 examination $ 

10,000 had been transferred back to the corporation) received from stockholders 

of Sy B. Gaiber Co., Inc., for the purchase of stocks in the corporation, Sy B. 

Gaiber Co., Inc., and that such amounts did not represent gifts, contributions, 

or funds for which the partnership had no liability. 

15. The record evidence establishes that as of June 30, 1969, and as of 

August 4, 1969, the Respondent partnership failed to 

 

meet the minimum financial requirements of section 1.17 of the regulations 

issued under the Act. 

PROPOSED CONCLUSIONS

The Respondents are charged with having violated sections 4f n5 and 6(b) n6 

of the Commodity Exchange Act (7 U.S.C. §§ 6f and 9) and the regulations 

promulgated thereunder. 

n5 Complainant is charging Respondents with having violated paragraph 

(2) of section 4f of the Act which relates to registration of commission 

merchants and brokers; and financial requirements of futures commission 

merchants, and provides in pertinent part: 

"(2) Notwithstanding any other provisions of this chapter, no person 

desiring to register as futures commission merchant shall be so registered 

unless he meets such minimum financial requirements as the Secretary of 

Agriculture may by regulation prescribe as necessary to insure his meeting 

his obligation as a registrant, and each person so registered shall at all 

times continue to meet such prescribed minimum financial requirements:

PROVIDED, That such minimum financial requirements will be considered met 

if the applicant for registration or registrant is a member of a contract 

market and conforms to minimum financial standards and related reporting 

requirements set by such contract market in its by-laws, rules, 

regulations, or resolutions and approved (sic) by the Secretary of 

Agriculture as adequate to effectuate the purposes of this paragraph (2). * 

* *" (Initial emphasis added). 
Page 9 

Paragraph 2 was added to the Act by Public Law 90-258 (90th Cong., 2d 

Sess. H.R. 13094). 

The legislative history of this amendatory bill is found in H.R. No. 743 

and S.R. No. 947 (90th Cong., 2d Sess.). Among other things, it gave the 

Secretary, for the first time, authority to set minimum financial 

requirements for persons who act as futures commission merchants. Under 

the law prior to amendment, the Secretary of Agriculture was required to 

register as a futures commission merchant any person who made application 

on the prescribed form regardless of any showing of adequate capital or 

financial responsibility. There were instances of persons registered with 

little or no capital. It was noted in the Senate Report that: 

"That danger to the public from such financial irresponsibility is 

obvious. The underfinanced brokerage firms have been found to be most 

likely to dip into customers' funds or resort to sharp trading practices to 

bolster their money needs. * * * 

"Applicants who are not members of contract markets with approved 

standards will be required to meet standards established by the Secretary 

of Agriculture * * *." (S.R. 947) 

n6 "§ 9. Exclusion of persons from privilege of 'contract markets'; 

procedure for exclusion; review by court of appeals.

"If the Secretary of Agriculture has reason to believe that any person 

(other than a contract market) * * * has willfully made any false or 

misleading statement of a material fact in any registration application or 

any report filed with the Secretary of Agriculture under this chapter, or 

willfully omitted to state in any such application or report any material 

fact which is required to be stated therein, or otherwise is violating or 

has violated any of the provisions of this chapter or of the rules, 

regulations, or orders of the Secretary of Agriculture or the commission 

thereunder, he may serve upon such person a complaint * * * requiring such 

person to show cause why an order should not be made prohibiting him from 

trading on or subject to the rules of any contract market, and directing 

that all contract markets refuse all trading privileges to such person, 

until further notice of the Secretary of Agriculture, and to show cause why 

the registration of such person, if registered as futures commission 

merchant, or as floor broker hereunder, should not be suspended or revoked

* * *." (Emphasis added) 

The regulatory provisions pertaining to the minimum financial 

 

requirements which were in effect during the times pertinent to this proceeding 

are set forth in section 1.17 which provides in pertinent part: 

"§ 1.17 Minimum financial requirements.

"(a) Except as provided in paragraphs (b) and (c) of this section, no person 

applying for registration as futures commission merchant shall be so registered 

unless he has adjusted working capital equal to or in excess of whichever of the 

following is greater: (1) $ 10,000 or (2) the sum of the safety factors 

hereinafter prescribed in this section with respect to both proprietary accounts 

and customers' accounts plus 5 percent of the applicant's aggregate 

indebtedness; and each person registered as futures commisison merchant shall at 

times continue to meet such financial requirements." 

Subsection (d) of section 1.17 defines the terminology used in said section. 

Respondents are also charged with having violated section 1.35 of the 

regulations which provides in pertinent part: 

"§ 1.35 Records of cash commodity and futures transactions.

"(a) Futures commission merchants and members of contract markets: Each 

futures commission merchant and each member of a contract market shall keep 
Page 10 

full, complete, and systematic records, together with all pertinent data and 

memoranda, of all transactions relating to his business of dealing in commodity 

futures and cash commodities. He shall retain the required records, data, and 

memoranda in accordance with the requirements of § 1.31, and shall produce them 

for inspection and shall furnish true and correct information and reports as to 

the contents or the meaning thereof, when and as requested by any authorized 

representative of the U. S. Department of Agriculture or the U. S. Department of 

Justice. * * *" (Emphasis added) 

The Complainant maintains that (1) the Respondent partnership willfully 

operated as a registered futures commission merchant under the Act without 

meeting the minimum financial requirements of the Act and of the regulations, in 

violation of section 4f(2) of the Act and section 1.17 of the regulations; (2) 

the Respondents willfully made false and misleading statements of material facts 

in reports filed with the Secretary of Agriculture under the Act, in violation 

of section 6(b) of the Act; and (3) the Respondents willfully furnished false 

and misleading information and reports to authorized representatives of the 

United States 

 

Department of Agriculture as to the meaning and contents of the Respondents' 

records of financial transactions relating to their business, in violation of 

section 1.35 of the regulations. On brief, the Complainant states, inter alia,

"most of the material facts in this proceeding are not in dispute. The only 

real issue concerns the $ 27,000, * * *. The Respondents claim that the $ 

27,000 was contributed to the Respondent partnership or deposited with it and 

was a part of its capital." 

Basically the parties agree as to the issues in the case, namely, whether 

Respondents failed to meet prescribed minimum financial requirements; whether 

Respondents furnished true and correct information and reports; and, whether 

Respondents willfully made false and misleading statements to representatives of 

the Commodity Exchange Authority. On brief, Respondents further state, "It is 

obvious that the $ 27,000.00 referred to in the Complaint is, in fact, the main 

point in issue." Among the defenses of the Respondents to the charges are that 

with respect to the alleged financial deficiencies on the three specified dates, 

the Respondents were not notified of same until a "substantial period of time 

subsequent to said dates;" that such requirements were of recent origin and 

Respondents, like others affected, encountered "technical and bookkeeping 

problems" in conforming to the prescribed minimum financial requirements; that 

there was no willful or fraudulent intent by Respondents in the documentation 

submitted to the representatives of the Commodity Exchange Authority; and, that 

the Complainant's charges are ill founded and, "If anything, there has been 

indicated irresponsible, inept and indecisiveness of direction by 

representatives of the Commodity Exchange Authority." 

There is a rather voluminous record in this case consisting of hundreds of 

pages of testimony and multitudinous exhibits which we have reviewed and 

considered. Without attempting to reiterate the same in detail the following 

observations are made concerning what the record shows in our opinion. 

The record clearly shows that Respondents' books and records were the subject 

of careful, thorough, and complete audit examinations as of March 31, 1969, and 

June 30, 1969, and of a record examination as of August 4, 1969. 

These examinations were done in the ordinary course of the Commodity Exchange 

Authority's representatives' authorities and duties in carrying out their 

responsibility to see that the provisions of the Act are complied with. To a 

substantial extent, the 

 

provisions of the Act, of which Respondents have been charged with violating, 

are designed for the protection of the customers of futures commission 

merchants. At the hearing, there was some suggestion on the part of Respondents 
Page 11 

that there may have been some plan or conspiracy on the part of the Commodity 

Exchange authorities to drive Respondents out of business, n7 that the audit 

examinations were irregular, etc. We find no basis of fact in the record for 

such suggestion. 

n7 On October 24, 1969, the Respondent partnership was suspended as a 

clearing member of the Chicago Open Board of Trade (Tr. 134). 

As a result of the aforementioned three examinations (as of March 31, 1969, 

June 30, 1969, and August 4, 1969) it was determined that the Respondents failed 

to meet the minimum financial requirements, as follows: 

Amount by which minimum

financial requirements 

As of: not met: 

March 31, 1969 $ 8,927.62

June 30, 1969 27,789.22

August 4, 1969 55,209.40

The Respondents deny that they were underfinanced by the above stated 

amounts, and, as a basis therefor, set forth that $ 27,000 which was deposited 

to the Respondent partnership's general funds account ($ 6,000 on June 23, 1969 

and $ 21,000 on June 30, 1969), should for the purposes herein, be considered 

capital of the partnership, and, that with respect to the $ 55,209.40 deficiency 

(as of August 4, 1969), not only should $ 17,000 (of the $ 27,000 in issue) be 

considered partnership capital, but, also, that it was improper to compute the 

proprietary safety factor because, among other things, the figure pertaining to 

one's "proprietary safety factor" can be immediately reduced at any given time 

by reducing one's "open position" on the market, and that the Respondents, 

subsequently, to August 4, 1969, reduced their "open position" after it was 

ascertained that such position was very substantial. 

We have given careful consideration to these contentions of Respondents. 

But, the overwhelming evidence of record necessitates the conclusion that the 

Respondents have advanced no possible defenses nor explanations for its 

underfinanced position as of March 31, 1969. No claim was made, nor could it 

be, that the $ 27,000 in issue pertains to any time prior to June 23 (and 30), 

1969. Also, although not set forth by Respondents in brief, the argument 

relating to the "proprietary safety factor" could not 

 

relieve the Respondents from their March 31, 1969, failure to meet the minimum 

financial requirements by $ 8,927.62. n8 We have no alternative but to find and 

conclude that as of March 31, 1969, the Respondents failed to comply with the 

applicable provisions of the Act and regulations pertaining to minimum financial 

requirements. 

n8 See Ex. C-2, Tr. 32, showing adjustment to proprietary safety factor 

in amount of $ 4,554. 

With respect to its financial condition on June 30, 1969, the basic 

contention of Respondents is that the $ 27,000 deposited on June 23 and 30th, 

1969 in the respective amounts of $ 6,000 and $ 21,000, should be considered 

capital of the partnership. In support of their position the Respondents rely 

upon various documentation submitted to the Commodity Exchange Act authorities, 

the first of which consisted of three letters signed by Michael R. Hempel, 

William Hempel and Jerome P. Chernoff, to the effect that the respective amounts 

deposited by each was for the "capital account" of the Respondent partnership 

which "has no obligation of repayment to me and I have no claim against [the 

Respondent partnership] now, or will ever make any claim against this money now 

or at any time in the future." As a matter of fact, only $ 6,000 of the $ 27,000 

was received from William Hempel and Jerome P. Chernoff. The remaining $ 21,000 

was paid by seven different persons solely in payment of stock issued [or to be 

issued] to them by a newly formed corporation, Sy B. Gaiber & Co., Inc. n9 The 
Page 12 

Respondents then proceeded to obtain unsworn written statements from the nine 

stockholders to the effect that the respective amounts deposited for stock 

purchases were for the capital account of the partnership which had no 

obligations of repayment and against which the stockholder had no claim. 

n9 The Sy B. Gaiber & Co., Inc., an Illinois corporation, was organized 

and incorporated the early part of July 1969, and an application for 

registration under the Commodity Exchange Act was received by Complainant 

on or about July 7, 1969. 

In its answer, and at one time during the hearing, the Respondents maintained 

that the $ 27,000 represented gifts or contributions. However, this contention 

apparently was abandoned, and Respondents admitted that the $ 27,000 represented 

deposits by individuals for stock in the corporation. 

Respondents would have us accept these statements of the nine shareholders 

because: 

"It is difficult to believe that the said depositors would execute a document 

to the effect that the Respondent partnership 

 

had no liability to them by reason of such deposits if, in fact, such was not 

the case. It should be noted that the depositors were all mature persons, and, 

as a matter of fact, one of the depositors was an attorney." 

However, we do not find it difficult to understand why the depositorstockholders would sign the statements they did. A reading of the testimony of 

Mr. Boening clearly shows why he, after much reluctance, agreed to do so: he was 

apprehensive with respect to his investment and agreed to sign the statement 

with the hope that it would benefit the corporation. 

Moreover, the Respondents admit that the $ 27,000 was for the purchase of 

stock in the corporation. 

The only witness called by Respondents was Sy B. Gaiber whose explanation of 

the situation was: 

"A. The relationship between Sy B. Gaiber & Company, a partnership, and Sy 

B. Gaiber & Company, Incorporated, prior to its incorporation, was for the sole 

purpose of assuming all of the assets, all of the liabilities of the 

partnership, and adding additional capital to the partnership, applying for a 

license as a future commissions merchant under the corporation, thus absorbing 

the partnership into the corporation, and no longer having a corporation -- a 

partnership, and only a corporation, and people who purchased stock, purchased 

it on that premise." 

We have noted, however, that although Mr. Gaiber later testified that as of 

July 1969 in excess of $ 100,000 n10 had been received "from people that were 

going to purchase stock in the corporation," only the $ 27,000 (representing 

"first commitments") was deposited into the Respondent's partnership's general 

fund account. 

n10 Subsequent testimony by the witness indicated that as of July 31, 

1969, individuals had contributed $ 52,000 and subsequently another $ 

50,000 was invested. 

We cannot agree that the attempted utilization of corporate funds by the 

partnership made such funds an asset of the partnership. Nor can we permit the 

Respondents' reliance upon dictated statements to the then corporate 

stockholders to be used as a subtsitute for a reflection of the actual facts. 

The individuals who advanced money for the purchase of stock certainly had 

claims and rights that the money be utilized for the purpose for which it was 

given. We do not find Respondent's argument, that the assets of the Respondent 

partnership were merged into the 
Page 13 

 

corporation to be supported by the evidence of record, nor, in fact tenable with 

respect to the periods of time involved. Exhibits C-12 through C-14, inclusive, 

represent the Applications for Registration as Futures Commission Merchant (and 

financial data in support thereof), submitted by the corporation as of July 1, 

1969 and July 9, 1969, and show as "capital" the amounts of $ 10,000 and $ 

10,970, respectively. Had there been, in fact, a merger with the partnership, 

certainly the balance sheet would have reflected certain assets and liabilities 

of the alleged predecessor partnership. 

We thus find and conclude that as of June 30, 1969, and August 4, 1969, none, 

nor any part thereof, of the $ 27,000 in issue properly could be considered as 

capital of the partnership and that under the circumstances the Complainant is 

correct in excluding such corporate funds from the partnership's capital. 

The record also shows that even assuming arguendo that it was accepted that 

the $ 27,000 in question was given to the Respondent partnership as a gift or 

contribution, and the facts show such was not the case, the Respondent would 

still have been below the prescribed minimum financial requirements as of June 

30, 1969, by an amount of $ 789.22. As of June 30, 1969, the Respondent failed 

to meet the minimum financial requirements of the Act and regulations. 

With respect to the charge that the Respondent partnership lacked $ 55,209.40 

as of August 4, 1969, of having enough funds to meet the prescribed minimum 

financial requirements, the Respondents argue on brief that such deficiency was 

caused by a combination of two factors. One of such factors involved whether $ 

17,000 of the $ 27,000 in question should be deemed, as of August 4, 1969, part 

of the current assets of the Respondent partnership. As set above, we are of 

the view that the $ 17,000 (of the $ 27,000 in issue) was not capital of the 

partnership. Nevertheless, even assuming arguendo, that the Respondent 

partnership were given credit for such sum of money as of August 4, 1969, it 

would still have been considerably below the minimum financial requirements as 

of such date. The other factor mentioned by the Respondents related to the 

amount computed, as of August 4, 1969, as the Respondent partnership's 

"proprietary safety factor." n11 As regards such factor, the Respondents 

contend, 

 

among other things, that the figure pertaining to one's "proprietary safety 

factor" can be immediately reduced at any given time by reducing one's "open 

position" on the market, and that the Respondents sometime after August 4, 1969, 

reduced their "open position" on the market after it was ascertained that such 

"open position" was very substantial. This is no defense to failure to operate 

within the minimum financial requirements of the Act and regulations which 

require that a registrant shall at all times continue to meet such prescribed 

minimum financial equirements.

n11 The "proprietary safety factor" is computed in accordance with the 

provisions of § 1.17 of the Regulations. The elements entering into the 

computation of Respondent's proprietary safety factor of $ 50,954.50 are 

set forth in the transcript, pages 654-662. 

Also, Respondents maintain that they were unable to compute on any given day 

or time their required current safety factor. Such arguments overlook one of 

the purposes of requiring minimum financial requirements, namely, to assure that 

a registered futures commission merchant could pay all its customers that day if 

the former were forced into liquidation. In addition, if one were to agree with 

Respondent Gaiber that he traded all day without knowing his financial position, 

the inherent dangers of such practice are self-evidence as well as the fact that 

one must know his position in trades to prevent going over the speculative 

limit. In addition, the record evidence in this case negates such a contention. 
Page 14 

A witness versed and knowledgeable in these matters testified, among other 

things: 

"Q In your opinion as an accountant, familiar with the books and records 

maintained by futures commission merchants, do you believe, from an examination 

of the Respondent's books and records as of August 4, 1969, that they could have 

determined the number of trades and positions in their proprietary account, and 

have brought those trades to the market, and have determined the safety factor 

in connection therewith pursuant to the regulations issued under the Commodity 

Exchange Act? 

"A Yes, sir. 

"Q And what is the basis for that opinion ? 

"A The basis is that there are approximately five or six accounts. The only 

information that is obtained from the tab machine on the following day would be 

the open position. This is the only part of the computation that would be 

available from the tab record, would be the open position. 

"This means that the open trades going into the computer to arrive at the 

open trades totals on the following day would 

 

have to be knowledgeable to the firm on the previous day, so therefore, they 

have the open trades as of the previous day, they have the trades made on the 

current day, and it would be nothing more than a matter of adding these two 

numbers together, and then making the computations." (Tr. 872-873) 

We are unable to agree with Respondents' postulate that traders do so without 

knowledge of the extent of their trading and their particular financial status. 

Indeed, if this were so, the fundamental purpose of the Act would be thwarted 

and customers of futures commission merchants would be in peril. The awareness 

by a registered futures commissoin merchant at all times of his financial 

condition as relating to the minimum financial requirements prescribed by the 

Act and the regulations is anticipated and required by the applicable 

provisions, and, such awareness must, at the very least, be considered as a 

necessary concomitance to such prescriptions. It is incumbent upon the futures 

commission merchant that he remain continually cognizant of his financial 

condition so that any deficiencies thereof can be immediately corrected. 

We find and conclude that as of August 4, 1969, the Respondents failed to 

meet the minimum financial requirements of the Act and regulations. 

This brings us now to the allegations in this proceeding that the Respondents 

furnished false and misleading statements and reports to the Commodity Exchange 

Authority which allegations relate to the source of the $ 27,000 in question 

which was deposited June 23 and 30, 1969, into the Respondent partnership's 

general funds bank account. The Respondents contend, in substance, that they 

had no willful or fraudulent intent with respect to the documentation submitted 

by them to the Commodity Exchange Authority and that they were giving the 

Commodity Exchange Authority representatives what they asked for. The 

Respondents prepared and submitted to the Commodity Exchange Authority on or 

about July 10, 1969, July 27, 1969, and October 27, 1969, letters signed by 

various persons which stated, in essence, that the $ 27,000 in question had been 

deposited with the Respondent partnership for its capital account and that the 

partnership had no liabilities whatsoever to such persons, yet the evidence in 

this case convincingly establishes that the $ 27,000 in question was made 

available to the Respondents by nine different persons as payment of stock 

issued to them by Sy B. Gaiber & Co., Inc., a new corporation, and that these 

persons did not intend that such 

 

money should become part of the capital of the Respondent partnership (Comp. Ex. 

6, 7, 11, 15, 16, 17 and 25; Tr. 121-131, 142-144, 306-318, 421, 429-430, 436, 
Page 15 

443, 453-455). We have already commented heretofore on the testimony of James 

E. Boening, an attorney-at-law in Milwaukee, Wisconsin, which testimony clearly 

disproves any claims to the effect that he deposited monies for use as 

partnership capital. 

Mr. Boening testified that he and his wife, Amy Boening, purchased, on June 

23, 1969, a total of 3,000 shares of stock in Sy B. Gaiber & Co., Inc., for a 

total purchase price of $ 6,000, and that the payment for such stock was made 

via two checks signed by Mr. Boening which contained the following notations, 

respectively: "For James E. Boening, 2,000 shares" and "For Amy Boening, 1,000 

shares." Mr. Boening further testified that at the time of his purchase of the 

stock in Sy B. Gaiber & Co., Inc., he had no knowledge of the existence of the 

Respondent partnership (Tr. 315, 400) and, indeed, had never heard of the term 

"partnership" used in connection with Sy B. Gaiber (Tr. 361). He also stated 

that the $ 6,000 payment on June 23, 1969, was neither a gift nor a contribution 

(Tr. 443), but instead was definitely for the purchase of shares of stock (Tr. 

436), and that he had no reason whatsoever to give anything to Sy B, Gaiber & 

Co. (Tr.443). 

The denial by Mr. Boening that he had any knowledge of the existence of the 

Respondent partnership at the time of his purchase of stock in Sy B. Gaiber & 

Co., Inc., is relevant for several reasons, but it is particularly noteworthy in 

view of the Respondent's statement at page 6 of this brief that "all of the 

subscribers and stockholders of said corporation were cognizant of the fact that 

the Respondents herein were merging the assets of the Respondent partnership 

into said corporation." Such statement fails to mention at what period of time 

such subscribers and stockholders became cognizant of the merger. Admittedly, 

all of the subscribers and stockholders of the corporation eventually gained 

such cognizance. However, the record is clear that at the time the $ 27,000 in 

question was made available to the Respondents, all of them were, in fact, not 

aware of such merger for the simple but crucial reason that, at such time, all 

of them did not even know that the Respondent partnership was in existence, and 

that Sy B. Gaiber was involved in a partnership. 

With respect to the fact that Mr. and Mrs. Boening signed letters dated 

October 1969, which stated that they had no claim 

 

against the Respondent partnership by reason of the deposit of $ 6,000 into the 

partnership, Mr. Boening noted that he and his wife had refused to sign 

similarly drafted documents sent to them from the Respondents in the latter part 

of July 1969 for the reasons mentioned above, and even wrote a letter on August 

5, 1969 to the Respondents' attorney informing him of the reasons for such 

refusal. Mr. Boening further noted that, during a telephone conversation with 

Respondents' attorney in August of 1969, he stated that the content of the 

letters "really was not what the transaction was really about" (Tr. 342), and 

therefore, when two more identically drafted documents were received by Mr. and 

Mrs. Boening on August 12, 1969, they likewise refused to sign such documents. 

As Mr. Boening explained at the hearing, the only reason that he eventually did 

sign the aforementioned letter dated October 1969, was "so that Sy B. Gaiber and 

Company could get out of trouble, because they had evidently taken some money, 

which was our stock money, and put it in the wrong account." He further 

explained that it was his impression that, absent the signed document, Sy B. 

Gaiber and Company would not be able to clear itself with the Commodity Exchange 

Authority, and that "our corporation, which I was going to be one of the 

stockholders, would not be able to get duly qualified and get into business," 

which "was a technicality that had to be overcome." Finally, he remarked that "I 

didn't think it was right, but I would do it anyway to help out the welfare of 

these shareholders." 

As has been pointed out by Complainant on brief, Mr. Boening's statements 

stand uncontradicted and unimpeached. Such statements were supplemented at the 

hearing by testimony that, in an interview of Jermoe P. Chernoff conducted by 

two representatives of the Commodity Exchange Authority on July 30, 1969, Mr. 
Page 16 

Chernoff, the manager of the Respondent partnership's branch office in 

Milwaukee, Wisconsin, during 1969, stated that "he made a check payable to Sy B. 

Gaiber & Company for $ 3,000 for the purchase of 1,500 shares of stock in the 

corporation, Sy B. Gaiber & Company, Incorporated;" that he made the following 

notation on the face of such check: "For purpose of 1,500 shares at $ 2 per 

share;" and that "he intended his money to be used for the sole purpose of 

purchasing 1,500 shares of stock in the corporation, Sy B. Gaiber & Company, 

Incorporated." 

Our consideration of the entire record evidence leaves us with the opinion 

that the statements set forth in Complainant's 

 

Exhibits C-8, C-9, C-10, C-18, C-19, C-29, C-30, C-31, C-32, C-34, C-35, and C36, were both false and misleading as to material facts affecting Respondents' 

right to continued registration as a futures commission merchant under the Act. 

Certainly the Respondents were aware that such statements were inaccurate as to 

the source of the $ 27,000 in issue, and one can only conclude that they were 

submitted for the purpose of showing proper financial status when, in fact, the 

Respondents were operating below the minimum financial requirements of the Act. 

Thus, Respondents, having full knowledge of the true facts intended, and did, in 

fact perform those acts which constitute the violation of the Act. Goodman V. 

United States, 286 F.2d 896 (7th Cir.), 1961; Great Western Food Distributors, 

Inc. V. Brannan, 201 F.2d 476 (7th Cir., 1953), cert denied, 345 U.S. 997 

(1953). 

Among the Respondents' other defenses and explanations are those of alleged 

"reliance" upon what they were told to obtain by way of documentation by the 

Commodity Exchange Authority representatives; that the newly formed corporation, 

Sy B. Gaiber Co., Inc., was to purchase the assets and assume the liabilities of 

the Respondent partnership; that the corporation and partnership were one and 

the same, that there is a difference between insolvency and failure to meet the 

minimum financial requirements of the Act; that there has been no "dipping into 

customer's funds;" and that representatives of the Commodity Exchange Authority 

have displayed irresponsible, inept, and indecisiveness of direction. We have 

considered these and all contentions advanced by Respondents, but our careful 

study and review of the entire record compel us to conclude, as set forth above, 

that the Respondents operated as a registered futures commission merchant under 

the Commodity Exchange Act while failing to meet prescribed minimum financial 

requirements, in violation of section 4f(2) of the Act and section 1.17 of the 

regulations, and that with a view to furtherance of such violation willfully 

made false and misleading statements of material facts in reports filed with the 

Secretary of Agriculture in violation of section 6(b) of the Act, and willfully 

furnished false and misleading information and reports as to the meaning and 

contents of the Respondents' records of financial transactions relating to their 

business, in violation of section 1.35 of the regulations. 

All contentions of the parties presented for the record have 

 

been considered whether or not specifically mentioned herein and any motions, 

requests, suggestions, etc., not specifically mentioned or ruled upon or which 

are inconsistent with this decision are denied. 

With respect to the imposition of sanctions, the Complainant seeks a cease 

and desist order under section 6(c) of the Act, n12 (7 U.S.C. § 13b), and, a 

denial to the Respondents of all trading privileges on all contract markets for 

a period of two years whether for their own account or for the account of 

others. n13 The Respondents state that, "* * * the penalties requested by the 

Complainant appear to be punitive in nature and appears [sic] to have no 

relationship to the alleged deficiencies." The Respondents also maintain that 

the matter is moot inasmuch as they are no longer registered under the Act and 
Page 17 

since October 1969, have not been operating as a futures commission merchant 

under or subject to the Commodity Exchange Act. 

n12 "§ 13b. Manipulations or other violations; cease and desist orders 

against persons other than contract markets; punishment; misdemeanor or 

felony; separate offenses.

"If any person (other than a contract market) * * * is violating or has 

violated any of the provisions of this chapter or of the rules, 

regulations, or orders of the Secretary of Agriculture or the commission 

thereunder, the Secretary may, upon notice and hearing, and subject to the 

appeal as in other cases provided for in section 9 of this title, make and 

enter an order directing that such person shall cease and desist therefrom 

* * *." 

n13 7 U.S.C. § 9 provides, among other things, for exclusion of persons 

from privilege of contract markets and, 

"* * * Upon evidence received, the Secretary of Agreculture may prohibit 

such person from trading on or subject to the rules of any contract market 

and require all contract markets to refuse such person all trading 

privileges thereon for such period as may be specified in the order, and, 

if such person is registered as futures commission merchant or as floor 

broker hereunder, may suspend, for a period not to exceed six months, or 

revoke, the registration of such person. Notice of such order shall be 

sent forthwith by registered mail or by certified mail or delivered to the 

offending person and to the governing boards of said contract markets." 

In this regard, we note that the Respondent partnership, during the period 

herein pertinent, was composed solely of the individual Respondents, Sy B. 

Gaiber and Michael R. Hempel. The fact that Respondents are no longer 

registrants under the Act does not render the violations moot n14 nor constitute 

a deterrent to Complainant's requested sanctions. 

n14 It is noted, however, that a revocation or suspension of 

registeration under the Act would be of no import in view of the lapse of 

Respondents' registration. 

JUDICIAL OFFICER'S CONCLUSIONS AND ORDER

The Hearing Examiner, who saw and heard the witnesses testify, did not 

believe the respondent Gaiber's testimony that the nine persons who advanced the 

$ 27,000 in question authorized 

the respondents to use the money to add capital to the respondent partnership 

(Tr. 692). The weight to be given to a Hearing Examiner's findings reaches its 

maximum when it turns on credibility (see NLRB V. Majestic Weaving Co., 355 F.2d 

854, 859 (C.A. 2); Cella V. United States, 208 F.2d 783, 788 (C. A. 7), 

certiorari denied, 347 U.S. 1016; National Labor Relations Board V. Swinerton,

202 F.2d 511, 514 (C. A. 9), certiorari denied, 346 U.S. 814; National Labor 

Relations Board V. Dinion Coil Co., 201 F.2d 484, 490 (C. A. 2)). A review of 

the entire record compels me to reach the same conclusion as that of the Hearing 

Examiner. 

Mr. and Mrs. James Boening contributed $ 6,000 of the $ 27,000 in question. 

Mr. Boening's testimony, which is contrary to the respondent Gaiber's testimony, 

is set forth at length above. 

Mr. Boening and five of the other persons who contributed $ 22,000 of the $ 

27,000 in question were interviewed by two of the complainant's employees. Each 

of them told the complainant's employees that they advanced the money for the 

purchase of stock in the new corporation that was to be formed, and that they 

intended their money to be used "solely" for the purpose of purchasing shares of 

stock in the new corporation (Comp. Ex. 7). Two of these persons were Mrs. Anna 
Page 18 

Hempel, mother of the respondent Michael Hempel, and Orthwin Gallitz, the 

brother-in-law of the respondent Michael Hempel. 

Mr. Jerome Chernoff, manager of the Minwaukee Branch of the respondent 

partnership, advanced $ 3,000 of the $ 27,000. Mr. Chernoff stated that he was 

"told that the money he invested in the corporation would be held in an escrow 

account until the corporation was formed," and "that his money should have been 

used as capital for the corporation only and should not have been deposited as 

capital for the partnership, Sy B. Gaiber & Co." (Comp. Ex. 7, pp. 1-2). Mr. 

Chernoff solicited three of the persons who contributed about half of the $ 

27,000, and they, of course, had the same understanding as Mr. Chernoff as to 

the money (Comp. Ex. 7, pp. 2-3). 

It is significant that the respondents did not call one of the nine persons 

who contributed the $ 27,000 in question to testify. Four of the nine persons 

who contributed the $ 27,000 were related to the respondent Michael Hempel, 

viz., his mother, two brothers and a brother-in-law. These relatives were not 

called as witnesses. In fact, the respondent Michael Hempel did not testify in 

this proceeding. 

If there were any truth to the respondent Gaiber's testimony that the persons 

who advanced the $ 27,000 knew that it was to be deposited in the respondent 

partnership account or authorized such use, the respondents undoubtedly would 

have called at least some of the nine persons as witnesses. 

The failure of the respondents to call as witnesses any of the nine persons 

who contributed the $ 27,000 gives rise to the inference that their testimony 

would have been adverse to the respondents. See Wigmore, Evidence (3rd ed. 

1940), §§ 285-291; United States V. Di RE, 332 U.S. 581, 593; Interstate Circuit

V. United States, 306 U.S. 208, 225-227; Vajtauer V. Comm'r of Immigration, 273 

U.S. 103, 111; Bilokumsky v. Tod, 263 U.S. 149, 153-155; Kirby v. Tallmadge, 160 

U.S. 379, 383; International Union v. N.L.R.B., -- F.2d -- (C.A.D.C.), opinion 

dated January 25, 1972, 30 Pike & Fisher Administrative Law (2d Series) 358, 

365-382; Hoffman V. C. I. R., 298 F.2d 784, 788 (C. A. 3); Neidhoefer V. 

Automobile Ins. Co. of Hartford, Conn., 182 F.2d 269, 270-271 (C. A. 7); MidContinent Petroleum Corporation V. Keen, 157 F.2d 310, 315 (C. A. 8); Bowles V. 

Lentin, 151 F.2d 615, 619 (C. A. 7), certiorari denied, 327 U. S. 805; National 

Labor Relations Board V. Remington Rand, Inc., 94 F.2d 862, 867-868 (C. A. 2), 

certiorari denied, 304 U.S. 576. "It is certainly a maxim that all evidence is 

to be weighed according to the proof which it was in the power of one side to 

have produced and in the power of the other to have contradicted." Lord 

Mansfield, in Blatch V. Archer, Cowp. 66, quoted with approval in Wigmore, 

Evidence (3rd ed. 1940), § 285. 

The respondent Gaiber testified that at a meeting of the Board of Directors 

and shareholders of the newly formed corporation held on July 31, 1969, the 

partnership was merged into the corporation from a bookkeeping standpoint, and 

the profits and assets of the partnership were shown as those of the corporation 

(Tr. 698-699, 712-717, 805-807, 839-840). He stated that this "definitely" was 

reflected in the minute books of the corporation (Tr. 699). The respondents' 

counsel later admitted that the minute book did not show any transfer from the 

partnership to the corporation because his office was working on this matter in 

the latter part of August 1969, and when the respondent company was suspended by 

the Chicago Open Board of Trade, he stopped working on the matter (Tr. 831-834). 

The respondent Gaiber then admitted that the only transfer of which he was aware 

was the authorization of the stockholders and the Board of Directors 

 

at the July 31, 1969, meeting to issue stock to the respondent Gaiber in return 

for the assets of the partnership (Tr. 834-835). 

The respondents introduced the corporate minute book and it was received in 

evidence as Respondents' Exhibit B, but the respondents' counsel withdrew the 
Page 19 

minute book for the purpose of making copies and did not return the original or 

the copies to the Hearing Examiner, as he agreed to do (Tr. 689-690, 701-709, 

866-868). Accordingly, the Hearing Examiner properly ruled that the respondent 

may not rely on the minute book. Under the authorities set forth above, this 

gives rise to the inference that the minute book would have been unfavorable to 

the respondents. 

Even if the minute book would have shown that at the July 31 meeting the 

stockholders and the Board of Directors agreed that the respondent Gaiber was to 

be issued stock for the assets of the partnership, this does not in any way 

support the respondents' claim that the stockholders who deposited the $ 27,000 

for the purchase of stock authorized the respondents to place the money in their 

partnership account. In other words, even if the stockholders were willing on 

July 31 to issue stock to the respondent Gaiber for the assets of the 

partnership, including the customer accounts of the partnership, they still 

intended for their $ 27,000 to be held in escrow then deposited into the 

corporate account. 

The evidence shows clearly that the respondents deliberately operated with 

substantially less than the minimum financial requirements required by the Act 

and the regulations, and that they deliberately submitted false documents and 

gave false explanations to the Commodity Exchange Authority in an effort to 

conceal their inadequate financing. These are very serious offenses. 

With respect to the financial audit as of August 4, 1969, the greatest part 

of the respondent company's underfinancing resulted from its failure to have 

capital equal to "10 percent of the market value of the greater of either the 

total long or total short futures contracts in each commodity (regulated, 

nonregulated and foreign)" in proprietary, or "house", accounts carried by the 

respondent company (17 CFR 1.17(a) and (f)). This safety factor has been 

imposed by the Commodity Exchange Authority because of the great risk to the 

financial stability of registered futures commission merchants resulting from 

trading in commodity futures for the "house" accounts. For example, the 

Congressional Record for March 15, 1972, refers to several 

 

brokerage firms handling customers' accounts in nonregulated commodity futures 

that went broke owing customers large sums of money. The customers of one firm 

lost $ 1,200,000 when the firm failed because of its futures trading losses in 

its "house" account (118 Cong. Rec. S3995). 

The New York Stock Exchange, in determining whether its members are 

adequately financed (New York Stock Exchange, Constitution and Rules (January 

31, 1969, pp. 3525-3527), and the Securities and Exchange Commission, in 

determining minimum financial requirements of dealers and brokers (17 CFR 

240.15c3-1(c)(2)(iv)), reduce the net capital of firms by 30 percent of the 

market value of all long and all short commodity futures contracts (other than 

spreads, straddles, and hedges) in proprietary accounts. n15 

n15 However, the New York Stock Exchange and the Securities and Exchange 

Commission define the term "proprietary accounts" more narrowly than the 

Commodity Exchange Authority (compare New York Stock Exchange, Constitution 

and Rules (January 31, 1969), p. 3525, and 17 CFR 240.15c 8-1(c)(2)(iv) and 

17 CFR 240.15c 8-1(c)(4) with 17 CFR 1.17(f)). Under the more narrow 

definitions, trading by a partner for his individual account would not 

generally be included in the proprietary account. 

At the public hearing preceding the promulgation of the financial 

regulations, the safety factor to be applied to futures trading in the futures 

commission merchants' "house" accounts was explained as follows (Transcript of 

Hearing In the Matter of General Regulations Under Commodity Exchange Act, 

December 19, 1968, p. 15): n16 
Page 20 

We have made the safety factor on proprietary positions greater than the 

safety factor on customers' positions since the greater risk in proprietary 

speculation is recognized not only by the Commodity Exchange Authority but also 

by most of the brokerage industry. Both the Securities Exchange Commission and 

the New York Stock Exchange have a very conservative safety factor, on such 

positions, of 30 percent of the market value of the total long and total short 

futures contracts. 

When we first started testing our capital requirements plan we set our 

proprietary safety factor at 15 percent of market value, but reduced it to 10 

percent after extensive interviews with knowledgeable people of the 

 

commodity trade. After these interviews, we initiated a series of tests of the 

formula as it applied to approximately 10 percent of the futures commission 

merchants that carried commodity customers' accounts. It is interesting to note 

that three of the firms tested, which were adversely affected by our 10 percent 

proprietary safety factor at the time of testing, have subsequently been in 

financial difficulty. 

n16 Official notice is taken of this official Department record (17 CFR 

0.11(e)(7)). See Parker V. Brown, 317 U.S. 341, 363; Colonial Airlines V. 

Janas, 202 F. 2d 914, 919, fn. 1 (C. A. 2); United States V. Rice, 176 F. 

2d 373, 374, fn. 3 (C. A. 8). Opportunity to "show that such facts are 

erroneously noticed" (17 CFR 0.11(e)(7)) is available through a petition 

for reconsideration (17 CFR 0.21). 

The respondents argue in their brief, p. 9, that there is no evidence of 

"dipping into customer's funds." But the financial requirements at issue here 

are similar in purpose to those under the Securities and Exchange Act, under 

which it has been held that the financial requirements are not "merely to 

protect investors against 'continuing' injury at the hands of those guilty of 

misconduct. This interpretation is far too narrow: the Act is also designed to 

protect the investing public against undue financial risks and future 

violations" ( Blaise D'Antoni & Associates, Inc. V. Securities & Exch. Com'n.,

290 F.2d 688, 689 (C. A. 5)). The financial requirements are "to assure 

confidence and safety to the investing public. The question is not whether 

actual injuries or losses were suffered by anyone." Blaise D'Antoni & 

Associates, Inc. V. Securities & Exch. Com'n., 289 F.2d 276, 277 (C. A. 5), 

certiorari denied, 368 U.S. 899. 

Futures commission merchants handle large sums of money belonging to 

customers. The value of all of the futures contracts regulated under the 

Commodity Exchange Act in 1971 was $ 123.7 billion. n17 Brokerage firms on the 

New York Stock Exchange have been going broke in record numbers, recently. n18 

It has been the duty of the Commodity Exchange Authority, since the Act was 

amended in 1968 (7 U.S.C. § 6f), to prevent financial collapses of firms 

handling regulated futures contracts. This duty cannot be met unless regulated 

firms are deterred from deliberately operating while underfinanced. 

n17 USDA Press Release No. 4297-71 dated December 29, 1971. 

n18 The Evening Star, Washington, D.C., February 24, 1972, p. A-19, 

reports as follows: 

The New York Stock Exchange, continuing to foot a huge bill for the 

collapse of member firms in the securities industry's financial crisis of 

recent years, incurred a $ 16.7 million loss in 1971, the exchange 

disclosed in its annual report. 

* * * 
Page 21 

Ironically, the exchange last year chalked up a record $ 18.7 million 

operating profit, but this was offset by $ 35.4 million of charge for 

assistance to customers at financially distressed member houses. 

This news item accurately reflects the New York Stock Exchange, Inc. 

Annual Report 1971, p. 30. 

In addition, the Commodity Exchange Authority cannot fulfill its regulatory 

responsibilities unless regulated firms are deterred from furnishing false 

written or oral information to the Commodity Exchange Authority. 

Record keeping and reporting requirements are customary features of Federal 

regulatory programs. See, e.g., United States V. Ruzicka, 329 U.S. 287, 288-

289, 293; United States V. Darby, 312 U.S. 100, 125; Electric Bond Co. V. 

Comm'n., 303 U.S. 419, 439; Interstate Commerce Commission V. Goodrich Transit 

Co., 224 U.S. 194, 204-216; Baltimore & Ohio RR. V. Interstate Com., 221 U.S. 

612, 620-623; Hyatt V. United States, 276 F.2d 308, 312 (C. A. 10); Panno V. 

United States, 203 F.2d 504, 510 (C. A. 9); United States V. Turner Dairy Co.,

166 F.2d 1 (C. A. 7), certiorari denied, 335 U.S. 813; United States V. Turner 

Dairy Co., 162 F.2d 425, 425-428 (C. A. 7), certiorari denied, 332 U.S. 836; 

Bartlett Frazier Co. v. Hyde, 65 F.2d 350 (C. A. 7), certiorari denied, 290 U.S. 

654. 

Failure to report properly under the Act is a serious offense. In In re 

Louis Romoff, CEA Docket No. 166, 31 Agriculture Decisions 158 (Decision dated 

February 11, 1972; appeal pending), the respondent's trading privileges were 

suspended for three years because he wilfully failed to file reports after many 

repeated requests from the Commodity Exchange Authority. Similarly, the 

deliberate filing of a false report or otherwise furnishing false information to 

the Commodity Exchange Authority deserves a substantial sanction. 

In the case of In re Dunbeath-Hagen Corp., et al., 26 Agriculture Decisions 

465, a futures commission merchant knowingly submitted a false financial 

statement on a single occasion in connection with its application for 

registration as a futures commission merchant. The Judicial Officer suspended 

all of the firm's trading privileges for one year, i.e., whether for its own 

account or for the account of others. n19 No warning was given to the 

respondent prior to the institution of the complaint. The Judicial Officer 

stated that the violation was "serious" and justified a "substantial" sanction 

(26 Agriculture Decisions at p. 467). 

n19 The Judicial Officer also suspended the trading privileges of the 

president and principal stockholder of the corporation for a period of 30 

days. The Commodity Exchange Authority advises that in that case it 

recommended a suspension of his trading privileges for only 30 days because 

he did not actively participate in the management and operations of the 

corporation. 

In the present case, after the financial audit as of March 31, 1969, the 

respondents were told that they were in violation of the financial requirements 

of the Act and were accorded an opportunity to achieve compliance (Tr. 99-102, 

180-183, 245-246, 680-682). Instead of taking advantage of this opportunity, 

the respondents replied by submitting false statements and gave false 

information to the Commodity Exchange Authority in an attempt to continue to 

operate while underfinanced. In fact, their under-financing increased from $ 

9000 on March 31, 1969, to $ 28,000 on June 30, 1969, and to $ 55,000 on August 

4, 1969. Hence the respondents' violations in this case are much more flagrant 

and serious than in the Dunbeath-Hagen case. 

In the case of In re Douglas Steen, 21 Agriculture Decisions 1076, the 

respondent, a futures commission merchant, continued to trade in the commodity 

account of a deceased customer after having been notified by the widow to 
Page 22 

liquidate the account. The Judicial Officer suspended all of the respondent's 

trading privileges on contract markets for a period of three years. In the 

Steen case, as in the present case, the respondent was not registered as a 

broker or futures commission merchant when the final order was issued and, 

therefore, in order to have an effective order, the respondent's personal 

trading privileges were suspended as well as his trading privileges for the 

account of others. The Judicial Officer stated (21 Agriculture Decisions at p. 

1095): 

The respondent is not registered as a floor trader or as a futures commission 

merchant and, therefore, it is not possible to suspend or revoke any license as 

a result of the respondent's violation. Also, the respondent testified that he 

is not presently engaged in handling commodity futures accounts for others and 

that he does not intend to handle such accounts in the future (Tr. 144). 

However, in order to have an effective sanction in this case, it is necessary to 

deny to the respondent all trading privileges for a specified period of time 

whether for the respondent's own account or for the account of other persons. 

Considering all of the circumstances in this case, I believe that it is 

necessary to suspend the respondents' trading privileges on all contract markets 

for their own account and for the account of others for a period of two years in 

order to deter the respondents 

 

and others from engaging in similar violations in the future. n20 

n20 It has not been the general practice in administrative disciplinary 

cases to introduce evidence in support of the sanction recommended by the 

complainant. I believe that such evidence would aid the Hearing Examiners 

and the Judicial Officer in determining the sanction to be imposed. Such 

evidence could explain, e.g., the nature of the regulations or 

administrative program involved in the case, the administrative reasons for 

the regulation or program, the flagrancy or seriousness of the violation, 

and the effect of a particular sanction on the respondent in view of the 

nature and extent of his business activities. It may be appropriate to 

introduce such evidence at the conclusion of the case so that appropriate 

consideration can be given to the respondent's defense. The respondent 

should also be permitted to introduce evidence as to the appropriate 

sanction to be issued, assuming that the complainant prevails in the case. 

The administrative proceeding in this case does not partake of the essential 

qualities of a criminal proceeding. In permitting the respondents to trade on 

the commodity markets, the Government has, in effect, granted them a privilege. 

Suspension of the privilege for failure to comply with the statutory standard 

"is not primarily punishment for a past offense but is a necessary power granted 

to the Secretary of Agriculture to assure a proper adherence to the provisions 

of the Act." Nichols & Co. V. Secretary of Agriculture, 131 F.2d 651, 659 (C. A. 

1). Accord: Kent V. Hardin, 425 F.2d 1346, 1349 (C. A. 5); Blaise D'Antoni & 

Associates, Inc. V. Securities & Exchange Com'n., 289 F.2d 276, 277 (C. A. 5), 

certiorari denied, 368 U.S. 899; Eastern Produce Co. V. Benson, 278 F.2d 606, 

610 (C. A. 3); Cella V. United States, 208 F.2d 783, 789 (C. A. 7), certiorari 

denied, 347 U.S. 1016; Irving Weis & Co. V. Brannan, 171 F.2d 232, 235 (C. A. 

2); Helvering V. Mitchell, 303 U.S. 391, 399; Nelson V. Secretary of 

Agriculture, 133 F.2d 453, 456 (C. A. 7); Board of Trade of City of Chicago V. 

Wallace, 67 F.2d 402, 407 (C. A. 7), certiorari denied, 291 U.S. 680; and 

Farmers' Live Stock Commission Co. V. United States, 54 F.2d 375, 378 

(E.D.Ill.). See, also, Ex Parte Wall, 107 U.S. 265, 287-290; Hawker V. New 

York, 170 U.S. 189, 190-200; Stewart & Bro. V. Bowles, 322 U.S. 398, 406-407; 

Brown V. Wilemon, 139 F.2d 730, 731-732 (C. A. 5); Chamberlain, Dowl-ing, and 

Hays, The Judicial Function in Federal Administrative Agencies (1942), pp. 93-

95. 
Page 23 

The function of an administrative sanction is "deterrence rather than 

retribution" (Schwenk, "The Administrative Crime, Its Creation and Punishment By 

Administrative Agencies," 42 Mich. L. Rev. (1943) 51, 85). 

Under the foregoing authorities, the sanction should, inter alia, be adequate 

to deter the respondents from future violations. 

In Beck V. Securities and Exchange Commission, 430 F.2d 673, 675 (C. A. 6), 

the court questioned, without deciding, whether 

 

a suspension order may also be used to deter others in the regulated industry 

from committing similar violations. However, anyone intimately acquainted with 

the administration of a regulatory program knows that it is necessary to at 

least consider, as one of many relevant circumstances, the effect of the 

sanction in a particular case on others in the regulated industry. See, e.g., 

American Air Transport and Flight School, Inc., Enforcement Proceeding, 2 Pike & 

Fisher Ad. L. 2d 213, 215 (C.A.B.). See, also, the dissenting opinion in Beck

V. Securities and Exchange Commission, 413 F.2d 832, 834 (C. A. 6). 

The remedial provisions of a regulatory program would be drastically affected 

if the agency could consider the effect of a sanction only on the respondent and 

not on others. It is well recognized that persons regulated by a governmental 

agency keep abreast of administrative proceedings, and the actions of potential 

violators could be significantly affected by the sanctions imposed against other 

persons. 

If administrative sanctions are too lenient, rather than being a deterrent, 

they will be a stimulant to violations by others. Since, as stated above, the 

purpose of a suspension order is to "assure a proper adherence to the provisions 

of the Act," the deterrent effect on the respondents and on other persons 

subject to the regulatory program must be considered. 

The Hearing Examiner's proposed order in the present case would suspend the 

respondents' trading privileges for 60 days and only "for the account of 

others." Since the respondents are no longer trading for the account of others, 

such an order would have no effect whatever on the respondents' present 

activities. In other words, notwithstanding their deliberate, serious and 

flagrant violations, they would not feel the effect of any sanction. 

Such a sanction, rather than acting as a deterrent to future violations, 

would encourage future violations, particularly by firms that were thinking of 

going out of the business of trading for the account of others. If such firms 

knew that any suspension order would affect only their trading for the account 

of others, they might be willing to run the risk of engaging in serious 

violations knowing that if detected, they could continue to engage in futures 

trading for their own account. 

In the present case, the respondents traded as much for themselves as for all 

of their customers combined (Tr. 671), and they are no longer trading for others 

at the present time. Unless their 

 

personal trading privileges are suspended for a substantial period, the sanction 

will not be a deterrent to future violations of a similar nature by the 

respondents or by other registrants. See In re Louis Romoff, 31 Agriculture 

Decisions 158 (decided February 11, 1972; appeal pending). 

Based on all of the facts in this case, it is concluded that a cease and 

desist order and an order denying all trading privileges to the respondents for 

two years should be issued to effectuate the purposes of the Act. 

ORDER

The respondents, Sy B. Gaiber & Co., Sy B. Gaiber and Michael R. Hempel, are 

prohibited from trading on or subject to the rules of any contract market for a 
Page 24 

period of two years and all contract markets shall refuse all trading privileges 

to the said respondents during this period. Such prohibition and refusal shall 

apply to all trading done and positions held directly by the said respondents or 

any of them, either for their own accounts or as the agents or representatives 

of any other person or firm, and also to all trading done and positions held 

indirectly through persons or firms owned or controlled by the said respondents 

or any of them, or otherwise. 

The respondents, individually and collectively, shall cease and desist from: 

(1) Engaging as futures commission merchant within the meaning of the 

Commodity Exchange Act without meeting the minimum financial requirements of the 

Act and the regulations thereunder; 

(2) Willfully making any material, false or misleading statement in any 

report or application filed under the Commodity Exchange Act; 

(3) Willfully omitting to state any material fact in connection with any such 

application or report; 

(4) Willfully failing or refusing to furnish true and correct information and 

reports as to the contents and meaning of records of transactions, as required 

under section 1.35 of the regulations issued under the Commodity Exchange Act 

(17 CFR 1.35); and 

(5) Willfully causing, aiding, counseling, commanding or inducing any person 

to engage in any act or practice from which the respondents are directed to 

cease and desist by this Order. 

The period of the denial of trading privileges to the respondents, specified 

in the first paragraph of this Order, shall become 

 

effective on the thirtieth day after the date of this Order. The cease and 

desist provisions of this Order, set forth in the second paragraph of this 

Order, shall become effective upon the date of service of this Order upon the 

respondents. 

A copy of this Decision and Order shall be served on each of the parties and 

on each contract market. 

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