Page 1 

Commodity Futures Trading Commission 

CEA CASES 

NAME: PACIFIC TRADING COMPANY, STEPHEN J. KLEMEN JR., AND RAYMOND S. BUCK 

DOCKET NUMBER: 75-1; 226 

DATE: SEPTEMBER 30, 1975 

DOCUMENT TYPE: DECISION AND ORDER 

NOTE: FORMERLY CEA DOCKET # 226. SUMMARY AND EXCERPT OF DOCUMENT IS AVAILABLE 

IN THE CCH COMMODITY FUTURES LAW REPORTER, P20,285 [1975-1977 TRANSFER BINDER]. 

COMMODITY FUTURES TRADING COMMISSION 

BEFORE THE COMMISSION 

In re: Pacific Trading Company, Stephen J. Klemen, Jr., and Raymond S. Buck, 

Respondents 

CFTC Docket No. 75-1 formerly CEA Docket No. 226 

Decision and Order 

This is an administrative proceeding brought under the Commodity Exchange Act 

(7 U.S.C. § 1 et seq., "Act"). Since institution of this proceeding the 

Commodity Futures Trading Commission (CFTC) came into being and has taken 

jurisdiction of this matter under authority of sections 411 and 412 of Public 

Law 93-463, 93rd Congress, H. R. 13113, October 23 1974, which provides in 

pertinent part that "all pending administrative proceedings, shall be 

transferred to the Commodity Futures Trading Commission as of the effective date 

of this Act and continue to completion . . ." n1 without abatement under prior 

statutory provisions or regulations if consistent and unchanged. 

n1 § 418(a) of P.L. 93-463 provides "the effective date of this Act 

shall be the 180th day after enactment" except for certain specified 

provisions, i.e. establishment of the Commission, and "[activities] 

necessary to implement the changes effected by this Act may be carried out 

after the date of enactment and before . . . the 180th day . . ." The bill 

was signed into law October 23 1974 and 180 days thereafter was April 21 

1975. A Joint Resolution of Congress (Public Law 94-16, 94th Congress, 

H.J. Res. 335, April 16, 1975) further extended the effective date of some 

provisions not relevant here. 

The Complaint filed April 15 1974 alleges that Respondents filed incomplete 

and materially inaccurate reports, which were required to be filed by Futures 

Commission Merchants, Floor Brokers and Traders, under sections 17.00 and 18.00 

of the regulations (17 CFR 17.00 and 18.00). Such actions were said to be in 

violation of sections 4(g) and 4(i) of the Act (7 U.S.C. 6(g) and 6(i)), as well 

as violations of cited regulations. 

Respondents answered denying any wilful violations of the Act, and denied 

"that every erroneous filing is a willful act", and alleged they "used 

reasonable diligence in filing reports which are the subject of the Complaint." 

Respondents' Motions to strike, Motion for a Bill of Particulars, and Motion for 

Complainant to comply with Section 558 of the Administrative Procedure Act 

concerning formal notice and an opportunity to demonstrate or achieve compliance 

before disciplinary action was instituted, were denied. Respondents' Motion for 

Prehearing Discovery Depositions and Subpoena Deuces Tecum was denied. 

The matter was scheduled for oral hearing to begin in Chicago, Illinois on 

September 17 1974, but adjourned without date on request of Respondents' 
Page 2 

attorney, based in part on Respondents' attorneys request made that day for 

information from the Commodity Exchange Authority (CEA) for certain materials 

under the Freedom of 

Information Act (5 U.S.C. 552 et seq.). Respondents also suggested that the 

oral hearing not be scheduled again until two cases n2 with similar discovery 

issues then pending were decided. 

n2 George F. Frey and Edward A. Cox, Jr. v. The Commodity Exchange 

Authority, et al, N.D. Ill., Eastern Div., Civil Action No. 74 C 1251, 

appeal pending. 

Motion to again schedule the oral hearing was filed November 22 1974. 

Respondents renewed the suggestion of awaiting a decision in the "discovery 

issue" cases, and pleaded other commitments of Respondents' attorney barred an 

oral hearing before February 1975. The matter was scheduled to begin March 4 

1975 in Chicago, Illinois. 

Respondents then filed an action in United States District Court for the 

Northern District of Illinois (75 C-740, U.S.D.C., N.D.,Ill.) on February 12 

1975 seeking to enjoin the hearing from proceeding as scheduled March 4 1975. A 

Motion for Preliminary Injunction filed February 13 1975 was scheduled for 

hearing on March 3 1975. Respondents then moved to adjourn this administrative 

hearing from starting as scheduled March 4th, until the Court ruled upon the 

Motion for Preliminary Injunction. Complainant opposed the continuance. The 

District Court denied the Motion for Preliminary Injunction and dismissed the 

Complaint. 

The oral hearing herein was held on March 4, 5 and 6, 1975 in Chicago, 

Illinois. Complainant was represented by Michael D. Weiner, of the Office of 

General Counsel, United States Department of Agriculture, Washington, D. C. 

Respondent was represented by Joel J. Bellows, Attorney at Law, Chicago, 

Illinois. 

I 

Respondent Pacific Trading Co., a partnership at all times material herein 

with its principal place of business in Chicago, Illinois, is now and was at all 

times material herein, a registered futures commission merchant under the 

Commodity Exchange Act. At all such times, respondent Pacific Trading Co. held 

membership privileges on the Chicago Board of Trade and the Chicago Mercantile 

Exchange. Respondent Pacific Trading Co., subsequent to the dates in question, 

has incorporated under the laws of the State of Illinois with respondents 

Stephen J. Klemen, Jr. and Raymond S. Buck each holding 50 percent of the 

capital stock, and no longer holds membership privileges on the Chicago 

Mercantile Exchange. 

Respondents Stephen J. Klemen, Jr. and Raymond S. Buck were at all times 

material herein registered floor brokers under the Act and general partners of 

respondent Pacific Trading Co. 

During the period from June 25 1973 through June 27 1978 respondent Pacific 

Trading Co. was required by section 17.00 of the regulations issued pursuant to 

the Act (17 CFR 17.00) to submit to the Commodity Exchange Authority series '01 

reports for all accounts 

in reportable positions. During the period from June 25 1973 through June 27 

1973, respondents Klemen and Buck were required by section 18.00 of the 

regulations issued pursuant to the Act (17 CFR 18.00) to submit series '03 

reports for their accounts if in a reportable position. 
Page 3 

In June 1973, the reportable open positions as fixed by section 15.03 of the 

regulations issued pursuant to the Act (17 CFR 15.03) in soybeans was 200,000 

bushels; the reportable position in wheat was 200,000 bushels; the reportable 

position in soybean oil was 25 contracts; the reportable position in soybean 

meal was 25 contracts. n3 

n3 On page 26 of the transcript, the reportable position in soybean oil 

and meal was reported as 29 contracts. 

In July 1971, and July and October of 1972, the respondents' books and 

records were audited by the Commodity Exchange Authority. The findings of those 

audits resulted in a "follow-up" audit on March 6 1973, which revealed several 

differences between the firm's records and positions shown on the '01 and 

'03'reports. 

As a result of the above audits, letters were written to the respondents on 

November 11 1971, August 31 1972 and January 4 1973 noting failures to prepare 

or prepare accurately and file '01 and '03 reports. All letters noted that they 

were either being sent to afford 

an opportunity to achieve compliance or warning that a further failure to comply 

could lead to formal action. Enclosed with the November 1971 letter was a 

booklet containing the Commodity Exchange Act and the regulations. Respondents 

acknowledged receipt with letters to the Commodity Exchange Authority dated 

November 24 1971, September 14 1972 and January 10 1973, all of which averred 

that appropriate corrective action had been or would promptly be taken. 

The correct positions, after adjustment for any keypunch error, and positions 

reported to the Commodity Exchange Authority on Form '01 for those accounts in 

reportable status which were incorrectly reported to the Commodity Exchange 

Authority by the respondents are as follows: 

Account Correct Position 

Number Open Per CEA 

Date or Name Commodity Future Position '01 Report n4 

June 25, 1973 18 soybean meal July 88-Long 122-L 

Sept. 67-Short 72-S 

October 230-L 258-L 

Dec. 171-S 285-S 

 350 soybeans Sept. 255-S 240-S 

Nov. 255-L 510-L 

48120 & corn Dec. 128-S 365-S 

48500 Raymond soybean oil Jan. 197-L 200-L 

Buck 

March 273-S 267-S 

May 150-L 15-L 

Stephen soybean meal Jan. 62-L 63-L 

Klemen May 70-S 56-S 

Sept. 94-S 80-S 

Oct. 42-L 31-L 

n4 Complainant's Exhibit No. 1 

 

See original document-page 6 

Account Correct Position 

Number Open Per CEA 

Date or Name Commodity Future Position '01 Report n4 

June 27, 1973 18 soybean meal July 88-L 122-L 

Sept. 66-S 75-S 

Oct. 255-L 284-L 

Dec. 73-S 187-S 
Page 4 

 Account Correct Position 

 Number Open Per CEA 

Date or Name Commodity Future Position '01 Report n4 

 350 soybeans Sept. 255-S 240-S 

Nov. 255-L 455-L 

Raymond soybean oil Jan. 150-L 166-L 

Buck 

March 290-S 284-S 

Dec. 88-L 85-L 

Stephen soybean meal Jan. 59-L n5 60-L 

Klemen May 57-S 43-S 

Sept. 93-S 79-S 

Oct. 53-L 52-L 

n5 Identified on page 151 of the transcript as 55 long. A comparison of 

Complainant's Exhibit # 28, and I, reveals the accuracy of the above 

figures. 

The correct positions, after adjustment for any keypunch error, for those 

accounts in reportable status which were not reported by respondents on the 

proper '01 report are as follows: 

Account Correct 

Number Open 

Date or Name Commodity Future Position

June 25, 1973 18 corn Dec. 200-L

 248 soybean oil July 85-L

Aug. 85-S

 780 corn July 223-L

Dec. 375-S

30200 eggs Sept. 100-L

pork bellies Aug. 54-L

 3601 soybean oil March 25-L

May 25-S

48120 & oats July 200-S

48500 soybean meal May 36-L

" " May 27-L

Raymond Buck wheat July 255-S

oats July 305-S

soybeans May 200-S

soybean meal May 48-L

Stephen wheat July 255-S

Klemen 

soybean oil Oct. 50-S

Dec. 25-L 

See original document-page 7 

Account Correct 

Number Open 

Date or Name Commodity Future Position

June 26, 1973 18 corn Dec. 200-L

 350 corn Dec. 200-S

 780 corn July 235-L

corn Dec. 626-S

30200 eggs Sept. 100-L

pork bellies Aug. 54-L

 3601 soybean oil March 25-L

" " May 25-S

48120 & oats oil July 200-S

48500 

soybean meal May 36-L
Page 5 

 Account Correct 

 Number Open 

Date or Name Commodity Future Position

" oil May 27-L

Raymond Buck wheat July 255-S

oats July 305-S

soybeans May 200-S

soybean meal May 48-L

" oil May 134-L

Stephen wheat July 255-S

Klemen soybean oil Oct. 50-S

" " Dec. 25-L n6

June 27, 1973 18 corn Dec. 200-L

 780 " Sept. 275-S

" Dec. 30-L

30200 eggs Sept. 90-L

pork bellies Aug. 54-L

3601 soybean oil March 25-L

" " May 25-S

48120 & oats July 200-S

48500 soybeans May 200-S

soybean meal May 48-L

" oil May 36-L

Raymond Buck wheat July 255-S

oats July 305-S

soybeans May 200-S

soybean meal May 48-L

" oil May 134-L

Stephen wheat July 255-S

Klemen soybean oil Oct. 50-S

" " Dec. 25-L

n6 The transcript fails to note direct testimony regarding these three 

figures; however, a comparison of Complainant's Exhibits H, I, and 30 

reveals the accuracy of these positions. 

 

The correct positions, for respondent Klemen, after adjustment for any 

keypunch error, and the positions reported to the Commodity Exchange Authority 

on Form '03 for his reportable positions which were incorrectly reported by 

respondent Klemen are as follows: 

Correct Position 

Open Per Cea 

Date Commodity Future Position '03 Report n7

June 25, 1973 soybean meal Jan. 62-L 63-L 

May 70-S 56-S 

Aug. 5-S 17-L 

Sept. 94-S 80-S 

Oct. 42-L 41-L 

Dec. 16-L 17-L 

soybean oil July 20-L 15-S 

Sept. 2-L, 11-S 24-S 

Oct. 50-S 12-S 

June 26, 1973 soybean meal Jan. 56-L 57-L 

May 77-S 63-S 

Aug. 5-S 17-L 

Sept. 94-S 80-S 

Oct. 42-L 42-L 

Dec. 14-L 15-L 

soybean oil July 20-L 15-S 

Sept. 2-L, 11-S 24-S 
Page 6 

 Correct Position 

 Open Per Cea 

Date Commodity Future Position '03 Report n7

Oct. 50-S 12-S 

June 27, 1973 soybean meal Jan. 59-L 60-L 

May 57-S 43-S 

Aug. 5-S 17-L 

Sept. 93-S 70-S 

Oct. 53-L 52-L 

Dec. 17-L 15-L 

soybean oil July 20-L 15-S 

Sept. 2-L, 11-S 24-S 

Oct. 50-S n8 12-S 

n7 Complainant's Exhibits No. 32 and 33 

n8 Identified as "meal" at page 177 of the transcript 

he correct positions for respondent Klemen, after adjustment for any keypunch 

error, for his reportable positions which were not reported to the Commodity 

Exchange Authority by respondent Klemen on the proper '03 form are as follows: 

Correct 

Open 

Date Commodity Future Position

June 25, 1973 wheat July 255-S

oats July 305-S

soybean oil Dec. 25-L

June 26, 1973 wheat July 255-S

oats July 305-S

Soybean oil Dec. 25-L

June 27, 1973 wheat July 255-S

oats July 305-S

soybean oil Dec. 25-L

The correct positions, for respondent Buck, after adjustment for any keypunch 

error, and the positions reported to the Commodity Exchange Authority on Form 

'03 for his reportable positions which were incorrectly reported by respondent 

Buck are as follows: 

Correct Position 

Open Per CEA 

Date Commodity Future Position '03 Report

June 25, 1973 soybean oil Jan. 197-L 196-L

March 273-S 267-S

May 150-L 15-L

Sept. 3-L, 11-S 74-S

Oct. 3-S 21-S

June 26, 1973 soybean oil Jan. 189-L 188-L

March 273-S 267-S

May 131-L 4-S

Sept. 11-S 77-S

Oct. 3-S 21-S

 

Correct Position 

Open Per CEA 

Date Commodity Future Position '03 Report

June 27, 1973 soybean oil Jan. 159-L 158-L

March 290-S 284-S

May 134-L 1-S

Sept. 11-S 77-S

Oct. 22-S 40-S

Dec. 88-L 85-L
Page 7 

The correct positions for respondent Buck, after adjustment for any keypunch 

error, for his reportable positions which were not reported to the Commodity 

Exchange Authority by respondent Buck on the proper '03 form are as follows: 

Correct 

Open 

Date Commodity Future Position

June 25, 1973 wheat July 255-S

oats July 305-S

soybeans May 200-S

soybean meal Jan. 4-S

May 48-L

Dec. 4-L

June 26, 1973 wheat July 255-S

oats July 305-S

soybeans May 600-S

soybean meal Jan. 4-S

May 48-L

Dec. 4-L

June 27, 1973 wheat July 255-S

oats July 305-S

soybeans May 200-S

soybean meal Jan. 4-S

May 48-L

Dec. 4-L

 

It may be noted that these inaccurate and misleading reports as filed and 

found herein include overreporting, underreporting and non-reporting of the 

various respondents' actual positions in the market at the time of the report 

concerned. Those inaccuracies are the result of careless disregard for duties 

imposed by the Act and related regulations. Further, however, it should be 

emphazied that these reports were not filed as an attempt to conceal respondents 

true or accurate positions in the market, but were merely the end result of 

loose administrative practices and inept and improperly supervised performance 

of the reporting obligation imposed by the Act and related regulations. 

The inaccurate and misleading reports, and the failures to report, were the 

result of loose internal administrative systems, and inept personnel with 

inadequate supervision. These failures to properly report '01 and '03 series 

were items of note called to the attention of respondents in audit reports of 

November 11 1971, August 31 1972, and January 4 1973. 

In response to those audit reports, respondent on November 24 1971 said that 

adjustments had been made and no recurrence was expected. In September 1972 

respondent reported that the "gravity of the situation" had been discussed with 

the personnel concerned, and that additional supervision would be given. In 

January 1973 the CEA was told that due to inability of getting "consistent 

appropriate action" personnel changes would be made immediately and "compliance 

should be obtained." 

The special "follow-up" audit made March 6 1973 indicated that the corrective 

personnel and administrative actions repeatedly promised by respondent were 

inadequate and ineffective. The in-depth investigation of the June 25-26-27 

1973 '01 and '03 reports followed and revealed the erroneous and misleading 

information contained therein. 

It is also noted that respondents waited until after the Complaint herein had 

been served on April 18 1974, asking for revocation or suspension of their 

registrations as Futures Commission Merchant and Floor Broker, before acquiring 

the professional services of a Certified Public Accountant (CPA)knowledgeable 

and experienced in the commodities markets. That CPA recommended certain 

personnel and administrative changes for the purpose of simplifying respondents 
Page 8 

unnecessarily complex and awkward record-keeping systems. After the recommended 

changes were made it was opined by the CPA in testimony that the '01 and '03 

reports were being produced with acceptable accuracy. n9 The corrective actions 

taken so tardily by respondents are commendable, though irrelevant to the 

erroneous and misleading June 1973 reports which are the subject of this 

proceeding, except to the extent that the sanction sought by the CEA (now CFTC) 

might appropriately be affected. 

n9 Post reporting adjustments due to "holdouts", i.e. trades not timely 

cleared through the Board of Trade Clearing House and related adjustments, 

and occasional clerical, mechanical, or mental errors are apparently 

inevitable, tolerable and informally cross checked and corrected by CEA(now 

CFTC) clerical personnel concerned. 

 

II 

Section 4g(1) of the Act n10 requires in part that "[every] person registered 

hereunder as a futures commission merchant or floor broker shall make such 

reports as are required by the [Secretary of Agriculture] Commission regarding 

the transactions and positions of such person, and the transactions and 

positions of the customers thereof, in commodities for future delivery on any 

board of trade in the United States or elsewhere; shall keep books and records 

pertaining to such transactions and positions in such form and manner and for 

such period as may be required by the [Secretary] Commission . . ." 7 U.S.C. 

6(g). 

n10 Changes made by Public Law 93-463, 93rd Congress, H.R. 13113, 

October 23, 1974, are indicated by brackets showing material deleted and 

added material italicized or underlined, in this and the two following 

paragraphs. 

Section 4i in part states "It shall be unlawful for any person to make any 

contract for the purchase or sale of any commodity for future delivery on or 

subject to the rules of any contract market unless such person shall report or 

cause to be reported to the properly designated officer in accordance with the 

rules and regulations of the [Secretary of Agriculture] Commission (1) whenever 

such person shall directly or indirectly make such contracts with respect to any 

commodity, or any future of such commodity, during any one day in an amount 

equal to or in excess of such amount as shall be fixed from time to time by the 

[Secretary of Agriculture] Commission; and (2) whenever such person shall 

directly or indirectly 

 

have or obtain a long or short position in any commodity or in any future of 

such commodity, equal to or in excess of such amount as shall be fixed from time 

to time by the [Secretary of Agriculture] Commission. Such person shall keep 

books and records of all futures transactions and positions coming within the 

provisions of (1) and (2) hereof, . . . as the [Secretary of Agriculture] 

Commission may require. . . ." 7 U.S.C. 6(i) 

Section 6(b) in part states "(b) If the [Secretary of Agriculture] Commission 

has reason to believe that any person . . . in interstate commerce, . . . has 

willfully made any false or misleading statement of a material fact in any . . . 

report filed with the [Secretary of Agriculture] Commission under this Act, or 

willfully omitted to . . . report any material fact which is required to be 

stated therein, or otherwise is violating or has violated any of the provisions 

of this Act or of the rules, regulations, or orders of [the Secretary of 

Agriculture or] the Commission thereunder, [he] it may serve upon such person a 

complaint stating [his] its charges in that respect, . . . 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 
Page 9 

markets refuse all trading privileges to such person, until further notice of 

the [Secretary of Agriculture] Commission, 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." . . . 7 U.S.C. 9 

Section 17.00 of the regulations (17 CFR 17.00 et seq.) requires in part that 

"[each] futures commission merchant . . . shall submit a report to the Commodity 

Exchange Authority for each business day . . . on the appropriate series '01 

form and shall show each reportable position . . . as of the close of the market 

on the day covered by the report." 

Section 18.00 of the regulations (18 CFR 18.00 et seq.) requires in part that 

"[every] trader who holds or controls a reportable position shall submit reports 

to the Commodity Exchange Authority. A report shall be filed for the first day 

on which such trader acquires a reportable position, for each day thereafter on 

which he has transactions on any future of such commodity on any contract market 

or delivers or receives delivery of such commodity, and for the first day on 

which he no longer holds or controls a reportable position. Each such report 

shall be prepared in the appropriate series '03 form . . . and shall show for 

the day covered by the report . . . (a) . . . [the] quantity of all open 

contracts . . . (b) . . . [the] quantity of each future of such commodity bought 

and the quantity sold on all contract markets . . ." Section 18.01 in part 

states that "[if] any trader holds or has a financial interest in or controls 

more than one account . . . all such accounts shall be considered as a single 

account for the purpose of determining whether such trader has a reportable 

position and for the purpose of reporting." 

III 

Respondents admitted the obligation to completely and accurately report n11 

on reportable positions held. Respondents also noted the skill and integrity of 

the CEA auditor Henry J. Matacki n12 in reconstructing the positions held on the 

reports involved. Respondents admitted the reports were inaccurate, n13 but 

claimed that about half ". . . the more important half," they said, were totally 

accurate. They argued in part that the "limitations of time and availability of 

documentary material make the filing of accurate reports impossible." 

n11 Respondents' Answer II, III and IV. 

n12 Transcript pages 194 and 241-2. 

n13 Respondents' Brief pp. i and ii. 

The errors in the subject reports were not isolated, rare, inadvertent, 

minimal or merely clerical in nature, as argued, but were the result of 

indifferent and inept performance of the duty. This subject had been called to 

the respondents' attention on three occasions in three years in the audit 

reports. Corrective action was promised each time, but was ineffective. 

A special audit was then made of the three '(3) days reports concerned here. 

It is not surprising that it took extensive time, effort and skill to perform. 

To equate this audit with the initial reporting effort is like equating the 

effort to climb up a mountain with that required to climb down that mountain. 

Respondents' contentions were nullified by their own testimony which shows 

that when the administrative and personnel changes were finally made, after the 

Complaint herein was served, reports were made with significantly improved 

accuracy, "at or [exceeding] the industry standards." n14 

n14 Transcript page 315. 
Page 10 

Detailed discussion of respondents' arguments that it is impossible to timely 

file accurate '01 and '03 reports, that respondents made a good faith effort to 

comply with the impossible requirements, and that respondents had no evil motive 

tainting the erroneous reports, seems unnecessary in the light of the evidence 

that compliance has been achieved and accurate reports are being filed now that 

respondents' administrative and personnel changes have been made. 

While it may be true respondents did not intend to file erroneous reports, it 

is clear that they tolerated the internal system and inept personnel producing 

such errors for several years. This, in spite of CEA audit reports 

revealing'such deficiencies, and respondents' promises to take corrective 

action. 

Respondents characterize the overriding issue as being wilfullness n15. In 

essence they argue that the erroneous reports were not calculated to deceive nor 

conceal and were without an evil motive. They say they made a good faith effort 

to file them correctly. 

 

Good intentions and effort are irrelevant under the facts established here, 

where such malperformance is established so clearly. Nor can such factors bear 

on a finding of wilfulness. 

n15 Respondents' Brief page i. 

Respondents argue that the Administrative Procedure Act (APA), 5 U.S.C. 

558(c)(1) and (2), requires a notice "of the facts or conduct which may warrant" 

disciplinary action, and "opportunity to demonstrate or achieve compliance with 

all lawful requirements" has not been fulfilled by Complainant's audit letters 

of November 11 1971, August 31 1972 and January 4 1973, Complainant's Exhibits 

No. 1, No. 3 and No. 5. These letters instructed respondents that '01 and '03 

reports were not properly being filed. Respondents did not deny such errors, 

and promised each time that corrective action had been or would be taken. See 

Complainant's Exhibits No. 2, No. 4, and No. 6. Respondents were specifically 

instructed that the purpose of the letters was to give an opportunity to correct 

the deficiencies and failure to do so could trigger disciplinary action. 

Respondents' conduct here is shown to be reporting errors founded on a 

tolerated condition by respondents in spite of several warnings and opportunity 

to comply. The APA 558 notices were fully complied with here by the several 

audit letters. 

Further, in addition, a factual finding of wilfulness is made here, for 

respondents' actions were within the administrative law definition of 

wilfulness, i.e.,intentionally doing an act which is prohibited, irrespective of 

evil motive or reliance on erroneous 

 

advice, or acting with careless disregard of the statutory requirements. In re 

David G. Henner, 30 Agric.Dec. 1151, 1261 (30 A.D. 1151, 1261) (1971). See also 

Goodman v. Benson 286 F.2d 896 (7th Cir., 1961), Butz v. Glover Livestock, 411 

U.S. 182, 187 (1973), Eastern Produce v. Benson, 278 F.2d 606 (3rd Cir., 1960). 

IV 

Respondents' were acting in careless disregard of statutory and regulatory 

requirements. However, the record fails to show that CEA surveillance 

activities were significantly frustrated by respondents' errors. No citizen, 

colleague or market was demonstrably hurt. No measurable loss has resulted. 

Respondents filed inaccurate reports. If others did so on a broad enough 

scale, the system could be materially weakened or damaged. Harm could come to 

market surveillance functions. Prognostications or judgement of market activity 
Page 11 

could be affected. Accuracy in such reports must be maintained. Confidence in 

the integrity of such reports is mandatory. 

A sanction for respondents is appropriate and necessary. It must merit 

respect in terms of justice, attention from others similarly placed, and be an 

effective deterrent. 

Complainant asks suspension of the registrations and trading privileges for 

60 days. Complainant cites no cases in point, nor any of a comparable nature as 

a benchmark to measure effectiveness of sanctions in cases of inaccurate 

reporting. An independent review of cases fails to show any pattern from which 

a lesson might be drawn. One simply doesn't know what sanction is necessary to 

achieve accurate reporting. The consent orders or defaults are not informative. 

Few contested cases involving inaccurate reports were found. 

Small scale inaccuracies occasionally occurring probably will not seriously 

erode the market surveillance function. But if such careless disregard is 

tolerated, and becomes more widespread, the market surveillance function could 

and probably would soon be seriously undermined. 

Here no harm or loss to any individual is shown. No concealment or evil 

motive existed. The published cases fail to show this as a significant problem 

in the trade, and fail to show recurring offenses resulting from too lenient 

sanctions imposed. No significant benefit or profit accrues from such 

inaccurate reporting, which might encourage such conduct, if sanctions are too 

lenient. 

A 60-day suspension of the registration would, it is suggested, constitute a 

fatal blow to the Futures Commission Merchant firm. n16 

 

The impact on employees and customer relations appears more severe and far 

reaching than the gravity of the violation would require. Corrective measures 

have been taken, albeit tardily. 

n16 Transcript pages 265-6 

It is inconceivable that any FCM or FB would be encouraged to emulate 

Respondents' conduct herein because only a 7-day suspension was given instead of 

a 60 day suspension as requested. The benefit/detriment ratio appears heavily 

weighted on the detriment side of the scale here. If any effort to deceive, 

conceal or manipulate were involved, the scales would be readjusted accordingly. 

There is little or no real benefit to a FCM or FB to inaccurately report, and 

there is much detriment by way of a 7-day suspension, and all of the concomitant 

residual effects that flow necessarily from it. However, if experience shows 

repetitious or spreading violations a more severe sanction will then 

appropriately be warrented. 

V 

Respondents have wilfully violated the Commodity Exchange Act and related 

regulations as charged in the Complaint, and shall be suspended and cease and 

desist as hereinafter ordered. 

Order 

1. The respondents, Pacific Trading Co., Stephen J. Klemen, Jr., and Raymond 

S. Buck, shall cease and desist from filing incomplete or inaccurate series '01 

or '03 reports with the Commodity Futures Trading Commission. 

2. The registration of respondent Pacific Trading Co., as futures commission 

merchant, is hereby suspended for a period of 7 days. 
Page 12 

3. Respondent Pacific Trading Co. is prohibited from trading on or subject to 

the rules of any contract market for a period of 7 days, and all contract 

markets shall refuse all trading privileges to the respondent during this 

period, such prohibition and refusal to apply to all trading done and all 

positions held by respondent Pacific Trading Co., directly or indirectly. 

4. The registration of respondent Stephen J. Klemen, Jr., as floor broker, is 

hereby suspended for a period of 7 days. 

5. Respondent Stephen J. Klemen, Jr., is prohibited from trading on or 

subject to the rules of any contract market for a period of 7 days and all 

contract markets shall refuse all trading privileges to the respondent during 

this period, such prohibition and refusal to apply to all trading done and all 

positions held by the respondent, directly or indirectly. 

6. The registration of respondent Raymond S. Buck, as floor broker, is hereby 

suspended for a period of 7 days. 

7. Respondent Raymond S. Buck is prohibited from trading on or subject to the 

rules of any contract market for a period of 7 days and all contract markets 

shall refuse all trading privileges to the respondent during this period, such 

prohibition and refusal to apply to all trading done and all positions held by 

the respondent, directly or indirectly. 

8. The cease and desist provisions of this order set forth in subparagraph 1, 

above, shall be effective on the date this Decision and Order becomes final. 

The period of suspension of registration of the respondents set forth above, and 

the period of the prohibition of trading, denial of trading privileges to the 

respondents, as set forth above, shall become effective on the 30th day after 

the date this Decision and Order becomes final. 

9. A copy of this Decision and Order shall be served on each of the parties 

and on each contract market. 

Done at Washington, D. C. 

this 30th day of SEP 1975 

[SEE SIGNATURE IN ORIGINAL] 

William J. Weber 

Administrative Law Judge 

LOAD-DATE: August 6, 2008 
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