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Commodity Futures Trading Commission 

CEA CASES 

NAME: SECRETARY OF AGRICULTURE V. ORVILLE K. RICHARDS AND HENRY J. NOVOTNY 

DOCKET NUMBER: 24 

DATE: FEBRUARY 28, 1941 

DOCUMENT TYPE: DECISION AND ORDER 

UNITED STATES OF AMERICA 

BEFORE THE SECRETARY OF AGRICULTURE 

CE-A Docket No. 24 

Secretary of Agriculture, Complainant, v. Orville K. Richards and Henry J. 

Novotny, Respondents, 

Proceedings, Findings of Fact, Conclusions, and Order. 

PROCEEDINGS 

On November 5, 1940, complaint was issued by the Under Secretary of 

Agriculture, pursuant to the provisions of the Commodity Exchange Act (7 U. S. 

C. and Supp. V, §§ 1-17a), against Orville K. Richards and Henry J. Novotny, the 

respondents, partners trading as O. K. Richards and Company, at Chicago. It was 

alleged that the partnership and Richards were registered as futures commission 

merchants; that the respondents, members of the Chicago Open Board of Trade, a 

contract market, engaged as futures commission 

merchants without segregating their customers' funds, as required; and that they 

kept inaccurate and false records. Notice was given that a hearing would be 

held in Chicago on November 19, 1940. The complaint was served on both 

respondents by registered mail on November 7, 1940. 

The hearing was held at the appointed time and place before Jack W. Bain, the 

referee designated by the Under Secretary. Charles W. Bucy, Office of the 

Solicitor, Department of Agriculture, appeared for the Government, and the 

respondents appeared in person, not represented by counsel. Judicial notice was 

taken that the Chicago Open Board of Trade was a contract market. The 

applications for registration of the partnership for 1939 and 1940, showing that 

the partnership was dissolved August 24, 1940, and the application for 

registration of Orville K. Richards, filed August 26, 1940, were received in 

evidence. Both respondents said they were members of the Chicago Open Board of 

Trade during the time covered by the complaint. 

Irving Wool, called as a witness by the Government, testified that he, a 

futures commission merchant, carried a grain futures account for Dr. Karpas with 

O. K. Richards and Company. On August 6, 1940, Mr. Novotny said he had taken 

money from the Karpas account and put it into general funds of the company, and 

asked the witness to sign a receipt for $ 495.50. The witness signed the 

receipt, but received no money. 

Meyer Levine, called as a witness by the Government, testified that he had a 

grain commission account with O. K. Richards and Company from January 2 to 

August 21, 1940. He did not trade in grain futures in it, nor authorize anyone 

else to do so. Grain futures trades are charged to the account, as shown on 

Government's Exhibit No. 4, but were not made by him nor on his order. On 

August 19, Mr. Novotny phoned the witness and asked for a check for $ 300 to 

cover a deficit in the account. He consulted officials of the Chicago Open 
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Board of Trade, who advised him not to exchange a check for cash. On the next 

morning, he went to see Mr. Novotny, who gave him $ 300 in cash, which he, the 

witness, laid on the cashier's desk, saying nothing. These were the 

circumstances under which the deposit of $ 300 in the account of the witness was 

made. 

Albert W. Kibby, called as a witness by the Government, testified that, as an 

auditor for the Commodity Exchange Administration, he had examined the records 

of O. K. Richards and Company. He identified and explained the various parts of 

his report of this examination which were introduced in evidence. The Karpas 

account and the petty cash account recorded a currency withdrawal of $ 495.50 on 

August 5, and deposit of a like amount on August 15. The Levine account showed 

a deposit of $ 300 on August 21, and trades in wheat futures on the Chicago Open 

Board of Trade, which 

the witness said were Mr. Novotny's trades. On August 7, $ 21,391.82 should 

have been segregated as customers' funds, but there was only $ 20,302.85 in bank 

account and with the clearing house for such purpose, leaving a shortage of $ 

1,088.97. This shortage would have been $ 495.50 greater if the Karpas account 

had not shown a withdrawal of that amount for the customer on August 5. August 

24 was the last day of business for the company. Customers' accounts were 

either closed or transferred to other houses. After partnership furniture was 

sold and all customers paid, a balance of $ 144.64 remained. 

The respondents called no witnesses. Mr. Richards made a statement for the 

record, in which he said that, when the partnership of O. K. Richards and 

Company was formed, it was agreed that he would be responsible for floor trading 

and Mr. Novotny for the office and book work, and if either partner traded for 

his own account, he would margin and be responsible for his own trades. Mr. 

Novotny agreed that this was correct. Mr. Richards stated that he was perhaps 

careless in not examining the books, but he relied on Mr. Novotny; that for 

years he had begun his vacation on the first Friday in August, and, in 1940, he 

left August 2 and was away until August 21, not hearing from his partner during 

the whole time; and that, in 45 years as a member of the exchange, he had never 

been brought to court over a trade and still had a good 

record along the street. In a letter submitted and made a part of the record 

after the hearing, he said he did not know of the Levine, Wool, and Karpas 

transactions, nor of the company's under-segregation, until his return from his 

vacation on August 21, and that all customers and bills had been paid in full. 

Copies of the referee's report, containing proposed findings of fact and 

conclusions and a recommended order, were sent to Government counsel and to the 

Commodity Exchange Administration, and served by registered mail upon the 

respondents, and they were given 20 days in which to file exceptions and request 

oral argument before the Secretary. The time has elapsed. No exceptions or 

requests for argument have been filed, and Mr. Richards wrote that he does not 

care to file exceptions or have oral argument. 

FINDINGS OF FACT 

1. Orville K. Richards and Henry J. Novotny, the respondents, members of the 

Chicago Open Board of Trade, a contract market, as partners in the firm of O. K. 

Richards and Company, engaged as futures commission merchants in Chicago, 

Illinois, from December 28, 1939, until August 24, 1940, and registered with the 

Secretary of Agriculture, as futures commission merchants, for the year 1940. 

On August 26, 1940, Orville K. Richards registered with 

the Secretary of Agriculture, as a futures commission merchant, for the year 

1940. 
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2. The respondents failed to account separately for funds received from and 

accruing to their customers in connection with futures contracts on the Chicago 

Open Board of Trade, a contract market, in commodities named in the Commodity 

Exchange Act, in that on August 7, 1940, they should have had more than $ 21,800 

segregated for customers, but they had only $ 20,302.85 so segregated, leaving a 

shortage of more than $ 1,400. 

3. About August 6, 1940, Henry J. Novotny transferred $ 495.50 from the 

segregated customers' funds to the general funds of O. K. Richards and Company. 

By obtaining a false receipt for $ 495.50 from the agent of a customer, he 

caused the records to show that this amount was withdrawn by a customer, when 

such was not the case. 

4. Between January 2 and August 21, 1940, Henry J. Novotny carried his own 

trades in Chicago Open Board of Trade wheat futures in the account of Meyer 

Levine, with the result that the records kept of those trades were not full and 

complete. 

5. Orville K. Richards was away from Chicago on his vacation from August 2 to 

August 21, 1940, He did not communicate with Henry J. Novotny between those two 

dates. The partnership 

of the respondents was terminated on August 24, 1940. All customers of the 

partnership were paid their claims in full. 

CONCLUSIONS 

The evidence shows that the respondents failed to segregate their customers' 

funds and kept records which contained false and misleading entries, contrary to 

the requirements of the Commodity Exchange Act and the rules and regulations 

thereunder. These violations, for which both partners are responsible under the 

act, authorize revocation of registration and denial of trading privileges of 

each of the respondents. Since it appears, however, that all the irregularities 

occurred in that phase of the business over which, by agreement, Henry J. 

Novotny had assumed responsibility, and that Orville K. Richards did not 

actually know of them until later, it is concluded that the trading privileges 

of Novotny should be denied until further notice, but those of Richards need 

only be suspended for a nominal period. The registrations for 1940 having 

expired, they need not be suspended nor revoked. 

ORDER 

IT IS ORDERED that all contract markets refuse Orville K. Richards all 

trading privileges thereon for a period of one day, the 20th day after the date 

of this order. 

IT IS FURTHER ORDERED that all contract markets refuse Henry J. Novotny all 

trading privileges thereon until further notice by the Secretary of Agriculture. 

IT IS FURTHER ORDERED that a copy hereof be sent, by registered mail, to each 

of the respondents, and to each contract market, and that this order shall be 

effective 10 days after its date. 

(SEAL) 

Done at Washington, D. C., this 28th day of February 1941. Witness my hand 

and the seal of the Department of Agriculture. 

/s/ Grover B. Hill 

Assistant Secretary of Agriculture. 

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