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Commodity Futures Trading Commission 

CEA CASES 

NAME: GRAPPEL TRADING CO. 

CITATION: 27 Agric. Dec. 579 

DOCKET NUMBER: 153 

DATE: MAY 2, 1968 

DOCUMENT TYPE: DECISION AND ORDER 

(No. 11,790) 

In re GRAPPEL TRADING Co. CEA Docket No. 153. Decided May 2, 1968. 

Customers' funds -- Misuse of -- Suspension of registration -- Stipulation

Respondent consented to the issuance of an order suspending its registration 

as a futures commission merchant and directing all contract markets to refuse 

all trading privileges to it for a period of 30 days, the final 15 days of such 

period not to become effective unless respondent is found to be in violation 

within a two-year period. Respondent was charged with undersegregation of 

customers funds and the use of such funds to margin trades of others. 

Earl L. Saunders for Commodity Exchange Authority. 

Respondent pro se. 

Decision by Thomas J. Flavin, Judicial Officer

PRELIMINARY STATEMENT

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

U.S.C. 1 et seq.), in which the respondent, a partnership registered as a 

futures commission merchant under the act, is charged with willfully violating 

section 4d(2) of the act (7 U.S.C. 6d(2)) and sections 1.20, 1.21 and 1.22 of 

the regulations thereunder (17 CFR 1.20, 1.21, 1.22). No hearing has been held. 

The respondent has filed a stipulation under section 0.4(b) of the rules of 

practice (17 CFR 0.4(b)), in which it admits, for the purposes of this 

proceeding, the facts contained herein under "Findings of Fact", waives hearing, 

and consents to the entry of the order hereinafter set forth. 

FINDINGS OF FACT

1. The respondent, a partnership with offices at 6 Harrison Street, New York, 

New York, is now and was at all times material herein a registered futures 

commission merchant under the Commodity Exchange Act with membership privileges 

on the New York Mercantile Exchange, a duly designated contract market under the 

said act. 

2. At the times hereinafter stated, the respondent in the regular course of 

its business as futures commission merchant, carried accounts for customers who 

traded in commodity futures on the New York Mercantile Exchange. Such accounts, 

the trading therein, and the handling and disposition of funds in connection 

therewith, were subject to the provisions of the Commodity Exchange Act and the 

rules and regulations issued thereunder. At all such times, the respondent had 

to its credit with a bank or other depository, sums of money in varying amounts, 

held in segregated account and identified as cusutomers' funds, representing 

deposits of margin by and trading profits accruing to such customers. 

3. On the 64 business days between April 12 and July 13, 1967, both 

inclusive, the respondent was under-segregated in amounts within the range of $ 
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1,086 and $ 3,606 -- that is, on the 64 business days mentioned the total amount 

of customers' funds held in segregation by the respondent, as described in 

Finding of Fact 2 hereof, was from $ 1,086 to $ 3,606 less than the amount 

necessary to pay all credits and equities due to such customers. The 

undersegregation mentioned above came about because the respondent used the 

funds belonging to certain customers to finance the trading of other customers. 

4. Examination of the respondent's records by the Commodity Exchange 

Authority as of December 30, 1966, disclosed that on 30 business days between 

April 29 and July 7, 1966, both inclusive, the respondent was under-segregated 

in amounts within the range of $ 49 to $ 2,101. On February 9, 1967, the 

Director of the Accounting and Licensing Division of the Commodity Exchange 

Authority wrote a letter to the respondent as follows: 

The Commodity Exchange Authority audits the records of firms operating as 

futures commission merchants. The audits are made to determine compliance with 

the provisions of the Commodity Exchange Act and related regulations. This 

letter concerns the audit made of your records as of December 30, 1966. 

This law, as you know, regulates futures trading in commodities mentioned in 

section 2. Section 4d (2) provides standards for handling regulated customers' 

accounts. With reference to the money, securities, and property received from 

or accruing to such customers, it provides: 

1. They shall be treated as belonging to the customer depositing them. 

2. They shall be separately accounted for and not be commingled with those of 

the commission merchant. 

3. They shall not be used to margin the trades of any person except the one 

for whom held. 

This requires that money or property held for customers shall be placed in 

segregated accounts. The money or property held in such accounts must be 

sufficient to pay amounts due customers. 

Sections 1.23 and 1.32 of the regulations provide for a record of segregated 

condition. Your records show many failures to keep sufficient funds in 

segregated accounts. They show under-segregation on thirty business days in the 

period beginning April 29 through July 7, 1966. The amounts of undersegregation range from $ 49 to $ 2,101. 

Our representative told you that this under-segregation was a serious failure 

to comply with the law. This letter is to confirm the audit findings as 

discussed by our accountant. Also, we wish to afford you an opportunity to 

achieve compliance. 

CONCLUSIONS

The facts admitted by the respondent are identical to the facts alleged 

against it in the complaint and these have been adopted as the Findings of Fact 

in this proceeding. By reason of these findings, it is concluded that, as 

charged in the complaint, the respondent willfully violated section 4d(2) of the 

Commodity Exchange Act (7 U.S.C. 6d(2)) and sections 1.20, 1.21 and 1.22 of the 

regulations thereunder (17 CFR 1.20, 1.21, 1.22). 

The complainant states that the administrative officials of the Commodity 

Exchange Authority have carefully considered the 

proposed stipulation and order and that they believe the proposed sanctions are 

adequate and the prompt entry, without further proceedings, of the order to 

which the respondent has consented, will constitute a satisfactory disposition 

of this case, serve the public interest, and effectuate the purposes of the 
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Commodity Exchange Act. The complainant therefore recommends that the 

stipulation and waiver submitted by the respondent be accepted and that the 

proposed order be issued. It is so concluded. 

ORDER

The registration of the respondent, Grappel Trading Co., as a futures 

commission merchant is hereby suspended for a period of 30 days, effective on 

the 30th day after the date of entry of this order, and all contract markets are 

hereby directed to refuse all trading privileges to the respondent for said 

period of 30 days, such refusal to apply to all trading done and positions held 

by the respondent, directly or indirectly, Provided, However, that only the 

first 15 days of said period of suspension of registration and refusal of 

trading privileges shall become effective as of the said effective date, and 

that the final 15 days of the said period of suspension of registration and 

refusal of trading privileges shall not become effective unless, after 

complaint, notice, and hearing in accordance with established procedure, the 

respondent should be found to have violated the Commodity Exchange Act within 

two years from the date of entry of this order, in which event the Secretary of 

Agriculture may, without further notice to the respondent, issue a supplemental 

order making effective forthwith the 15-day remainder of the said period of 

suspension of registration and refusal of trading privileges, which shall be in 

addition to any sanction which may be imposed as a result of such subsequent 

violation. 

A copy of this Decision and Order shall be served upon each of the parties 

and upon each contract market. 

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