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Commodity Futures Trading Commission 

CEA CASES 

NAME: HARRY KAY (ALSO KNOWN AS AARON D. SCHLECTER), AND HARRY KAY & ASSOCIATES, 

INC. 

CITATION: 25 Agric. Dec. 1208 

DOCKET NUMBER: 117 

DATE: OCTOBER 4, 1966 

DOCUMENT TYPE: DECISION AND ORDER 

(No. 10,834) 

In re HARRY KAY (also known as Aaron D. Schlecter), AND HARRY KAY & ASSOCIATES, 

INC. CEA Docket No. 117. Decided October 4, 1966. 

Customers' funds -- Cheating and defrauding -- Bucketing -- Records 

requirements -- Denial of trading privileges of Harry Kay -- Default

The activities of the individual respondent in cheating, defrauding and 

deceiving customers, reporting to customers transactions that were fictitious, 

commingling and undersegregating customers' funds and in failing to keep 

required records are violations of the act and the regulations for which his 

trading privileges on the contract markets are denied for a period of 5 years. 

Mr. Earl L. Saunders for Commodity Exchange Authority. 

Mr. Benj. M. Holstein, Hearing Examiner. 

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.), instituted by a complaint filed February 26, 1964, by an 

Assistant Secretary of Agriculture. The respondents are Harry Kay and 

Associates, Inc., a Nevada corporation which was registered as a futures 

commission merchant at the time of the transactions set forth in the complaint, 

and Harry Kay, also known as Aaron D. Schlecter, an individual who allegedly 

managed and conducted the business of the corporation. Respondents are charged 

with cheating, defrauding and deceiving their customers, making false reports 

and confirming fictitious trades to customers, "bucketing" customers' orders, 

improper use 

and handling of customers' funds, including failure to segregate and keep 

records with respect to such funds, and failure to keep required books and 

records of futures transactions, in violation of various sections of the act and 

the regulations issued thereunder. A copy of the complaint was served upon the 

corporate respondent, and on July 8, 1964, no answer having been filed, a 

default order was issued terminating the proceeding against the corporation. In 

re Harry Kay (also known as Aaron D. Schlecter), and Harry Kay and Associates, 

Inc., 23 Agric. Dec. 743 (23 A.D. 743). 

At the time of the order against the corporation, service of the complaint 

had not been made on the individual respondent. On June 16, 1966, the 

individual respondent was served with a copy of the complaint. On July 27, 

1966, Harry Kay was again served with a copy of the complaint together with a 

copy of the referee's order rescheduling the hearing for October 6, 1966. At 

the same time, this respondent was notified in writing that an answer to the 
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complaint was due within 20 days of its receipt and that, in accordance with the 

rules of practice, failure to answer would constitute an admission of the facts 

alleged and failure to request a hearing would constitute a waiver of hearing. 

Respondent Harry Kay has not answered the complaint nor has he requested a 

hearing. The matter was referred to Benj. M. Holstein, Hearing Examiner, Office 

of Hearing Examiners, United States Department of Agriculture, for the 

preparation of a report without further investigation or hearing, as provided by 

the rules of practice (17 CFR 0.9 (c)). On August 19, 1966, the hearing 

examiner filed a report recommending that Harry Kay be found to have violated 

the act substantially as charged and that an order be issued directing all 

contract markets to refuse all trading privileges to him for a period of five 

years. No exceptions to the hearing examiner's report were filed. 

FINDINGS OF FACT

1. Respondent Harry Kay (also known as Aaron D. Schlecter) is an individual 

who at all times material herein was a member of the Board of Trade of the City 

of Chicago, hereinafter referred to as the Chicago Board of Trade. 

2. Respondent Harry Kay and Associates, Inc., a Nevada corporation, was at 

all times material herein a registered futures commission merchant under the 

act. At all such times, respondent Harry Kay was in complete control of said 

corporation, initiated and carried out the acts, dealings and transactions of 

the 

corporation, and used the corporation as an instrument to conduct his own 

business. 

3. The Chicago Board of Trade, the Chicago Mercantile Exchange, and the New 

York Mercantile Exchange were at all times material herein duly designated 

contract markets under the act. 

4. During the period from November 16, 1962, through May 9, 1963, respondents 

converted to their own use funds amounting to approximately $ 60,000, which 

consisted of funds received by them from their customers in connection with 

orders to make transactions in commodities for future delivery, and funds 

accruing to such customers in connection with dealings in commodity futures. 

5. As a result of the conversion of funds described in Finding of Fact 4, 

respondents were undersegregated in the amount of approximately $ 60,000 on May 

9, 1963, that is, the total amount of customers' funds held in segregation was 

insufficient by the aforesaid sum to pay off all credits and equities due to 

such customers. 

6. During the period November 16, 1962, through May 8, 1963, respondents 

accepted 71 orders from 23 different customers for the execution of transactions 

in commodity futures on the Chicago Board of Trade, the Chicago Mercantile 

Exchange, and the New York Mercantile Exchange, and in connection therewith 

falsely reported to such customers that transactions in commodity futures had 

been executed on said markets for such customers' accounts, whereas no such 

transactions had been executed. 

7. During the period February 18 through May 7, 1963, respondents made 

purchases and sales of commodity futures on the Chicago Board of Trade and on 

the Chicago Mercantile Exchange for the use and benefit of said respondents, and 

placed 81 of such trades in their customers' accounts carried by clearing 

members, commingling the open contract positions and financial results of such 

trades with the open contract positions and financial results of the 

transactions of respondents' customers. 

8. During the period November 16, 1962, through May 9, 1963, respondents did 

not make a daily computation nor maintain a permanent record of the amount of 

customers' money required to be held in segregated account, nor prepare nor 

maintain full, complete, and systematic records of all commodity futures 

transactions 
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made through them on or subject to the rules of contract markets. 

9. The futures transactions described in the Findings of Fact were capable of 

being used for hedging transactions in interstate commerce, or determining the 

price basis of transactions in interstate commerce, or for delivering 

commodities sold, shipped or received in interstate commerce. 

CONCLUSIONS

By reason of the facts set forth in Findings of Fact 4 and 6, respondent 

Harry Kay willfully violated section 4b of the act (7 U.S.C. 6b), which makes it 

unlawful for any member of a contract market, in connection with any order to 

make or the making of any transaction in commodity futures on behalf of any 

person, to cheat, defraud, or deceive such person, or to bucket any order 

received from such person. 

Section 4d (2) of the act (7 U.S.C. 6d (2)) requires each futures commission 

merchant to treat and deal with the funds of a customer "as belonging to such 

customer" and to account separately therefor, and prohibits the commingling of 

such funds with funds of the futures commission merchant, or the use of such 

funds to margin or guarantee the trades or secure the credit of any person other 

than the customer for whom held. The regulations under this provision require 

each futures commission merchant to segregate such funds (17 CFR 1.20) and spell 

out additional details concerning the care and use thereof and the records to be 

kept in connection therewith (17 CFR 1.21, 1.22, and 1.32). The 

undersegregation and commingling described in Findings of Fact 5 and 7, and the 

lack of required records described in Finding of Fact 8, constitute violations 

of this provision of the act and of the regulations issued thereunder. The 

failure to keep necessary books and records of all futures transactions, 

described in Finding of Fact 8, also constitutes a violation of the recordkeeping requirements under section 4g of the act (7 U.S.C. 6g) and section 1.35 

of the regulations issued thereunder (17 CFR 1.35). 

The nature and scope of the violations by respondent Harry Kay indicate a 

willful and flagrant disregard of the act and justify a substantial sanction. 

Complainant and the hearing examiner recommended that respondent Harry Kay be 

denied all trading 

privileges for a period of five years. It is concluded that this recommendation 

should be adopted. 

ORDER

Effective November 1, 1966, all contract markets shall refuse all trading 

privileges to respondent Harry Kay for a period of five years, such refusal to 

apply to all trading done and positions held by said respondent directly or 

indirectly, whether for his own account or for the accounts of other persons. 

A copy of this decision and order shall be served upon respondent Harry Kay 

and on each contract market. 

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