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Commodity Futures Trading Commission 

CEA CASES 

NAME: FOX DELUXE FOODS, INC., ROLAND N. GERGEN, HAROLD W. FOX, AND BERT E. FOX 

CITATION: 18 Agric. Dec. 582 

DOCKET NUMBER: 74 

DATE: JUNE 26, 1959 

DOCUMENT TYPE: DECISION AND ORDER 

(No. 5957) 

In re Fox DELUXE FOODS, INC., ROLAND N. GERGEN, HAROLD W. FOX, AND BERT E. FOX. 

CEA Docket No. 74. Decided June 26, 1959. 

Manipulation -- Squeeze -- Price Support as Manipulation

Respondents are found to have attempted to manipulate and to have manipulated 

egg futures prices and cash refrigerator egg prices in violation of the 

Commodity Exchange Act in December 1953 and January 1956 by utilizing their long 

positions and those of customers and affiliated accounts -- the total of which 

were greatly in excess of deliverable stocks of refrigerator eggs in Chicago -- 

to "squeeze" the shorts and to pressure prices upward. 

While purchases of cash fresh eggs on the spot call of the Chicago Mercantile 

Exchange to support prices of such eggs constituted a manipulation of such 

prices, no violation of the act is found in connection therewith separate and 

apart from the manipulations of futures and cash refrigerator egg prices since 

the complaint seems to allege such purchases as part of the latter 

manipulations. 

Mr. Benj. M. Holstein, for Commodity Exchange Authority. Messrs. Daniel M. 

Healy and James L. Fox, Jr., of Chicago, Illinois, for respondents. Mr. 

Clarence H. Girard, 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. Chapter 1), instituted July 23, 1956, by a complaint and notice of 

hearing issued under section 6(b) of the act (7 U.S.C. § 9) by an Assistant 

Secretary of Agriculture. 

Respondents are (1) Fox DeLuxe Foods, Inc., an Illinois corporation, a 

wholesale egg and poultry dealer, a clearing member of the Chicago Mercantile 

Exchange, and a registered futures commission merchant under the Commodity 

Exchange Act which traded in egg futures on the Exchange for the accounts of 

customers and also for its own or house accounts; (2) Roland N. Gergen, 

secretary of the corporation during December 1953 and its executive vicepresident during January 1956; (3) Harold W. 

Fox, a vice-president and director of the corporation during December 1953 and 

January 1956, a member of the Exchange and a registered floor broker under the 

Commodity Exchange Act; and (4) Bert E. Fox, a vice-president and director of 

the corporation during December 1953 and January 1956, a member of the Exchange 

and a registered floor broker under the Commodity Exchange Act. 
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The complaint charges that the respondents attempted to manipulate and did in 

fact manipulate prices of egg futures on the Chicago Mercantile Exchange and 

cash eggs in Chicago in December 1953 and January 1956 in violation of sections 

6(b) and 9 of the Commodity Exchange Act (7 U.S.C. §§ 9, 13). 

In connection with December 1953 the complaint alleges that, beginning about 

December 9, 1953, the respondent corporation closed out all short positions on 

its books in the December 1953 egg future, purchased large quantities of such 

future on the Chicago Mercantile Exchange on behalf of itself and its customers, 

and increased this long position to a point where it was substantially in excess 

of storage stocks available for delivery and finally represented 100 percent of 

the open interest; that near the close of trading in the future, the respondent 

corporation purchased all the fresh cash eggs of deliverable grade and quality 

offered for sale on the Exchange and immediately resold them at a loss; and that 

after the termination of trading in the future the respondent corporation 

received, on behalf of itself and certain customers, substantially all the eggs 

delivered on the December future and resold them at fixed prices in excess of 

their true market value to the shorts for redelivery to respondent corporation. 

With respect to January 1956 the complaint alleges that in December 1955 and 

January 1956 the respondent corporation, acting for itself, a group of 

affiliated accounts, and a number of other customers, again concentrated its 

activities on the long side of the market and purchased January 1956 egg futures 

on the Chicago Mercantile Exchange in large quantities, increasing such long 

position until it was many times in excess of storage stocks available for 

delivery and finally represented about 99 percent of the open interest; that at 

the same time the corporation supported the price of fresh eggs by substantial 

purchases of such eggs on the Exchange, which eggs it immediately resold at a 

loss; that it also arranged for similar purchases at its expense by an 

independent trader; and that these activities increased 

the price of the future to a point where it exceeded the price of fresh eggs, 

and took large quantities of fresh eggs out of normal channels of trade and 

diverted them to Chicago for delivery on the future. 

The complaint also alleges that these activities were undertaken for the 

purpose and with the intent of concentrating in the hands of the respondent 

corporation such a quantity of the current egg future as would represent a major 

portion of the open interest and exceed available deliverable supplies, thereby 

causing a squeeze and a resultant price increase; that the respondents intended 

and expected that the firm's customers would be influenced by the respondents' 

examples, suggestions, advice, and recommendations, and would follow 

respondents' lead; that such customers were in fact so influenced and did in 

fact follow respondents' lead; and that the acts of the respondents brought 

about a squeeze and caused artificial and manipulated prices in futures and cash 

refrigerator eggs on both occasions in wilful violation of the act. 

On November 5, 1956, the individual respondents filed a joint answer and the 

corporate respondent filed a separate answer. The material recitals in both 

answers are identical. The respondents admit the jurisdictional allegations and 

the transactions in futures and cash eggs substantially as alleged in the 

complaint; but they deny that they intended to manipulate or that they did in 

fact manipulate prices, or that their customers were influenced solely by them 

and did in fact follow their lead; and they assert that if there was a squeeze, 

it was brought about without any intent or purpose on their part. The answer 

states that, with respect to the customers and affiliated accounts, the 

corporate respondent acted merely as a broker on orders received from such 

accounts; that the purchases of January 1956 futures were made for the house 

account and the affiliated accounts because it appeared that prices were 

reasonable; and that the fresh eggs purchased on the Chicago Mercantile Exchange 

in December 1953 and January 1956 were sold at a loss because it became obvious 

that the fresh egg market was declining and the respondents acted to minimize 

the loss as far as possible. 
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Clarence H. Girard, Office of Hearing Examiners, "United States Department of 

Agriculture, was assigned as referee and presided at the hearing. The 

respondents were represented by Daniel A. Healy and James L. Fox, Jr., of Healy, 

Newby, Barrett, and Healy, a Chicago law firm. Benjamin M. Holstein, Office of 

the 

General Counsel, United States Department of Agriculture, appeared as counsel 

for complainant. The oral hearing was held in Chicago, Illinois, April 9, 10, 

12, 15, 16, 17, and July 10, 11, 12, 18 and 19, 1957. Both sides offered oral 

and documentary evidence. Twenty-one witnesses testified for complainant and 

ten testified for respondents, including the individual respondents Roland N. 

Gergen and Harold W. Fox. Respondent Bert E. Fox was not present at the 

hearing. Ninety-one exhibits were received in evidence. Main briefs, which 

contained suggested findings and conclusions, and reply briefs were filed by the 

parties. 

The referee issued a report recommending that respondents be found to have 

violated the act as charged. Respondents filed lengthy exceptions to the 

report. Oral argument before the deciding officer was not requested and was not 

held. 

Respondents object to the statement of the referee in his report to the 

effect that most of the underlying or subsidiary facts are admitted but that 

there is sharp dispute as to the relevancy of some of the evidence and as to the 

inferences to be drawn from the basic facts. But obviously the referee's 

observation was correct. The physical facts as to the trading in egg futures 

and cash eggs by respondent and its customer accounts are not and cannot be 

denied. The bedrock issues then are whether in doing the trading involved 

respondents were attempting to manipulate the prices of egg futures and cash 

eggs and did in fact manipulate such prices. Respondents in answer to the 

complaint, in evidence and in briefs ascribe legitimate purposes to the actions 

regarded by complainant as proof of manipulative motive and contend also that 

the prices of egg futures and cash eggs were not manipulated. 

FINDINGS OF FACT

1. Respondent Fox DeLuxe Foods, Inc., a corporation with offices and a place 

of business at 1122 Fulton Street, Chicago 7, Illinois, is now and has been at 

all times material herein a wholesale egg and poultry dealer, a clearing member 

of the Chicago Mercantile Exchange, and a registered futures commission merchant 

under the Commodity Exchange Act. 

2. Respondent Roland N. Gergen, whose address is 1122 Fulton Street, Chicago 

7, Illinois, was the secretary of respondent corporation during December 1953 

and the executive vice-president of the corporation during December 1955 and 

January 1956. At all such times, he was also a member of the board of directors 

of 

respondent corporation and supervised its trading in egg futures and cash eggs. 

Respondent Gergen participated in the decisions by the board of directors of the 

corporation with respect to the transactions in December 1953 and January 1956 

egg futures hereinafter described. 

3. Respondent Harold W. Fox, whose address is 7318 Ridge Avenue, Chicago, 

Illinois, was a vice-president of the respondent corporation and a member of its 

board of directors during December 1953, December 1955 and January 1956, and was 

in complete charge of its trading on the floor of the Chicago Mercantile 

Exchange at all such times. This respondent is now and was at all times 

material herein a member of the Exchange and a registered floor broker under the 

Commodity Exchange Act. He participated in the decisions by the board of 

directors of respondent corporation with respect to the transactions in December 

1953 and January 1956 egg futures hereinafter described. 
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4. Respondent Bert E. Fox, whose address is 1122 Fulton Street, Chicago 7, 

Illinois, was at all times material herein a vice-president and director of 

respondent corporation and a member of the Chicago Mercantile Exchange. This 

respondent executed some of the futures transactions hereinafter described, and 

directed the execution of other such transactions. He was registered as a floor 

broker under the Commodity Exchange Act during January 1956 and is now so 

registered. 

5. The transactions hereinafter described were carried out under the 

direction and supervision and by means of the acts of the individual respondents 

in their capacities as officers, agents, or employees of the respondent 

corporation. 

6. The Chicago Mercantile Exchange is now and has been at all times material 

herein a duly designated contract market under the Commodity Exchange Act. 

7. Trading in egg futures on the Exchange is conducted in units of one 

contract or carlot consisting, at all times material herein, of 480 cases of 30 

dozen eggs per case. Trading ends several days before the last business day in 

the delivery month, but contracts still open at the end of trading may be 

satisfied by delivery during the remaining business days of the month. Cash 

eggs or shell eggs are actual eggs as distinguished from egg futures, and may be 

either refrigerator eggs or fresh eggs. Refrigerator eggs, sometimes called 

storage eggs, are eggs which have been in cold storage more than 29 days. Fresh 

eggs are eggs which have not been in cold 

storage, or which have been in cold storage not more than 29 days (Tr. pp. 23-

37). Cash eggs bought and sold in the City of Chicago are produced in Illinois 

and other Midwestern States, moved into Chicago for storage and consumption, and 

shipped from Chicago to points outside Illinois. 

8. The December 1953 and January 1956 egg futures contracts on the Exchange 

were refrigerator egg contracts, and represented the purchase and sale of 

refrigerator eggs for delivery in those months. Under the specifications of the 

Exchange governing deliveries on these contracts, par delivery consisted of 

refrigerator eggs described as U. S. Extras, Minimum 50 percent A grade, meeting 

certain weight and packaging requirements. Under the specifications, fresh eggs 

were "deliverable on the same basis as refrigerator eggs," that is, without any 

premium or discount by reason of the fact that they were fresh eggs. During the 

months of December and January, fresh eggs are more valuable than refrigerator 

eggs and command a higher market price unless a technical situation exists. A 

technical situation exists when outstanding long contracts in the future are 

greatly in excess of deliverable supplies of refrigerator eggs. (Complainant's 

Exhibits 1, 2, 35; Tr. pp. 207-217, 276-277, 287, 291, 306, 315, 322, 334, 342, 

591, 655.) 

9. It was the general practice, at all times material herein, for respondent 

Fox DeLuxe to advise its customers when to buy or sell and to recommend the 

action to be taken by its customers. Nonindustry customers usually followed 

such recommendations or left the buying or selling for their accounts and the 

price at which the purchase or sale was to be made to the discretion and 

judgment of respondents. (Tr. pp. 628, 629, 777, 831, 832, 844, 847, 848, 876-

878.) 

10. During December 1953, respondent Fox DeLuxe, in its capacity as a 

registered futures commission merchant, carried 32 commodity futures trading 

accounts for various individuals and firms, hereinafter referred to as customers 

or customers' accounts, each of which traded and held positions in the December 

1953 egg future on the Chicago Mercantile Exchange during December 1953. 

Included among such accounts were the accounts of Earl Barnes, Charles Burbulis, 

and J. A. Roeser. Earl Barnes was an associate broker of respondent Fox DeLuxe, 

and Charles Burbulis, who was in the produce business and not in the egg 

business, was a speculator customer of Earl Barnes. The J. A. Roeser account 
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was in fact the account of respondent Roland N. Gergen, who did all the trading 

in the account, received the profits thereof, 

and was responsible for the losses, but there was nothing in the records of 

respondent Fox DeLuxe which would so indicate. (Complainant's Exhibits 3, 12, 

13; Tr. pp. 623, 650-651.) 

11. On November 30, 1953, n1 positions in December 1953 egg futures on the 

books of respondent Fox DeLuxe aggregated 77 carlots long for the accounts of 13 

customers, and 63 carlots short for the accounts of six customers. Between 

December 1 and 8, 1953, both inclusive, most of the long customers sold December 

futures and liquidated or reduced their long positions, with the result that on 

December 8, 1953, such long positions had decreased to a total of 22 carlots for 

five customers. During the same period, the short customers held their 

positions substantially unchanged, and on December 8, 1953, such positions 

totaled 60 carlots for five customers. Respondent Fox DeLuxe did not trade or 

hold any position in the December 1953 egg future for its own or house account 

during this period. (Complainant's Exhibit 3.) 

n1 Unless otherwise stated, references to positions or stocks on 

specified dates are as of the end of business on that day. 

12. On or about December 8, 1953, at a time when the price of the December 

egg future was 43 to 44 cents, n2 respondents Harold W. Fox and Roland N. Gergen 

recommended to the board of directors of respondent Fox DeLuxe that December 

1953 egg futures contracts be purchased because stocks of refrigerator eggs were 

at a low level, that the supply of eggs of deliverable grade and quality in 

Chicago warehouses would be insufficient to meet outstanding long contracts in 

the future and that accordingly the price of the future would rise and a 

speculative profit would result. The other directors of respondent Fox DeLuxe, 

including respondent Bert E. Fox, unanimously agreed with such recommendations, 

respondent Fox DeLuxe made similar recommendations to its customers, and the 

purchases of December futures for house and customers' accounts hereinafter 

described were made as a result of such recommendations. (Tr. pp. 618-621, 652-

656, 690, 711-712, 731-732, 759-760, 764, 784-785, 798-799, 817.) 

n2 All price references are in cents per dozen. 

13. Beginning on December 9, 1953, and continuing through December 21, 1953, 

respondent Fox DeLuxe purchased 355 carlots and sold 92 carlots of December 1953 

egg futures for its own account and the accounts of its customers, reaching a 

maximum aggregate long position of 225 carlots on December 21, 1953. All such 

transactions were speculative. n3 (Tr. pp. 618-622, 652-656, 

690, 731-732, 759-761.) The quantities purchased and sold daily, the resulting 

positions of respondent Fox Deluxe as a clearing member, the number of accounts 

holding positions unchanged each day including December 22 and 23, the last two 

days of trading, are as follows: 

Date Bought Sold Long Short Accts. Accts. Accts. 

1953 (Carlots) (Carlots) Position Position Buying Holding Selling 

Dec. 8 22 60 

Dec. 9 98 17 43 0 8 0 4

Dec. 10 64 0 107 0 7 4 0

Dec. 11 24 10 121 0 6 6 2

Dec. 14 19 49 91 0 7 6 5

Dec. 15 7 14 84 0 3 9 3

Dec. 16 11 0 95 0 4 10 0

Dec. 17 82 1 176 0 13 5 1

Dec. 18 38 1 213 0 9 11 1

Dec. 21 12 0 225 0 4 18 0
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Date Bought Sold Long Short Accts. Accts. Accts. 

1953 (Carlots) (Carlots) Position Position Buying Holding Selling 

Dec. 22 15 27 198 0 3 11 11

Dec. 23 0 102 96 0 0 0 33

n3 The difference between speculation and hedging under the Commodity 

Exchange Act is discussed at length in Corn Products Refining Company v. 

Benson, 232 F.2d 554 (2d Cir. 1956). 

14. The purchases and sales described in Finding of Fact 13 were made for the 

following classes of customers or accounts and resulted in the following changes 

in position (Complainant's Exhibit 3) : 

(a) Short Customers. On December 9, 1953, the 60 carlots held for the short 

customers were entirely covered by purchases of the December future, and such 

purchases continued during that day and thereafter until long positions in the 

future had been established for all customers who were short on December 8, 

1953, and after this date neither respondent Fox DeLuxe nor any of its customers 

held a short position in the December future. 

(b) Long Customers. Beginning on or about December 9 and 10, 1953, and 

continuing thereafter, purchases of the December future were made for most of 

the long customers who had theretofore been selling the December future in order 

to liquidate or reduce their long positions, as described in Finding of Fact 11, 

and such purchases reestablished or increased the long positions of such 

customers. 

(c) New Customers. Beginning on or about December 10, 1953, and continuing 

until the day before the end of trading, purchases of the December future were 

made and long positions were established for an increasing number of new 

customers who had not previously held any position in the December future 

through respondent Fox DeLuxe during that month. 

(d) House Account. Respondent Fox DeLuxe purchased 25 carlots of the December 

future for its house account on December 10, 1953, and made similar purchases 

thereafter, reaching a maximum long position of 46 carlots on December 17, which 

position it held unchanged until the last trading day. 

15. Of the 82 carlots of December futures purchased December 17, 1953, 

respondent Fox DeLuxe distributed 52 carlots among the following accounts, in 

the following quantities, and at the following prices (Complainant's Exhibit 5): 

Price Fox DeLux Earl Barnes Charles Burbulis J. A. Roeser

44.45 3 1 1 

44.50 1 1 

44.55 3 3 1 1 

44.60 4 3 1 1 

44.65 3 3 1 1 

44.70 4 3 1 1 

44.75 4 3 2 2 

TOTAL 18 18 8 8 

16. Between December 8 and 21, 1953, both inclusive, the open interest in the 

December future on the Chicago Mercantile Exchange decreased from 931 carlots to 

515 carlots, and total long contracts in such future held through clearing 

members other than the respondent corporation decreased from 909 carlots to 290 

carlots. During the same period, as a result of the above-described purchases, 

the long position in such future of respondent Fox DeLuxe as a clearing member 

increased from 22 carlots to 225 carlots, or from 2.4 percent to 43.7 percent of 

the open interest. On the last three days of this period, December 17, 18 and 

21, 1953, respondent Fox DeLuxe purchased 132 carlots for its house account and 

18 other accounts. During these three days Fox DeLuxe sold a total of two 

carlots, and withheld from sale the balance of the long December futures in its 

own account and the customers' accounts (Complainant's Exhibit 3). 
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17. On December 22, 1953, the long position in the December future of 

respondent Fox DeLuxe for itself and its customers was 198 carlots, or 53.7 

percent of the open interest. On December 23, 1953, the last day for trading in 

the future, respondent Fox DeLuxe offered these 198 long carlots for sale on the 

Exchange at 48 cents. This price was 0.15 cent less than the maximum price at 

which the future could be bought or sold on that day under the rules of the 

Chicago Mercantile Exchange. On the 

same day, the price in Chicago for fresh eggs described as U. S. Extras, Large, 

Minimum 60 percent A Grade, was 46 to 46.50 cents. Such eggs were of better 

quality than required for par delivery on December futures contracts. 

(Complainant's Exhibits 3, 27, 28; Tr. pp. 127, 656-657, 732-733, 810-811.) 

18. On December 23, 1953, respondent Fox DeLuxe sold 102 carlots of the 198 

carlots of December futures which it offered, and after the end of trading Fox 

DeLuxe had a total of 96 long contracts, which represented the remaining open 

interest. The short side of this remaining open interest was distributed among 

17 other clearing members. The 96 long contracts held by respondent Fox DeLuxe 

were in its house account and in the accounts of Earl Barnes, Charles Burbulis, 

and J. A. Roeser, and these long contracts were subsequently satisfied by the 

delivery of eggs to respondent Fox DeLuxe as hereinafter described. 

(Complainant's Exhibits 3, 10, 11.) 

19. Of the 102 carlots of December futures sold on December 23, 1953, 

respondent Fox DeLuxe distributed 36 carlots among the same accounts to which it 

had previously distributed the purchases described in Finding of Fact 15. The 

distribution of sales was made in the following quantities and at the following 

prices (Complainant's Exhibit 5): 

Price Fox DeLuxe Earl Barnes Charles Burbulis J. A. Roeser

47.90 1 1 1

48.00 12 10 6 5

TOTAL 13 11 6 6

20. (a) On November 30, 1953, there were in Chicago cold storage warehouses 

approximately 50 carlots of shell eggs, some of which were not deliverable upon 

futures contracts. By December 8, 1953, this quantity had declined to 

approximately 42 carlots, by December 17 to about 27 carlots, and by December 

23, 1953, to approximately 25 carlots. This information was available on a 

daily basis and was known to respondents. During the last four business days 

prior to the end of trading on December 23, the quantities of long December 

futures held by respondent Fox DeLuxe and its customers were between six and 

one-half and eight and one-half times as large as total stocks of shell eggs in 

Chicago cold storage warehouses. After the end of trading, respondent Fox 

DeLuxe was the only source of refrigerator eggs in Chicago which could be used 

by traders who were on the short 

 

side of the 96 carlots of long December futures held by this respondent. On 

December 31, 1953, there were 36 carlots of shell eggs in Chicago cold storage 

warehouses, all of which were held by respondent Fox DeLuxe. (Complainant's 

Exhibits 4, 17; Tr. pp. 216-217, 228-229, 306-307, 329-330, 453, 489-493, 620-

621, 659-660.) 

(b) For the period December 9-23, 1953, stocks of storage eggs in Chicago and 

the long positions of respondent Fox DeLuxe, the Barnes, Burbulis, and Roeser 

accounts and of other customer accounts carried by respondent Fox DeLuxe were as 

follows: 

Shell Eggs DeLuxe Barnes, Burbulis Other 

Date in Storage House and Roeser Customer Total 

1953 Carlot Equiv. Account Accounts Accounts Accounts 

Dec. 9 42 0 22 21 43

Dec. 10 41 25 40 42 107
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Shell Eggs DeLuxe Barnes, Burbulis Other 

Date in Storage House and Roeser Customer Total 

1953 Carlot Equiv. Account Accounts Accounts Accounts 

Dec. 11 39 25 35 61 121

Dec. 14 38 25 45 21 91

Dec. 15 35 25 40 19 84

Dec. 16 32 28 41 26 95

Dec. 17 27 46 75 55 176

Dec. 18 27 46 88 79 213

Dec. 21 26 46 88 91 225

Dec. 22 25 46 86 66 198

Dec. 23 25 34 62 0 96

21. At all times between December 10 and the end of trading December 23, 

1953, the total outstanding short contracts in the December future held by 

persons other than respondent Fox DeLuxe and its customers, which had to be 

covered by the purchase of futures or by the delivery of eggs and which 

represented "demand" by others, exceeded the total of outstanding long contracts 

in the future held by persons other than the said respondent and its customers, 

plus refrigerator eggs held by such persons, which represented the "supply" 

available to fill such demand. The minus quantities in the following table 

represent carlot deficits on and after December 10, that is, the extent to which 

"demand" exceeded "supply" (Complainant's Exhibit 9): 

Date Deficit 

Dec. 10 -66

Dec. 11 -82

Dec. 14 -53

Dec. 15 -49

 

Date Deficit 

Dec. 16 -63

Dec. 17 -149

Dec. 18 -186

Dec. 21 -199

Dec. 22 -173

Dec. 23 -71

On and after approximately December 17, 1953, such deficits could not be 

satisfied except by the purchase of December futures from respondent Fox DeLuxe 

or its customers. 

22. Respondent Fox DeLuxe received 47 carlots of eggs out of a total of 48 

carlots of final deliveries n4 made on the December 1953 future. Of the 47 

carlots so received, 23 carlots were refrigerator eggs in Chicago cold storage 

warehouses, 10 carlots were refrigerator eggs in cold storage warehouses outside 

Chicago, and 14 carlots were fresh eggs. All of these were received after 

trading ended (Complainant's Exhibit 15). As soon as they were received, the 23 

carlots of Chicago refrigerator eggs, together with one carlot of fresh eggs, 

were sold by respondent Fox Deluxe to short traders, who then redelivered the 

eggs to respondent Fox DeLuxe, and this process was repeated by sales to other 

shorts until respondent Fox DeLuxe had made a total of 49 such sales, each of 

which was followed by a redelivery to respondent. These 49 redeliveries plus 

the 47 carlots originally delivered to respondent Fox DeLuxe served to satisfy 

the 96 carlots of long December futures held by respondent after the end of 

trading. (Complainant's Exhibit 16; Tr. pp. 89-91, 659-660.) 

n4 A long receiving a carlot of eggs on delivery may sell futures and 

redeliver the carlot on his futures contract, and this process may be 

repeated, or a long receiving a carlot on delivery may sell the eggs for 

cash and the purchaser may deliver the carlot against his short position, 

or sell it to someone else for that purpose. The same carlot may, 

therefore, be delivered and received more than once in the same delivery 
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month. A carlot received on delivery which does not subsequently reappear 

in delivery channels is a final delivery. (Tr. pp. 89-91.) 

23. The sales to short traders described in Finding of Fact 22 were the only 

sales of deliverable eggs made by respondent Fox DeLuxe between the end of 

futures trading and the end of the delivery period December 31, 1953. 

Respondent Harold W. Fox demanded 47.95 cents from the shorts, refused to sell 

for less, and received this price on each of the 49 carlots sold. After the end 

of the delivery period, 19 of the 23 carlots of refrigerator eggs used in such 

sales were resold as cash eggs by respondent Fox DeLuxe at 41, 41.25, and 41.50 

cents, and the remaining 

 

four carlots were sold at 43.10 cents. The 14 carlots of fresh eggs received by 

respondent Fox DeLuxe were sold after the delivery period at prices ranging form 

43.50 to 47 cents, and the 10 carlots of refrigerator eggs received outside 

Chicago were delivered on the January 1954 future at prices of 44.50 and 44.85 

cents. (Complainant's Exhibit 16; Tr. pp. 819-825.) 

24. The price of 47.95 cents which respondent Fox DeLuxe demanded for the 

refrigerator eggs which it sold to the shorts was determined by respondent 

Harold W. Fox on the basis of the fact that this was the closing price of the 

December future at the end of trading December 23, and the price which any short 

would have had to pay if he had bought futures to cover his short position. 

This price was substantially in excess of the true market value of fresh and 

refrigerator eggs. At the time of these sales, the price of fresh eggs in 

Chicago ranged between 45.50 and 46.50 cents and the price of refrigerator eggs 

should have been approximately four to six cents less than the price of fresh 

eggs. Respondent Fox DeLuxe was able to demand and receive 47.95 cents only 

because it was the sole source of supply of deliverable eggs in Chicago at that 

time, and the short traders needed such eggs to satisfy their outstanding 

contracts. There was insufficient time between the end of futures tradings and 

the end of the delivery period in which to procure fresh eggs, ship them to 

Chicago, pack them according to delivery specifications, and have them inspected 

and graded for delivery. (Complainant's Exhibit 27; Tr. pp. 208-209, 212-214, 

222-226, 228-229, 303-307, 333-336, 353, 633, 655, 659-660, 733-734, 818-819.) 

25. Speculative traders in futures do not ordinarily take delivery, and 

futures commission merchants usually advise such customers not to take delivery. 

In the event that a clearing member receives delivery by reason of a customer's 

long position, it is normal practice to enter the delivery and the proceeds of 

any subsequent sale in such customer's account. Of the 96 long carlots of 

December futures held by respondent Fox DeLuxe after the termination of trading, 

34 carlots were in its house account, 29 carlots in the account of Earl Barnes, 

19 carlots in the account of Charles Burbulis, and 14 carlots in the J. A. 

Roeser (respondent Gergen) account. The original deliveries, the proceeds of 

sales to the shorts, and the redeliveries received by respondent Fox DeLuxe in 

the liquidation of these 96 long contracts, were not entered in any of the above 

accounts but were entered by respondent Fox DeLuxe in a single cash egg account, 

and after 

 

final disposition, the proceeds were distributed on a basis determined by 

respondent Roland N. Gergen. (Complainant's Exhibits 3, 14; Tr. pp. 93-96, 480, 

504-505.) The respondent Fox DeLuxe and the above-named customers who held long 

contracts at the end of trading in the December futures realized a net profit of 

$ 21,571.07. (Respondents' Exhibit 6; Tr. p. 627.) 

26. Cash eggs are bought and sold on the "spot call" of the Chicago 

Mercantile Exchange by posting bids and offers, and the prices paid in such 

transactions are posted and published. The prices of cash eggs bought and sold 

by private negotiation are not posted or published. On December 21, 22 and 23, 

1953, respondent Fox DeLuxe purchased all the fresh eggs of deliverable grade, 
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quality and weight sold on the spot call of the Exchange. Total purchases were 

2,200 cases (four and one-half carlots) and the prices paid were 46, 46.25, and 

46.50 cents. Respondent Fox DeLuxe disposed of such eggs a day or two later by 

private negotiation at an average loss of 1.03 cents, the majority being sold 

for shipment outside Chicago. Most of these purchases were made by a broker not 

affiliated with respondent Fox DeLuxe. The broker was instructed by respondent 

Harold W. Fox to purchase whatever was offered at the above prices and to post 

bids at such prices for additional quantities and, in giving such instructions, 

respondent Harold W. Fox did not specify any limit as to the total quantities to 

be purchased. Respondent Fox DeLuxe made such purchases in order to support the 

price of deliverable eggs, ascertain how many of the eggs were available, and 

remove them from delivery channels. The 2,200 cases which respondent was able 

to purchase indicated to it that such supplies were small. Respondent Fox 

DeLuxe employed an independent broker to make such purchases in order to conceal 

the fact that it was engaged in buying the eggs purchased by the independent 

broker. Such brokers are customarily used to conceal the identity of traders 

whose transactions are instrumental in raising or lowering prices. 

(Complainant's Exhibits 6, 7, 8, 14; Tr. pp. 54, 105-113, 434, 738-739, 829-

831.) 

27. Fresh egg prices in December are normally higher than December futures 

prices, and the opposite relationship exists only when a technical situation has 

developed in the market, that is, when the open interest in the futures is very 

high in relation to the quantity of refrigerator eggs available for delivery. 

From December 10 through 23, 1953, fresh egg prices in Chicago decreased from 

47.75 to 46.25 cents. During the same period, 

 

prices of the December future increased from 44.30 to 47.75 cents. This period 

covered the last ten trading days in the December 1953 future, and the increase 

in the price of the future during this period was the second largest increase in 

the price of the December future in any comparable period in the ten years from 

1947 through 1956. The largest such increase, which occurred in December 1952, 

was the result of manipulative operations described in In re G. H. Miller and 

Company, 15 Agric. Dec. 1015 (15 A.D. 1015) (1956), aff'd, 260 F.2d 286 (7th 

Cir. 1958), cert. denied, February 24, 1959. (Complainant's Exhibits 27, 28, 

28A, 30 30A, 31; Tr. pp. 208-216, 223, 655.) 

28. Under normal market conditions, December and January futures prices move 

approximately together, and a divergence in such movement can be expected only 

in technical situations. During the last ten trading days in December 1953, the 

price of the January 1954 future did not increase. As a result of the increase 

in the price of the December future during this period, the difference or spread 

between the prices of these two futures widened by approximately 3.48 cents. 

Only two other years from 1947 through 1956 show increases in the DecemberJanuary futures price spread during the last ten days of trading in December. 

These two years were 1947 and 1952, and the increases on these occasions were 

caused by manipulative operations described in In re Great Western Distributors, 

Inc., 10 Agric. Dec. 783 (10 A.D. 783) (1951), aff'd, 201 F.2d 476 (7th Cir. 

1953), cert. denied, 345 U.S. 997 (1953), and In re G. H. Miller and Company, 

supra, respectively. (Complainant's Exhibits 29, 30, 30B; Tr. p. 210.) 

29. Daily market letters issued by Harris, Upham and Company, a brokerage 

firm, contained the following comments with respect to the Chicago egg market on 

the dates indicated: 

December 14, 1953, Morning Produce Letter (Complainant's Exhibit 18). ". . . 

December eggs at 45 cents are only 21/2 cents under large extras and 1 cents 

under Standards, suggesting that fresh eggs may be delivered on December 

contract should congestion develop." 

December 15, 1953, Closing Produce Letter (Complainant's Exhibit 19). ". . . 

The 10 markets withdraw 2,598 cases which was 3,688 less out than last year. 

Local withdrawals 557 cases, reducing total stocks on hand to 18,185 cases. 
Page 11 

This is really the motive behind the late advances today as shorts attempting to 

cover found practically nothing for sale." 

 

December 16, 1953, Morning Produce Letter (Complainant's Exhibit 20). ". . . 

Absence of deliveries is not surprising in view of the fact total Chicago stocks 

are less than 40 cars and cash prices for deliverable eggs are well above the 

futures." 

December 17, 1953, Morning Produce Letter (Complainant's Exhibit 21). ". . . 

Support came largely from interests who were already long and the commitment 

figures show that that class of buying predominated as the total is up 39 cars 

to 596." 

December 17, 1953, Closing Produce Letter (Complainant's Exhibit 22). ". . . 

Support was in evidence on all weak spots from a distributing house, which is 

understood to be on the long side of December." 

December 21, 1953, Morning Produce Letter (Complainant's Exhibit 23). ". . . 

The outstanding features were apparent congestion in December egg contracts and 

extreme weakness in the cash market for top grade eggs." 

December 21, 1953, Closing Produce Letter (Complainant's Exhibit 24). ". . . 

The market was supported at the start by the leading long interests and buying 

throughout the session appeared to come from shorts." 

December 22, 1953, Morning Produce Letter (Complainant's Exhibit 25). ". . . 

There is no indication as yet of the longs liquidating but it would seem logical 

to expect realizing sales on a scale up from this level as the maximum which may 

be obtained under the rules will be about 49 1/2 cents as of the close on 

Wednesday. The situation is definitely tight and it is getting exceedingly 

difficult to execute orders without running the price up or down 1/4 to 1/2 

cents on comparatively small orders." 

December 23, 1953, Morning Produce Letter (Complainant's Exhibit 26). 

"Although trading in December egg contracts was slow yesterday there was 

persistent evidence that liquidation was in progress and the open interest 

figures show a reduction of 146 cars. That still left 369 cars open and trading 

will end today. As of Tuesday night Chicago cold storage stocks were only about 

25 cars and therefore no substantial deliveries may be expected unless they be 

of fresh eggs. The large merchandising interest which has been conspicuous on 

the long side of December has apparently been buying 

 

fresh eggs on the spot call and prices for top grades are now about at the 

December level." 

The author of the market letters above was an employee of Harris, Upham and 

Company, with 45 years of experience in observing and reporting commodity market 

prices and conditions, and the above comments reflected conditions in the market 

as he saw them on the dates in question. The reference to "interests who were 

already long," a "distributing house which is understood to be on the long 

side," "leading long interests," and "the large merchandising interest which has 

been conspicuous on the long side of December," applied to respondent Fox 

DeLuxe. (Complainant's Exhibits 18-26, inclusive; Tr. pp. 115-120.) 

30. The Chicago Price Current, a recognized trade publication devoted to 

furnishing information on various commodities, including eggs, contained the 

following comment under date of December 23, 1953 (Complainant's Exhibit 32): 

". . . expert market observers were of the opinion that the futures trading 

and spot trading were united in some sort of unholy matrimony thus making for 

the sporadic trading and large volume of sales." 

The above comment reflected the view of traders in the market as summarized 

by the author. (Tr. pp. 136-145.) 
Page 12 

31. During January 1956, respondent Fox DeLuxe, in its capacity as a 

registered futures commission merchant, carried 115 commodity futures trading 

accounts for various persons and firms, each of whom traded and held positions 

in the January 1956 future during January 1956. Thirty of the accounts were 

carried for persons who were officers, directors, associate brokers, or branch 

managers of respondent Fox DeLuxe, or members of the Fox family, or who were 

related to such persons directly or indirectly. Such accounts, hereinafter 

called affiliated accounts, were as follows (Complainant's Exhibits 33, 53): 

W. J. or William J. Fox, president a) 

Bert E. Fox, vice-president and director a) 

Harold W. Fox, vice-president and director a) 

Roland N. Gergen, executive vice-president and director 

A. J. or Maude J. Gergen, wife of Roland N. Gergen 

R. J. or Robert J. Fox, vice-president a) 

Edward A. Fox, director a) 

Louise M. Fox b) 

Joan R. Fox a) 

Kenneth Fox a) 

Olive Fox b) 

Mary J. Gelderman a) 

Ada C. Hickey a) 

B. Fox Friedrich a) 

L. A. Friedrich b) 

Norma Fox b) 

J. A. Donahoe b) 

P. J. Donahoe, brother of J. A. Donahoe 

J. T. Donahoe, uncle of J. A. Donahoe and P. J. Donahoe 

Joseph J. Fox, Jr., associate broker a) 

Earl Barnes, associate broker 

Eva Barnes, wife of Earl Barnes 

Duggan Barnes, brother of Earl Barnes 

Sol Goldwasser, associate broker 

Mark Stewart, associate broker 

G. W. Fiehler, father-in-law of Mark Stewart 

W. V. Sweeney, associate broker 

Francis Devuono, wife of Frank Devuono, former associate broker 

Edson C. Eldredge, branch manager 

R. C. Kersten, branch manager 

a) Member of Fox family 

b) Married to member of Fox family 

During January 1956, respondent Fox DeLuxe also traded in egg futures for its 

own account. All trading in the Maude J. Gergen account was controlled and 
Page 13 

directed by respondent Roland N. Gergen. The G. W. Fiehler account was opened 

and the transactions in this account were ordered and financed by his son-inlaw, the above-described Mark Stewart, without the prior knowledge or consent of 

G. W. Fiehler. (Tr. pp. 148, 293-296, 674, 751-752.) 

32. In December 1955, at a time when the price of the January 1956 egg future 

was approximately 44 cents, respondent Harold W. Fox recommended to the board of 

directors of respondent Fox DeLuxe that the future be purchased in quantities 

greater than available refrigerator egg supplies, because long positions in 

excess of such supplies would then have to be satisfied by the delivery of fresh 

eggs, resulting in a speculative profit. The board of directors unanimously 

agreed with this recommendation, and respondent Harold W. Fox made similar 

recommendations to approximately 26 customers whose accounts he handled, 

including some of the affiliated accounts. Respondent 

 

Fox DeLuxe made like recommendations to the other customers and affiliated 

accounts, and the purchases of January 1956 futures hereinafter described were 

made as a result of these recommendations. On or about January 1, 1956, 

respondent Harold W. Fox concluded that the decrease in cold storage stocks 

between December 1, 1955, and January 1, 1956, was "terrific," that holdings of 

such stocks were "very light," and that further decreases in the quantity of 

such holdings could be expected, and these factors convinced him that the 

purchasing program which he had recommended to respondent Fox DeLuxe and its 

customers should be continued. (Tr. pp. 724-725, 742, 759-768, 774-776, 831.) 

33. On December 1, 1955, respondent Fox DeLuxe had a long position for all 

accounts on its books of 92 carlots in the January future. During the month of 

December, pursuant to the recommendations made by respondent Harold W. Fox, 

respondent Fox DeLuxe purchased substantial quantities of the January future for 

its house account, the affiliated accounts, and the other cstomers' accounts, 

and on December 30, 1955, the respondent corporation had a long position in such 

future of 236 carlots for its house account and 22 affiliated accounts, and an 

additional 357 carlots for the accounts of 51 other customers, or a total long 

position of 593 carlots, which position constituted 35.7 percent of the open 

interest in the future. On the same date, respondent Fox DeLuxe had a total 

short position in the future of five carlots for three customers, representing 

about 0.3 percent of the open interest. (Complainant's Exhibits 33, 34.) 

34. After December 30, 1955, respondent Fox DeLuxe continued to purchase 

January 1956 egg futures, and between January 3, 1956 (the first business day 

following December 30), and January 16, the respondent corporation increased its 

long position by 353 carlots, of which 144 carlots were for its house account 

and 18 affiliated accounts, and the remaining 209 carlots were for the accounts 

of other customers. All such purchases were speculative. On January 16, 1956, 

as a result of these purchases, respondent Fox DeLuxe had a long position in the 

January future of 946 carlots, consisting of 334 carlots for its house account 

and 26 affiliated accounts, plus 612 carlots for the accounts of 70 other 

customers. On the same date this respondent had a total short position of 12 

carlots for two customers (Complainant's Exhibit 33). 

35. Between December 30, 1955, and January 16, 1956, the 

 

open interest in the January 1956 egg future on the Exchange decreased from 1661 

carlots to 1514 carlots, and total long contracts in the future held by clearing 

members other than respondent Fox DeLuxe decreased from 1068 carlots to 568 

carlots, or by 46.8 percent. During the same period, as a result of the abovedescribed purchases, the long position in such future of respondent Fox DeLuxe 

as a clearing member increased by 59 percent -- from 593 to 946 carlots -- and 

its position of the open interest rose from 35.7 to 62.5 percent Between January 

16 and the end of trading the long position of respondent corporation for all 

accounts was never less than 59 percent of the open interest. During this 
Page 14 

period, which constituted the last seven trading days, respondent Fox DeLuxe 

purchased 158 carlots of the January future for 18 new accounts which had not 

previously traded or held any position in such future through respondent Fox 

DeLuxe during that month. The maximum short position in the January future held 

by respondent Fox DeLuxe during January 1956 was 26 carlots for the accounts of 

four customers on January 12, representing 1.90 percent of the open interest. 

Thereafter, its maximum short position in the future did not exceed 12 carlots, 

and on January 19, 20 and 23, consecutive trading days, it held no short 

position in the future for any account. During these three days respondent Fox 

DeLuxe made total net liquidating sales of 26 carlots for all accounts, and 

during such period the respondent corporation withheld from sale the balance of 

the long January futures in its own account, the affiliated accounts, and the 

other customers' accounts. (Complainant's Exhibit 33.) 

36. On January 23, 1956, the long position in the January future of 

respondent Fox DeLuxe for 73 accounts was 737 carlots, or 70.4 percent of the 

open interest. On January 24, 1956, the last day for trading in the future, 

respondent Fox DeLuxe offered these 737 long carlots for sale on the Chicago 

Mercantile Exchange at 46.50 cents, which was the highest price recorded for the 

January future on that day. On the same day, the price in Chicago for fresh 

eggs described as U. S. Extras, Large, Minimum 60% A Grade, was 44 to 45 cents. 

These eggs were of better quality than required for par delivery on January 1956 

egg futures contracts. (Complainant's Exhibits 33, 33A, 33B, 34, 34A, 49, 50; 

Tr. p. 742.) 

37. On January 24, 1956, respondent Fox DeLuxe sold 337 carlots of the 737 

carlots of January futures which it offered, 

 

leaving it, after the end of trading, with long positions for its house account, 

13 affiliated accounts, and ten other customer accounts, in the amount of 400 

carlots, out of a remaining open interest of 405 carlots, the other five carlots 

being held by one other clearing member. On the short side of these 405 

carlots, respondent held one carlot and the remaining 404 carlots were 

distributed among 27 other clearing members. The 400 long carlots held by 

respondent Fox DeLuxe were satisfied by the delivery of eggs to respondent as 

hereinafter described. (Complainant's Exhibits 33, 34, 36, 37.) 

38. As a result of the transactions described above, trading on the long side 

of the January 1956 egg future was concentrated largely in the hands of 

respondent Fox DeLuxe during January 1956. On December 1, 1955, respondent Fox 

DeLuxe held long contracts in the January future in the amount of 92 carlots, 

while all other clearing members held a total of 1482 carlots. Thereafter, 

during December and January, long contracts in the future held by respondent Fox 

DeLuxe increased while those held by other clearing members decreased, with the 

result that on and after January 12, 1956, respondent held more long contracts 

than all other clearing members combined. Between January 16 and 22, respondent 

Fox DeLuxe held one and one-half times as many long contracts as the total held 

by all other clearing members. On January 23, 1956, respondent held 

approximately two and one-half times as many long contracts as did all other 

clearing members. Between January 16 and the end of trading, 36 clearing 

members in addition to respondent Fox DeLuxe carried long positions in the 

January 1956 future. Only four of these 36 clearing members attained maximum 

long positions during this period of more than 50 carlots, the largest being 227 

carlots. During this period respondent Fox DeLuxe held between 715 and 946 

carlots. On the short side of the January future during this period, 

approximately 53 clearing members in addition to respondent Fox DeLuxe carried 

positions, and the largest short position reached by any of these was 183 

carlots. The largest short position held by respondent Fox DeLuxe during this 

period was 12 carlots. (Complainant's Exhibits 33, 34, 34A, 36, 37.) 

39. On December 30, 1955, there were approximately 101 carlots of shell eggs 

in Chicago cold storage warehouses. This quantity declined steadily until 
Page 15 

January 18, 1956, when it reached a low point of 63 carlots, after which these 

stocks increased 

 

and on January 23 there were 104 carlots of shell eggs in such warehouses. 

During the week of January 16 the quantities of long January futures held by 

respondent Fox DeLuxe for its house account and the affiliated accounts were 

between two and five times as large as total stocks of shell eggs in Chicago 

cold storage warehouses, and the quantities of such future held by respondent 

for all accounts were between nine and fifteen times as large as such total 

stocks during this period. At all times in January 1956 up to the last day of 

trading in the future, respondent Fox DeLuxe held more than five and one-half 

times as many January futures contracts for all accounts as there were stocks of 

shell eggs in Chicago cold storage warehouses. (Complainant's Exhibits 33, 38.) 

40. On December 30, 1955, and January 3, 1956, consecutive business days, 

fresh egg prices in Chicago declined by three cents. On January 4, 1956, Mark 

Stewart, an associate broker for respondent Fox DeLuxe, purchased for its 

account approximately 900 out of a total of 950 cases of fresh eggs of 

deliverable grade, quality and weight sold on the spot call of the Exchange. 

These purchases were made at prices of 50 to 51.50 cents. On the same day, 

respondent Fox DeLuxe sold 600 cases of these eggs for shipment out of Chicago 

at a price which represented a loss of 0.2 cent. On January 5, respondent sold 

an additional 200 cases for shipment out of Chicago at a loss of 2.1 cents, and 

on January 6 it sold the remaining 100 cases in Chicago at a loss of 2.1 cents. 

(Complainant's Exhibits 39, 45, 49; Tr. pp. 167-169.) 

41. Fresh egg prices in Chicago continued to decline after January 4, 1956, 

and by January 17 had fallen an additional nine cents. On or about January 18, 

Isadore Katz, president of a Chicago firm engaged in the business of breaking 

eggs to make liquid and frozen eggs, attempted to purchase refrigerator eggs 

from respondent Fox DeLuxe for such use, but was informed by respondent Gergen 

that the refrigerator eggs which respondent Fox DeLuxe had in inventory were not 

for sale. Thereupon respondent Gergen, acting for his firm and with the 

knowledge of respondents Harold W. Fox and Bert E. Fox, entered into an oral 

contract with Isadore Katz, whereby Katz agreed to buy fresh eggs of deliverable 

grade, quality and weight on the Chicago Mercantile Exchange, without limit as 

to quantity, at 44 to 45 cents for his own account and use, and respondent Fox 

DeLuxe agreed to reimburse him, as hereinafter described, 

 

for any loss incurred. Fresh eggs purchased at 44 to 45 cents could not 

profitably be converted into liquid or frozen eggs. Pursuant to the contract, 

Katz purchased all the fresh eggs of deliverable grade, quality and weight sold 

on the spot call of the Exchange on January 19, 20 and 23, 1956, consecutive 

business days. Such purchases were made at prices of 44 to 45 cents, and total 

purchases were 12,000 cases (25 carlots). Katz also posted bids for 3,000 cases 

(six carlots) at the same price, which remained unfilled at the close of the 

spot call session. Subsequently, in accordance with the agreement described 

above, respondent Fox DeLuxe paid to Katz the sum of $ 26,880, representing the 

difference between the purchase price of the fresh eggs and the price at which 

Katz was bidding for refrigerator eggs for breaking purposes in mid-February 

1956, plus one-half cent per dozen profit, plus expenses incurred in carrying 

such fresh eggs. Respondent Fox DeLuxe entered this sum on its books as payment 

for 107,000 pounds of frozen egg whites purchased and received from the Katz 

firm, but no such purchase or receipt had taken place, Katz having used such 

fresh eggs in the usual course of his business. (Complainant's Exhibits 40, 41, 

42, 49; Tr. pp. 239-245, 248, 643-648, 666-671.) 

42. Respondent Fox DeLuxe entered into and carried out the above-described 

contract with Katz in order to support the price of fresh eggs and January 

futures, and to remove from the open market eggs of deliverable grade, quality 

and weight which might otherwise be available to the shorts for delivery on the 
Page 16 

future. The prices of 44 to 45 cents paid by Katz on January 19, 20 and 23 were 

from two to three cents in excess of the true market value of fresh eggs. On 

January 25 after futures trading had ceased and the above-described agreement 

was no longer in effect, eggs of identical grade, quality and weight were 

unsuccessfully offered on the spot call of the Exchange at 41 cents, and on that 

day Katz posted maximum bids on the spot call of 40.50 cents for such eggs. On 

January 27, eggs of identical grade, quality and weight were unsuccessfully 

offered on the spot call at 38.50 cents, and on that day maximum bids of 38 

cents for such eggs were posted on behalf of Katz. (Complainant's Exhibits 43, 

44, 49; Tr. pp. 245-246, 314-316, 645-646, 667-668.) 

43. On December 30, 1955, the price of fresh eggs in Chicago was 8.25 cents 

higher than the price of the January future, and on January 3, 1956, it was 6.50 

cents higher. During the 

 

next two weeks, this differential or spread was reduced by reason of a steady 

decline in the price of fresh eggs while the price of the January future 

remained comparatively stable, and on January 16 the price of fresh eggs fell 

below the price of the future. During the next few days fresh egg prices 

increased, but remained below the price of the future at all times during the 

rest of the futures trading period, and at the end of futures trading on January 

24, the January future closed at 46.45 cents as against 43.75 cents for fresh 

eggs. Thereafter fresh egg prices resumed their decline, and on January 27, the 

price of fresh eggs fell to 38.75 cents. (Complainant's Exhibits 49, 49A, 50, 

51.) 

44. Fresh egg prices in January are normally higher than futures prices, and 

both prices normally move in the same general direction. An inverted price 

relationship or movement of the prices in opposite directions indicates the 

presence of factors other than supply and demand. The production of eggs in 

January 1956 was increasing and the supply of fresh eggs was in excess of 

demand, and the trend of fresh egg prices in January 1956 reflected this supply 

and demand situation. The prices of the January future, particularly on and 

after January 16, were not justified by and did not reflect the supply and 

demand situation in the egg market, but were substantially in excess of true 

market value and were brought about by continued heavy purchases of the future 

and by concentration of the long interest in the future on the books of 

respondent Fox DeLuxe. When January futures prices became higher than fresh egg 

prices, the January future became the best market for fresh eggs. This created 

an abnormal demand for fresh eggs for shipment to Chicago and delivery on the 

future, and between January 19 and 31, 352 carlots of such eggs were diverted 

from normal channels of trade, shipped to Chicago, placed in cold storage, and 

delivered on the January future. This movement reduced supplies customarily 

available in producing areas, increased the prices of such supplies, distorted 

normal distribution patterns, and interfered with established merchandising 

operations. (Complainant's Exhibits 46, 47, 48; Tr. pp. 214, 229-235, 264-265, 

268-270, 274-278, 284-292, 299-300, 313-316, 319-323, 326, 341-345, 510-511, 

655.) 

45. Respondent Fox DeLuxe received 441 carlots of eggs on delivery in January 

1956, of which 41 carlots were received before the end of trading and 400 

carlots after the end of trading. 

 

Total deliveries on a final receiver basis in January 1956 were 446 carlots. 

The largest quantity of eggs delivered on the January future in any other year 

from 1938 through 1957 was 143 carlots. Of the 446 carlots delivered in January 

1956, 393 carlots were fresh eggs. The largest quantity of fresh eggs delivered 

on the January future in any other year from 1938 through 1957 was 25 carlots. 

Respondent Fox DeLuxe received 388 of the 393 carlots of fresh eggs delivered in 

January 1956. (Complainant's Exhibits 46, 47; Tr. p. 187.) 
Page 17 

46. The 441 carlots of eggs received on delivery by respondent Fox DeLuxe in 

January 1956, as described above, were disposed of by selling 3531/2 carlots of 

shell eggs at prices ranging from 25.50 to 43.25 cents, breaking and selling 

671/2 carlots as liquid eggs at prices equivalent to 21 to 31 cents, and 

delivering the remaining 20 carlots on September 1956 futures which had been 

sold at prices of 31.15 to 35.65 cents. The 441 carlots were received by 

respondent Fox DeLuxe on behalf of its house account and more than 23 of the 

affiliated and other customer accounts. The respondent did not enter such 

receipts or the proceeds of disposition in the individual accounts, but handled 

such receipts and proceeds as a unit by entering them in a single cash egg 

account on its books. This was contrary to the usual practice. (Complainant's 

Exhibit 33; Tr. pp. 178-180, 183-186.) 

47. On January 19, 1956, James Koutsky of the Chicago office of the Commodity 

Exchange Authority addressed the following letter to Everette B. Harris, 

president of the Chicago Mercantile Exchange (Complainant's Exhibit 52): 

141 West Jackson Blvd. -- Room 1200 

Chicago 4, Illinois 

January 19, 1956 

Mr. Everette B. Harris, President 

Chicago Mercantile Exchange 

Chicago 6, Illinois 

Dear Mr. Harris: 

Mr. Rodger R. Kauffman has requested me to transmit the following teletype 

message to you: 

"We have received widespread complaints that January egg futures and actual 

eggs are being manipulated on your Exchange. Most recent information available 

to us shows continuing large open contracts in the face of an apparently very 

limited quantity of eggs available for delivery. Of the 1284 contracts open as 

of January 18, 762 carlots 

were held by one of your clearing members for itself and a number of customers. 

A substantial proportion of these were purchased on or since January 16. Prices 

for the January Refrigerator contract are approximately 21/2 cents above those 

quoted for the February fresh egg contract. "The above is called to your 

attention for such action as your Board of Governors may consider appropriate 

pursuant to the requirement for the prevention of manipulation and cornering set 

forth in Section 5(d) of the Commodity Exchange Act. 

"Rodger R. Kauffman 

Administrator 

Commodity Exchange Authority" 

Very truly yours, 

James Koutsky 

Exchange Supervisor in Charge 

In January 1956, Everette B. Harris informed respondent Harold W. Fox that if 

the Chicago Mercantile Exchange found any evidence of manipulation in the 

January future, Harold W. Fox would be brought to task. Mr. Harris also 

informed respondent Gergen that there was to be no trouble with the liquidation 

of January futures contracts, and the respondent promised to cooperate. (Tr. 

pp. 601-602, 607.) 

CONCLUSIONS

I
Page 18 

Respondents argue that since the complaint does not make the Fox DeLuxe 

customers respondents in the proceeding as coconspirators with respondents or as 

acting in concert with respondents, the positions and the trading of Fox DeLuxe 

customers cannot be considered and aggregated with respondents' positions and 

trading in determining whether respondents breached the act. Respondents cite 

in this connection General Foods Corporation v. Brannan, 170 F.2d 200 (7th Cir. 

1948), which they contend stands for the proposition that one person cannot be 

held responsible for the actions and statements of another in the absence of a 

conspiracy or agreement. 

The opinion in the General Foods case invoked by respondents held that one 

respondent could not be held liable for the actions and statements of other 

respondents in the absence of conspiracy, agreement or a relationship kindred 

thereto. The administrative 

 

decision (6 Agric. Dec. 288 (6 A.D. 288) (1947)) overruled by the court held 

that the respondents were charged with "acting in concert" but the court 

believed that the words "collaborate" and "collective" had no legal significance 

and that the complaint was not one of "acting in concert." n5 

n5 The administrative decision found that a respondent futures 

commission firm utilized the trading of Schedule A customers, not 

respondents, in the attempted manipulation, but the opinion of the court 

relied upon by respondents here relates not to the customers but to 

respondents in that case. 

Respondents are charged here with substantive violations of the act and not 

with unlawful agreement or conspiracy as an offense per se. There is nothing 

invalid about such a charge. Manipulations are prohibited by the act whether 

accomplished by one or more than one person (In re G. H. Miller and Company, 

supra), and respondents are charged with what they did and not with any 

violations of the act by their customers. Whether or not the customers or some 

of them knew of the alleged manipulative schemes afoot is not essential to the 

causes of action made out by the complaint. And the causes of action made out 

in the complaint are certainly violations of the act if established. 

Respondents' argument would bring about the strange result that a futures 

commission merchant would be free to raise or lower futures prices through the 

use of his customers' trading for such purpose if the customers do not know of 

the manipulative plan. The mere statement of the contention carries its own 

negative answer. In a proceeding under the act, In re Reuben McGuigan, 5 Agric. 

Dec. 249 (5 A.D. 249) (1946), the respondent was to have manipulated futures 

prices to his benefit through his market "tip" sheet and through the sending of 

hundreds of telegrams to traders. Respondents' view is to the effect that the 

trading of McGuigan's clients which resulted in the manipulated prices could not 

be considered against McGuigan unless the traders who took his market advice 

were engaged in a conspiracy with him or knowingly took part in his 

manipulation. 

The evidence combining positions and trading of customers with those of 

respondents was not only necessary but essential to the causes of action stated. 

The Barnes, Burbulis and Roeser accounts in December 1953 and the affiliated 

accounts in the January 1956 operation are regarded by complainant as being 

under a greater degree of management or control by respondents than the other 

customer accounts but we know of no legal requirement that the owners of such 

accounts must be charged with knowing participation in the manipulation and made 

parties 

 

to the proceeding in order to charge respondents with manipulation. 
Page 19 

What the evidence establishes as to the allegations of the complaint with 

respect to the relationship between respondents' activities and the affiliated 

and customer accounts will be set out hereinafter. 

II

Respondents were responsible for the program of influencing Fox DeLuxe's 

customers to enter the long side of the market in December 1953 with about 11 

days of trading left, for the respondents corporation entering the market as a 

substantial long, for a stepped-up purchasing program for Fox DeLuxe and 

customers commencing December 17 as the crucial last few days of trading were 

coming up, for withholding sales of respondents' futures and respondent 

corporation's customers futures December 18, 21 and 22, for buying all fresh 

eggs of deliverable quality offered on the spot call of the Chicago Mercantile 

Exchange on December 21, 22 and 23, for offering all December futures of Fox 

DeLuxe and customers on the last day of trading at the highest price for the 

day, and for charging a uniform price, 47.95 cents, for all refrigerator eggs 

sold to shorts for delivery purposes after the close of trading and handled as a 

pool for the Fox DeLuxe, Barnes, Burbulis and Roeser (Gergen) accounts. 

The long positions of customers were taken upon the advice and 

recommendations of respondent Fox DeLuxe. The long positions of customers 

increased as the crucial last few days of trading approached. The Barnes, 

Burbulis and Roeser (Gergen) accounts and Fox DeLuxe house account increased 

their long holdings. There were practically no futures sold from any of the 

accounts December 17, 18 or 21. On the last day of trading Fox DeLuxe offered 

for sale all the futures, its own and those for all the other accounts, at the 

highest price for the day. The house account and the Barnes, Burbulis and 

Roeser (Gergen) accounts wound up with all the unliquidated long contracts after 

the close of trading. It is plain from these facts that the trading of the Fox 

DeLuxe customers and the Barnes, Burbulis and Roeser (Gergen) accounts was not 

trading in which each customer independently arrived at a decision as to what to 

do. The trading was influenced, directed and managed by respondents. The 

Roeser account belonged to Gergen; Barnes was an associate broker for Fox 

DeLuxe; and Burbulis 

 

was a customer of Barnes. The size of the long positions of the Barnes and 

Burbulis accounts, the manner of purchase of the long contracts for these two 

accounts and the facts that these two accounts together with the Roeser (Gergen) 

account and the Fox DeLuxe house account had the only unliquidated long 

contracts after the close of trading and shared in the delivery pool show 

management and control of these accounts by respondents and even perhaps 

awareness of the plan on the part of the owners of the accounts. 

Respondents insist, however, that there was no manipulative intent present. 

But respondents are professional traders. They knew of the small stocks of 

refrigerator eggs in Chicago and they knew that the maintenance during the last 

few trading days of an open interest greatly in excess of refrigerator egg 

stocks would have a price-enhancing effect. 

Their manipulative purpose is glaringly revealed by the fresh egg purchases 

on the Exchange December 21, 22 and 23. Fresh egg prices had been declining and 

might be expected to continue to do so. But on these three consecutive days 

respondent Fox DeLuxe stepped in and purchased all the eggs of deliverable 

grade, quality and weight offered. Most purchases were made through an 

independent broker and the prices were 46, 46.25 and 46.50 cents with bids at 

these prices for more eggs. Thus, to shorts considering the possibility of 

making arrangements for delivery of fresh eggs, the price was established as at 

least 46 cents. Moreover, respondent Fox DeLuxe moved the fresh eggs purchased 

out of Chicago making them unavailable to shorts and sold them at a loss. 

Obviously Fox DeLuxe was taking no chances that fresh egg prices would decline 

before the close of trading to the point that shorts might decide it to be 

cheaper to make arrangements to deliver fresh eggs than to liquidate by buying 

futures, and of course if fresh egg prices declined sufficiently respondent Fox 
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DeLuxe and customers might receive fresh eggs which would be worth less than the 

many futures purchased December 17 and 18 at about 441/2 cents by Fox DeLuxe and 

customers. Respondents' explanation that the purchases of fresh eggs on the 

Exchange amounted merely to "testing the market" is simply unbelievable. 

There is no doubt that the December 1953 operation was manipulative in 

purpose, that is, that the respondents sought to use the weight of the 

corporation's trading and that of its customer accounts to put a "squeeze" on 

the shorts and to influence 

 

upwards the price of egg futures and cash refrigerator eggs. The "squeeze" is a 

well-known manipulative technique n6 and unquestionably constitutes an attempt 

to manipulate prices within the meaning of the act. 

n6 See, e.g., Encyclopedia of the Social Sciences (1937 ed.), Vol. IV, 

p. 409; Baer and Woodruff, Commodity Exchanges (3d ed. 1935), p. 146; 

Hubbard, Cotton and the Cotton Market (1927), p. 396; Report of the Federal 

Trade Commission on the Grain Trade (1926), Vol. VII, p. 244; Emery, 

Speculation on the Stock and Produce Exchanges of the United States (1896), 

p. 175. 

We conclude too that manipulated prices were brought about by the trading 

tactics of respondents. As shown by the Findings of Fact, comparisons of 

December futures prices with fresh egg prices in December and with January 

futures in December demonstrate that December futures prices in the last few 

days of trading were artificially high. These prices were not due to economic 

conditions in the egg market generally but to the situation within the Chicago 

futures market of open long contracts greatly in excess of deliverable supplies 

of refrigerator eggs. A large part of the open long interest was held by 

respondent corporation and its customers, 35.6 percent December 18; 43.7 percent 

December 21; and 53.7 percent December 22. 

Respondents used the long positions of Fox DeLuxe, the Barnes, Burbulis and 

Roeser (Gergen) accounts and the customers' accounts to push the futures price 

up and the price advanced. Respondents by their purposeful activities caused at 

least part of the price rise and thereby manipulated the futures price. They 

also, of course, at the same time manipulated prices of cash refrigerator eggs 

which follow futures prices and they demanded and got a uniform price of 47.95 

cents, the manipulated closing futures price, for refrigerator eggs sold to 

shorts for delivery after the close of trading. Nineteen of the 23 carlots of 

refrigerator eggs used in such sales were resold after the end of the delivery 

period by respondent Fox DeLuxe at 41, 41.25 and 41.50 cents and the remaining 

four carlots at 43.10 cents. 

III

The facts with respect to the January 1956 operation also lead inevitably to 

the conclusion that respondents, as charged, attempted to and did manipulate 

January 1956 egg futures prices and prices of cash refrigerator eggs. The 

operation was conducted on a much larger scale but was of essentially the same 

manipulative nature, namely, a squeeze to pressure prices of 

 

futures and cash refrigerator eggs upward by the aggressive development and 

maintenance of long positions of Fox DeLuxe, affiliated accounts and customers 

greatly in excess of deliverable stocks of refrigerator eggs. For example, 

during the week of January 16, 1956, respondent Fox DeLuxe had between nine and 

15 times as many futures on its books as there were shell eggs, deliverable and 

undeliverable, in Chicago warehouses and during the entire trading month it 

never had less than 51/2 times as many. As in December 1953, but again on a 

larger scale, respondent Fox DeLuxe bought fresh eggs of deliverable quality on 

the spot call of the Chicago Mercantile Exchange to remove them from the market 
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and from the shorts and to support the price. Fox DeLuxe even went to the 

extremes of the deal with Katz described in Findings of Fact 41 and 42 which 

alone is a graphic demonstration of the attempt to manipulate prices of the egg 

future. Fox DeLuxe withheld from sale the bulk of the dominating long position 

of itself and customers until the last day of trading when it offered 737 

carlots at a uniform price, the highest price for the day. That respondents 

attempted to manipulate egg futures prices and cash refrigerator egg prices is 

the only reasonable inference to be drawn from the evidence. 

The uniform preference for the long side of the market by 111 of Fox DeLuxe's 

116 customer accounts, the continued purchasing and holding of futures while 

other traders were liquidating, the offer of 737 carlots of futures at the same 

high price on the last trading day on behalf of 72 different accounts, the 

election not to close out the long positions of 24 different accounts but to 

accept delivery of eggs instead, and the common sharing of proceeds and expenses 

in connection with the disposition of the 441 carlots received on delivery, 

negative any possibility of separate and independent action on the part of the 

affiliated accounts and of other Fox DeLuxe customers. 

Furthermore, the uniform trading activity again found its way, as it did in 

December 1953, to a single broker to the exclusion of all others. In January 

1956, there were 113 registered futures commission merchants who were members of 

the Chicago Mercantile Exchange. Of these, there were 58 clearing members who 

held positions in the January future for themselves or their customers after 

mid-January. Until the last few trading days, a substantial portion of these 

clearing members had positions on both sides of the market, although the 

concentration 

 

of long trading through respondent Fox DeLuxe was, by this time, quite apparent. 

By the time trading closed, respondent Fox DeLuxe had virtually preempted the 

long side of the market with 400 out of the 405 remaining contracts, but the 

short contracts were dispersed among 27 other clearing members (Complainant's 

Exhibits 36, 37). This concentration of the long interest through a single firm 

-- one out of 113 -- in conjunction with the other circumstances described, 

leads to the inescapable conclusion that respondent Fox DeLuxe proceeded in 

January 1956 in the same fashion as it did in December 1953, and that it 

encouraged, guided, and lent its facilities, management, and leadership to the 

development of a large number of individual long positions which it used for 

manipulative purposes. 

It is clear too that respondents' activities brought about manipulated prices 

for the egg future and cash refrigerator eggs. Findings of Fact 43, 44, 45 and 

46 demonstrate convincingly that such was the case. 

IV

Concerning the fresh egg purchases on the spot call by respondent Fox DeLuxe 

in December 1953 and the purchases in January 1956 including the Katz 

transactions, respondents argue that price "pegging," or support of an existing 

price, does not constitute manipulation of prices proscribed by the act, citing 

General Foods Corporation v. Brannan, supra. Complainant invokes United States v. Socony-Vacuum Oil Company, 310 U.S. 150, 221 (1940) to the effect that 

stabilization of prices by a combination is manipulation of prices. We still 

believe it to be true, as we said in the administrative decision in In re 

General Foods Corporation, 6 Agric. Dec. 288 (6 A.D. 288), 305 (1947), overruled 

in General Foods Corporation v. Brannan, supra, that, "To manipulate prices 

means . . . to cause prices to go up or down by means directed to either such 

end." In In re Zenith-Godley Company, 6 Agric. Dec. 900 (6 A.D. 900) (1947), 

respondents were found to have manipulated prices of cash butter on the New York 

Mercantile Exchange in violation of the act by supporting butter prices, that 

is, by preventing a price decline through purchasing all butter offered for 

sale. The fresh egg purchases here were accomplished for a price supporting 

purpose. This is practically admitted as to the Katz transactions, respondents' 

own explanation being that the transactions were carried out to remove a 
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"glut" on the market. But we do not find it necessary to hold that the 

supporting of fresh egg prices on the Chicago Mercantile Exchange constituted 

violations of the act separate and apart from the manipulations of futures and 

cash refrigerator egg prices since the complaint seems to regard the fresh egg 

purchases primarily as part of, and in aid of, the manipulation of futures 

prices and cash refrigerator egg prices. 

V

Respondents urge that fresh eggs were deliverable on the December 1953 and 

January 1956 futures contracts and that therefore there was no attempt to 

manipulate and no manipulation of futures and cash refrigerator egg prices. 

Whether or not fresh eggs, a more valuable product than refrigerator eggs, were 

deliverable on the futures contract seems to us to make little or no difference 

in adjudication of the issues in this proceedings. True, the availability of 

fresh eggs might place a ceiling on the extent of manipulation possible just as 

daily limits on price rises for futures do. And freely available deliverable 

fresh eggs and declining prices for fresh eggs might make manipulation of 

futures prices financially unrewarding to the manipulators. But if the prices 

for futures and for cash refrigerator eggs are artifically enhanced by 

manipulative means such as a "squeeze" the act is still breached regardless of 

the deliverability of fresh eggs on the futures contract. 

Respondents offer explanations for all or most of the evidence indicating 

manipulative motive. These explanations are either unconvincing or plainly 

incredible. All exceptions, objections, etc., inconsistent with this decision 

and order are denied or overruled whether or not specifically discussed herein. 

VI

In view of the foregoing, it is concluded that the respondents attempted to 

manipulate and did in fact manipulate the prices of egg futures on the Chicago 

Mercantile Exchange and the prices of cash refrigerator eggs in interstate 

commerce in December 1953 and January 1956. 

The violations were flagrant, deliberate, and extensive in scope. The 

manipulation in 1953 was repeated on a much larger scale in 1956. The 1956 

operation involved a substantial segment 

 

of the futures market, adversely affected the cash market in Chicago and outside 

areas, and interfered with the flow of eggs in interstate commerce. Such 

violations are very serious. "Manipulations . . . for speculative profit, . . . 

exert a vicious influence and produce abnormal and disturbing temporary 

fluctuations of prices that are not responsive to actual supply and demand and 

discourage not only . . . justifiable hedging but disturb the normal flow of 

actual consignments." Board of Trade v. Olsen, 262 U.S. 1, 39 (1922). The 

Commodity Exchange Act is designed "to remove burdens on interstate commerce 

caused by manipulation and market control." Board of Trade of Kansas City v. Milligan, 90 F.2d 855, 857 (8th Cir. 1937). 

The evidence discloses that respondents Roland N. Gergen and Harold W. Fox 

were the leaders who planned and executed the manipulations with the full 

knowledge and consent of the board of directors of respondent corporation, and 

considering the gravity of the violations, the sanctions imposed upon these 

three respondents are necessary to prevent or discourage future manipulations 

and attempted manipulations by these respondents and others on the commodity 

exchanges. 

The evidence also shows that Bert E. Fox participated in the violations. As 

a vice-president and member of the board of directors he approved the 

manipulations and as floor broker he executed some of the transactions. Despite 
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this prima facie showing, Bert E. Fox did not testify or even attend the 

hearing. Complainant, therefore, has discharged its burden of proof. 

The evidence further indicates, however, that Bert E. Fox was not the 

motivating force behind the manipulations or that he actively planned them, 

although he acquiesced and went along with the schemes. The president of the 

Exchange testified in effect that he did not consider Bert E. Fox a very 

influential member of Fox DeLuxe and never discussed with him any serious 

matters. Accordingly, it is our opinion that while some sanction should be 

imposed upon Bert E. Fox, a sanction less severe than that imposed upon the 

other respondents is justified. 

Upon consideration of all the factors, it is concluded that the registration 

of respondent Fox DeLuxe as a futures commission merchant and the registration 

of respondent Harold W. Fox as a floor broker be revoked; that the registration 

of Bert E. Fox as a floor broker be suspended for a period of three months; and 

that all trading privileges on all contract markets be denied to respondents Fox 

DeLuxe Foods, Inc., Harold W. Fox, and 

 

Roland N. Gergen for a period of one year, and to respondent Bert E. Fox for a 

period of six months. 

ORDER

Effective 30 days after the issuance of this order, the registration of Fox 

DeLuxe Foods, Inc., as a futures commission merchant and the registration of 

Harold W. Fox as a floor broker are revoked, and the registration of Bert E. Fox 

as a floor broker is suspended for a period of three months. 

Effective 30 days after the issuance of this order, all contract markets 

shall refuse all trading privileges to Fox DeLuxe Foods, Inc., Harold W. Fox, 

and Roland N. Gergen for a period of one year, and to Bert E. Fox for a period 

of six months, such refusals to apply to all trading done and positions held 

directly and also to all trading done and positions held indirectly through 

persons owned or controlled by any of respondents. 

A copy of this decision and order shall be served upon each of the parties 

and upon each contract market. 

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