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Commodity Futures Trading Commission 

CEA CASES 

NAME: KERMIT W. QUAINTANCE, "Q" COMMODITIES CO., AND EARL B. HOGLUND 

CITATION: 34 Agric. Dec. 827 

DOCKET NUMBER: 176 

DATE: OCTOBER 24, 1974 

DOCUMENT TYPE: DECISION AND ORDER 

(No. 16,453) 

In re KERMIT W. QUAINTANCE, "Q" COMMODITIES Co., and EARL B. HOGLUND. CEA Docket 

No. 176. Decided October 24, 1974, with respect to Earl B. Hoglund.

Insufficient funds checks -- Falsifying financial ledger record -- Customers 

funds -- misuse of -- Sanction

Respondent's stipulation has been accepted and the order herein is issued 

against respondent Hoglund in connection with violations of the Act with respect 

to maintenance of accounts and records and the care and use of customers' funds 

as found herein. Respondent Earl B. Hoglund is denied trading privileges on all 

contract markets for a period of three years. 

Richard W. Davis, for complainant. 

Robert W. Patterson, Rochester, Minn., for respondent. 

Decision by John A. Campbell, Administrative Law Judge.

DECISION AND ORDER

PRELIMINARY STATEMENT

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

U.S.C. Chapter 1) hereafter referred to as the "Act", instituted by a complaint 

and notice of hearing issued on July 12, 1971, by the Assistant Secretary of 

Agriculture. The respondents are charged with violating various sections of the 

Act and Regulations. * 

* Sections 4, 4d(2), 4g, 4i, 6(b), and 9(a) of the Act (7 U.S.C. 6, 

6d(2), 6g, 6i, 9, 13(a)) and sections 1.20, 1.32, 1.35, 1.37, 17.00, 18.00, 

and 18.04 of the regulations of the Secretary of Agriculture issued under 

the said Act (17 C.F.R. 1.20, 1.32, 1.35, 1.37, 17.00, 18.00, 18.04) herein 

referred to as the "Regulations". 

Final disposition of this matter was held in abeyance pending 

settlement negotiations and final disposition of a criminal indictment in the 

United States District Court, District of Minnesota, against the respondents 

involving some of the acts alleged herein. On May 29, 1973, the Judicial 

Officer, United States Department of Agriculture, issued a Decision and Order 

disposing of this case ** insofar as it pertained to respondents Kermit W. 

Quaintance and "Q" Commodities Co. (32 Agric. Dec. 1109 (32 A.D. 1109)). 

** Order to cease and desist and five year denial of trading privileges. 

Respondent Earl B. Hoglund filed a separate answer on November 2, 1973, in 

which he admitted the jurisdictional allegations of the complaint, stated that 
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he was without knowledge or information as to the allegations pertaining 

specifically to the other respondents, and denied the remaining allegations of 

the complaint. 

An oral hearing was held before me in Rochester, Minnesota, on April 2, 1974. 

Respondent Earl B. Hoglund was represented by Robert W. Patterson, Esquire, 

Rochester, Minnesota. Richard W. Davis, Jr., Esquire, Office of the General 

Counsel, United States Department of Agriculture, appeared as counsel for the 

complainant. 

During a prehearing conference immediately preceeding the oral hearing, the 

parties agreed to stipulate to facts generally outlining the nature of the 

business problems of the firm of "Q" Commodities Co., one of the respondents in 

this matter, and to stipulate to the substantive facts alleged in the complaint 

as to respondent Earl B. Hoglund (Tr. pp. 4-7). This left as the only issue in 

the case the determination of the sanction to be imposed against respondent 

Hoglund. 

FINDINGS OF FACT

1. Respondent, "Q" Commodities Co., a corporation organized and existing 

under the laws of the state of Minnesota, at all times material to this 

proceeding, was entitled to membership privileges on the Minneapolis Grain 

Exchange and the Chicago Board of Trade, both duly designated contract markets 

under the Act, and was engaged as a registered futures commission merchant under 

the Act. 

2. Respondent Earl B. Hoglund, at all times material to this proceeding, was 

manager of the branch office of "Q" Commodities Co., located in Rochester, 

Minnesota. 

3. During the period from about May 6, 1968, to about September 12, 1968, 

respondent Earl B. Hoglund, by the use of checks which he drew against 

insufficient funds, willfully falsified the financial ledger record of the 

account of Earl B. Hoglund in the books of "Q" Commodities Co. (required by the 

Regulations, 17 CFR 1.35). By carrying over the false credit entries thus 

created into the daily segregation record maintained by "Q" Commodities Co. 

(required by the Regulations, 17 CFR 1.32), respondent willfully falsified that 

record. (Stipulation, CX 2) 

4. On or about August 15, 1968, respondent Earl B. Hoglund submitted a report 

on Form CEA-40, "Statement of Reporting Trader" (required by the Regulations, 17 

CFR 18.04), which contained false entries in items 5 and 6 in that, contrary to 

such entries, Kermit W. Quaintance controlled trading and had a financial 

interest in the account to which the report pertained. (Stipulation, CX 2) 

5. During 1968, respondents Kermit W. Quaintance and "Q" Commodities Co. 

pursued a course of business in which commodity futures trades belonging to the 

firm were identified as having been made on behalf of customers and were 

assigned to the segregated customer account of the firm. Some of such trades 

were assigned to the account of respondent Earl B. Hoglund. As a result of this 

course of business, funds held in segregation for the benefit of customers were 

used to finance the trades of the firm. Money in segregation belonging to 

customers of the firm was used to margin contracts and to make up deficits on 

trades made on behalf of the firm. Customers of the firm, because of these 

actions, suffered the loss of free credit balances in their accounts in excess 

of $ 400,000, and the financial condition of the firm became impaired. 

(Stipulation, CX1) 

CONCLUSIONS

By reason of the aforesaid findings of fact, it is concluded that respondent 

Earl B. Hoglund violated sections 4i and 6(b) of the Act (7 U.S.C. 6i and 9) and 

section 18.04 of the Regulations (17 CFR 18.04), which sections pertain in 

general to the submission of reports and the maintenance of records. 
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It is further concluded that the falsification by respondents of the 

financial ledger account of respondent Earl B. Hoglund and the daily segregation 

record of "Q" Commodities Co. violated sections 4d(2) and 4g of the Act (7 

U.S.C. 6d(2) and 6g) and sections 

1.32 and 1.35 of the Regulations (7 CFR 1.32 and 1.35). Said sections pertain to 

the maintenance of accounts and records by futures commission merchants, the 

care and use of customer funds, segregated accounts, etc. 

As noted earlier in the preliminary statement, there being no serious dispute 

as to the facts or the violations of the Act and Regulations, the sole question 

to be decided here is the sanction to be imposed upon respondent Earl B. 

Hoglund. Aside from a cease and desist order, complainant recommends a five 

year denial of trading privileges while respondent recommends a six month 

denial. 

Complainant's recommendation is based on the contention that respondent 

Hoglund acted in combination and concert with respondents, Kermit W. Quaintance 

and "Q" Commodities Co. in pursuing the course of business stated in finding of 

fact 5 which ultimately led to a $ 400,000 loss of customer credit balances. 

Respondent Hoglund on the other hand appears to take the position that he was 

unknowingly used by the other respondents and that his role was insignificant in 

the total operation of "Q" Commodities which resulted in the financial disaster. 

We believe the record evidence supports a conclusion which is midway between 

these two contentions and accordingly we recommend that a three year denial of 

trading privilege be imposed upon respondent Hoglund, together with a cease and 

desist order. 

There is insufficient evidence in the record to convince us that respondent 

Hoglund acted in combination and concert with the other named respondents. For 

example there is no evidence in the record that respondent Hoglund profited from 

the activities nor is there evidence that he was totally aware of the activities 

of the other respondents. While we believe respondent Hoglund's actions to be 

serious violations of the Act and the Regulations, these violations represented 

only a small segment of the illegal conduct of his employer whom complainant 

characterizes as the "principal culprit in this matter." 

Additionally respondent Hoglund's abstention from trading since January 1971 

at the direction of his attorney * warrants 

some consideration in the imposition of a 3 year rather than 5 year sanction. 

* An agreement was made in January 1971, as part of a criminal plea 

bargain, that respondent Hoglund would consent to the imposition of an 

administrative sanction prohibiting him from trading in commodity futures 

for a period of time to be determined. When the complete terms of the 

proposed consent order were presented to respondent, he objected on the 

basis that a year had passed since the initial agreement was made, and that 

he had not traded after January, 1971, because he erroneously believed that 

the prohibition was already in effect, and claimed that the period of the 

sanction should be reduced by one year. Since no sanction had been imposed 

by the Secretary of Agriculture and since complainant was in no way 

responsible for the erroneous belief of respondent, complainant declined to 

so reduce the period of the sanction (Tr. pp. 8-11, 107-108). 

On the otherhand we believe that respondent Hoglund's violations of the Act 

were serious offenses perpetrated in careless disregard for the provisions of 

the Act and Regulations. For example even though respondent expressed his 

naivete about the meaning of check kiting (Tr. 84-85), a reasonable man would 

not unwittingly draw a series of checks upon an account with insufficient funds, 
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even at the request of his employer **. Further respondent's rationalization 

about submitting a false report (CX 4) when confronted with warning language on 

the form itself, regarding penalties for false reports, is not persuasive of his 

completely unknowing role in the "Q" Commodities activities. 

** Respondent Hoglund testified that the checks were drawn either to 

make or repay a loan to Quaintance, but he wasn't sure which was the case 

(Tr. pp. 76, 92-93). 

In this regard it is reasonable to assume that if the report filed by 

respondent Hoglund on August 9, 1968 (Finding of Fact 4) had been truthful, it 

might have triggered an immediate audit by the C.E.A. of the "Q" Commodities 

firm, resulting in a disclosure of mishandling of customers' funds (Finding of 

Fact 5) several months earlier than was actually the case in December 1968. 

We believe that the actions of respondent Hoglund violated the Act and 

Regulations and contributed to the unlawful activities of his employer. These 

violations therefore warrant the sanction imposed herein. This sanction will, 

we believe, be sufficiently effective to deter future violations by respondent 

Hoglund and other potential violators. 

ORDER

1. The respondent Earl B. Hoglund shall cease and desist from: 

a. falsifying records required by regulations of the Secretary of Agriculture 

under the Commodity Exchange Act; and 

b. making false entries in reports required by regulations of the Secretary 

of Agriculture under the Commodity Exchange Act. 

2. The respondent Earl B. Hoglund is prohibited from trading on or subject to 

the rules of any contract market for a period of three years and all contract 

markets shall refuse all trading privileges to the said respondent during this 

period. Such prohibition and refusal shall apply to all trading done and 

positions held directly by the said respondent, either for his own account or as 

the agent of representative of any other person or firm, and also to all trading 

done and positions held indirectly through persons or firms owned or controlled 

by the said respondent, or otherwise. 

3. The cease and desist provisions of this order set forth in paragraph 1, 

above, shall become effective on the date this decision and order become final. 

* The period of the prohibition of trading and denial of trading privileges to 

the respondent set forth in paragraph 2, above, shall become effective on the 

thirtieth day after the date this decision and order become final. 

* The Decision and Order became final October 24, 1974. -- Ed. 

4. Pursuant to the Rules of Practice governing proceedings under the 

Commodity Exchange Act, this decision and order become final without further 

procedure thirty-five (35) days after service hereof, unless appealed to the 

Secretary by a party to the proceeding within thirty (30) days after service, as 

provided in sections 0.16 and 0.18 of the Rules of Practice (17 C.F.R. 0.16, 

0.18). 

5. A copy of this decision and order shall be served upon each of the parties 

and on each contract market. 

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