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Commodity Futures Trading Commission 

CEA CASES 

NAME: SECRETARY OF AGRICULTURE V. NICHOLS & COMPANY, INC., A CORPORATION, AND 

NICHOLS & COMPANY, A PARTNERSHIP COMPOSED OF J. H. NICHOLS, A. O. WELLMAN, R. P. 

HACKETT, W. B. SOUTHWORTH, AND J. HARVEY WELLS 

DOCKET NUMBER: 25 

DATE: FEBRUARY 14, 1941 

DOCUMENT TYPE: COMPLAINT 

UNITED STATES OF AMERICA 

BEFORE THE SECRETARY OF AGRICULTURE 

CE-A DOCKET NO. 25 

Secretary of Agriculture, Complainant, v. Nichols & Company, Inc., a 

corporation, and Nichols & Company, a partnership composed of J. H. Nichols, A. 

O. Wellman, R. P. Hackett, W. B. Southworth, and J. Harvey Wells, Respondents. 

Complaint and Notice of Hearing Under Section 6(b) of the Commodity Exchange 

Act. 

There is reason to believe that the respondents have violated the Commodity 

Exchange Act (7 U. S. C., 1934 ed., and Supp. V, §§ 1-17a) and the rules and 

regulations promulgated pursuant thereto in the following manner: 

1. 

Nichols & Company, Inc., is a corporation under the laws of Massachusetts, 

having its principal place of business in Boston, Massachusetts. 

2. 

Nichols & Company, Inc., since its organization, has engaged in the 

merchandising of wool, both grease wool and wool tops, and has traded in wool 

top futures under the rules of the Wool Associates of the New York Cotton 

Exchange, Inc. 

3. 

Nichols & Company is a partnership formed in July 1935, at which time the 

partners were J. H. Nichols, A. O. Wellman, and R. P. Hackett. These partners 

were at that time the principal officers of Nichols & Company, Inc. In February 

1937, W.B. Southworth, an officer of Nichols & Company, Inc., was made a partner 

and, in June 1938, J. Harvey Wells became a partner. 

4. 

The partnership of Nichols & Company is, and has been, since July 1937, 

registered as a futures commission merchant with the Secretary of Agriculture 

under the Commodity Exchange Act, and has conducted the business of a futures 

commission merchant soliciting and accepting orders for transactions in 

commodity futures and accepting money to margin such transactions. 

5. 

The partnership of Nichols & Company is, and has boon, since its 

organization, controlled by the corporation, Nichols & Company, Inc., the 

partnership being an instrumentality of the corporation and, in conducting its 

business, has acted as agent for the corporation. 

6. 
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The rules of the New York Cotton Exchange and the Wool Associates of the New 

York Cotton Exchange, Inc., do not allow a corporation member to handle 

commodity futures business for others. 

7. 

Memberships on the New York Cotton Exchange and the Wool Associates of the 

New York Cotton Exchange, Inc., are held in the names of partners of Nichols & 

Company, and are registered for that firm, the partnership thereby enjoying the 

benefits of membership privileges on these exchanges, and Nichols & Company, 

Inc., through its agent, the partnership, enjoys these benefits. 

8. 

Nichols & Company, Inc., held a long position in October wool top futures 

contracts on the Wool Associates of the New York Cotton Exchange, Inc., a 

contract market designated by the Secretary of Agriculture, during the month of 

October 1940, which position included substantially all the open long contracts 

in such futures as set out in the following tabulation: 

See original document-page 3 

Position of Total 

Nichols & Com- Open 

Date pany, Inc. Contracts

(In thousands of pounds, 

i.e., (000) omitted) 

1940 Oct. (Long) 1 945 1010

2 955 1020

3 965 1045

4 965 1045

5 965 1020

7 930 965

8 930 955

9 890 915

10 840 890

11 800 850

14 785 820

15 790 810

16 740 760

17 620 640

18 470 485

19 450 465

21 450 460

22 425 430

23 400 405

24 375 380

25 375 380

26 375 380

28 310 315

29 130 135

30 60 60

31 0 0

9. 

The purchases and holdings of Nichols & Company, Inc., in wool top futures 

contracts on the Wool Associates of the New York Cotton Exchange, Inc., resulted 

in the price of the October 1940 wool top contract advancing from $ 1.17 per 

pound on October 16, 1940, to $ 1.21 per pound on October 25, 1940, while the 

price of 
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the December 1940 wool top futures contract was $ 1.10 1/2 per pound on October 

16, 1940, and $ 1.08 1/2 per pound on October 25, 1940, the price spread between 

the October and the December contracts widening during this period by 6 cents. 

10. 

The price of the October 1940 wool top futures contract during the period set 

forth in paragraph 9 was a price determined and caused by Nichols & Company, 

Inc., who were the only bidders in the market for this future at anything 

approximating the quoted price. 

11. 

On October 25, 1940, the holder of the one long October 1940 tool top futures 

contract (5,000 pounds) on the Wool Associates of the New York Cotton Exchange, 

Inc., which was not held by Nichols & Company, Inc., received a notice of 

delivery at the opening of the market and thereupon attempted to sell this 

contract in the ring. Though the holder of this contract offered it steadily 

downward, neither Nichols & Company, Inc., who were represented in the ring, nor 

any other purchaser offered to buy this contract until it had been offered down 

from $ 1.24 per pound to $ 1.10 per pound, at which price it was sold. 

12. 

After the contract referred to in paragraph 11 was sold, Nichols & Company, 

Inc., reentered the market with a bid of $ 1.21 per pound and maintained the 

market price at that figure until trading ceased on the following day, making, 

however, no purchases at any time. 

13. 

During the latter part of the month of October 1940, Nichols & Company, Inc., 

consistently quoted spot wool top to the Boston representative of the Wool 

Associates of the New York Cotton Exchange, Inc., at prices substantially higher 

than quoted by either of the other two companies offering such quotations, which 

were used to establish the published price of spot wool top. On a number of 

days between October 15 and October 24, the quotation offered by Nichols & 

Company, Inc., was as much as 15 cents per pound higher than the quotation by 

one of the other quoting houses. At no time during the year 1940, prior to the 

month of October 1940, was there more than 7 cents per pound difference between 

the high and low quotations. The quotations made by Nichols & Company, Inc., 

did not represent the actual value of the commodity quoted but were arbitrarily 

fixed for the purpose of establishing an inflated and artificial price level. 

On only one occasion during the month of October did anyone purchase the 

offerings made by the other two reporting firms at the prices quoted, which were 

as much as 15 cents per pound lower than the 

price quoted by Nichols & Company, Inc. 

14. 

Nichols & Company, Inc., during the month of October 1940, by its operation 

in wool top futures contracts on the Wool Top Exchange of the Wool Associates of 

the New York Cotton Exchange, Inc., attempted to manipulate, and did manipulate, 

the price of October 1940 wool top futures on the Wool Associates of the New 

York Cotton Exchange, Inc. 

15. 

Nichols & Company, Inc., during the month of October 1940, by its operations 

on the Wool Associates of the New York Cotton Exchange, Inc., and in relation to 

spot wool, attempted to manipulate, and did manipulate, the price of spot wool 

in interstate commerce. 

16. 
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Nichols & Company, Inc., filed reports during the month of October 1940 with 

the Commodity Exchange Administration on Form 803, as required by the Commodity 

Exchange Act and the rules and regulations issued by the Secretary of 

Agriculture pursuant thereto. 

17. 

Between October 1 and December 31, 1940, properly accredited representatives 

of the Commodity Exchange Administration of the Department of Agriculture 

visited the offices of Nichols & Company, 

Inc., and requested access to the records of the company showing full details of 

the wool top futures contracts reported by the company on Form 803 and all 

related transactions. These representatives were furnished certain information 

concerning futures transactions and holdings of Nichols & Company, Inc., but 

were not given access to records from which the spot wool position of Nichols & 

Company, Inc., could be determined. 

18. 

The representatives of the Commodity Exchange Administration requested that 

they be permitted access to all the company's records relating to purchases, 

sales and holdings of spot wool and wool top futures, in order that they might 

endeavor to obtain necessary information to verify the correctness of the 

company's report indicating a hedging position, and might determine the 

relationship between the company's operations in wool top futures and spot wool. 

Specific request was made for access to a card file showing lots of wool on hand 

and also to a record showing applications made on forward sales. Officials of 

Nichols & Company, Inc., refused access to both of these records which had been 

specifically requested. 

19. 

Nichols & Company, Inc., by its refusal to afford duly authorized 

representatives of the Department of Agriculture access to the records, referred 

to in paragraphs 17 and 18, violated the 

provisions of the Commodity Exchange Act and the rules and regulations 

promulgated pursuant thereto. 

20. 

Nichols & Company, Inc., by and through the means of Nichols & Company, on 

numerous occasions during the year 1940, including October 21, 22, 23, and 25, 

became buyer with respect to selling orders of customers and, likewise, became 

seller in respect to buying orders of customers in violation of Section 4b(D) of 

the Commodity Exchange Act and the rules and regulations promulgated pursuant 

thereto. 

21. 

Nichols & Company engaged in the practice of filling orders for wool top 

futures transactions received from customers by offsetting such orders against 

the orders of other customers on numerous occasions during the period from 

September 1, 1939, to December 31, 1940, including September 5 and 7, 1939, 

February 29, 1940, April 15, 1940, and October 21 to 25, inclusive, 1940, in 

violation of the provisions of the Commodity Exchange Act and rules and 

regulations promulgated pursuant thereto. 

22. 

Nichols & Company engaged in the practice of adjusting funds in segregation 

for customers to the exact amount of the net equities, as computed daily, no 

consideration being given to the accounts in 
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deficit, resulting in the firm being under segregated during the month of 

October 1940, the amount of under segregation on October 26, 1940, being $ 

5,298.13, and the firm, by this practice, used the funds of wool top futures 

customers to margin the trades of other customers, all in violation of the 

Commodity Exchange Act and the rules and regulations promulgated pursuant 

thereto. 

THEREFORE, the respondents are hereby notified to be and appear before a 

referee to be appointed by the Secretary of Agriculture at a hearing to be held 

at 10 o'clock a. m., on March 19, 1941, at Federal Building, Boston, 

Massachusetts, or at such other times and places as may be determined by the 

referee, and then and there show cause, if any there be, why an order shall not 

be made revoking the registration of respondent Nichols & Company as a futures 

commission merchant and directing that all contract markets, until further 

notice of the Secretary of Agriculture, refuse all trading privileges to all 

respondents. 

IT IS ORDERED that this complaint and notice of hearing be served on each of 

the named respondents by delivery of true and correct copies hereof to the 

respondents, by an employee of the Department of Agriculture or by registered 

mail, at least twenty days prior to the date herein set for the hearing. 

IT IS FURTHER ORDERED that the respondents shall file with the Hearing Clerk, 

Office of the Solicitor, Department of Agriculture 

 

at Washington, D. C., within twenty days after the receipt of the complaint, 

answer signed by the respondents fully and completely stating the nature of any 

affirmative defense and admitting or denying specifically, in detail, each 

material and relevant allegation of the complaint. The failure to file such 

answer within said twenty-day period may be deemed an admission of the truth of 

the allegations of the complaint for the purpose of this proceeding. 

(SEAL) 

Done at Washington, D. C., this 14th day of February 1941. Witness my hand 

and the seal of the Department of Agriculture. 

/s/ Grover B. Hill 

Assistant Secretary of Agriculture. 

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