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Commodity Futures Trading Commission 

CEA CASES 

NAME: VOLKART BROTHERS, INC., VOLKART BROTHERS COMPANY, ALFRED BOEDTKER, AND 

KURT MULLER 

CITATION: 20 Agric. Dec. 306 

DOCKET NUMBER: 82 

DATE: APRIL 17, 1961 

DOCUMENT TYPE: DECISION AND ORDER 

(No. 7097) 

In re VOLKART BROTHERS, INC., VOLKART BROTHERS COMPANY, ALFRED BOEDTKER, AND 

KURT MULLER. CEA Docket No. 82. Decided April 17, 1961. 

Manipulation of Prices of Cotton Futures -- Suspension of Registration -- 

Denial of Trading Privileges

Where evidence established (1) that futures prices rose in the last day of 

trading because of the fact that respondent corporation owned almost all the 

outstanding long interest on the New York Cotton Exchange and the New Orleans 

Cotton Exchange which interest was about twice as large as the stocks of 

certificated cotton and (2) that respondents intended to bring about such a 

price rise by their trading, it is held that respondents attempted to and did 

manipulate prices of cotton futures on both exchanges. 

Review of Ruling of Referee Denying Motion to Dismiss -- Prima Facie Case

Referee properly denied motion to dismiss after presentation of complainant's 

case-in-chief since a prima facie case was made even as to the individuals who 

were respondents since they were the chief officers of the corporate respondent 

and were also partners in the futures commission firm through which the trading 

on the New York Cotton Exchange was done. 

Mr. Benj. M. Holstein, for Commodity Exchange Authority. Messrs. J. Donald 

Duncan and Irving L. Schanzer, of Hooker, Alley & Duncan, New York, New York, 

and Mr. Harry B. Kelleher, of Lemle & Kelleher, New Orleans, Louisiana, for 

respondents. Intervenors: Rein, Mound & Cotton, of New York, New York, for New 

York Cotton Exchange; Monroe & Lemann, of New Orleans, Louisiana, for New 

Orleans Cotton Exchange; 

and Mr. John C. White, of Washington, D. C., for American Cotton Shippers 

Association. 

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 by a complaint and notice of hearing issued under 

section 6(b) of the act (7 U.S.C. § 9) on April 24, 1958, by the Assistant 

Secretary of Agriculture. 

Respondent Volkart Brothers, Inc., is a New York corporation engaged in the 

cotton merchandising business. Respondent Alfred Boedtker is president and 

respondent Kurt Muller is vice-president of the corporation. Each of the 

individual respondents is a partner in respondent Volkart Brothers Company, a 

registered futures commission merchant located in New York. This proceeding is 
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concerned with certain transactions in October 1957 cotton futures executed for 

the account of respondent Volkart Brothers, Inc., through the facilities of 

respondent Volkart Brothers Company, the carrying broker in New York, and 

through another carrying broker in New Orleans. 

The complaint charges that the respondents attempted to and did manipulate 

prices of cotton futures. The complaint alleges that on October 15, 1957, the 

last day for trading in the October cotton future, respondent Volkart Brothers, 

Inc., held 104 long contracts n1 in such future (10,400 bales) on the New York 

Cotton Exchange, which represented 89 percent of the total open interest in the 

future on that exchange, and 17 long contracts (1700 bales) or 97 percent of the 

open interest on the New Orleans Exchange; that there was an insufficient supply 

of certificated n2 cotton available at the time to satisfy such contracts; that 

the respondents thereupon ordered and caused the futures which they held, less 

any deliveries received, to be sold at prices which were fixed and arbitrary, 

and in excess of the true market value of October futures and of spot cotton, 

thereby bringing about increases in the price of the future not justified by 

supply and demand; and that 

the respondents acted for the purpose and with the intent of causing such 

increases in order to enable the respondent corporation to liquidate its futures 

at higher prices. 

n1 One contract consists of 100 bales, each bale containing about 500 

pounds of cotton. 

n2 As is seen hereinafter, only cotton certificated as to grade, etc., 

by the Board of Cotton Examiners, United States Department of Agriculture, 

or cotton in the process of such certification, is eligible for delivery 

upon short futures contracts. 

The complaint also alleges that in the course of such transactions and in 

furtherance of the manipulative purpose, the respondent corporation received 

approximately 5000 bales of certificated cotton on delivery against its long 

October futures position, of which it subsequently redelivered 3700 bales 

against a short December futures position. The complaint further alleges that 

the transactions in question were initiated and carried out under the direction 

and supervision of the individual respondents in their capacities as officers of 

and partners in the respondent firms. 

The respondents filed a joint answer in which they admit the jurisdictional 

allegations of the complaint and the holdings and transactions in October 

futures as described therein, but they deny that they intended to or did in fact 

manipulate prices, or that the prices at which they sold their October futures 

were arbitrary or not justified by supply and demand, or in excess of the true 

market value of such futures or of spot cotton. The answer also denies that 

respondents Alfred Boedtker and Kurt Muller were responsible for the 

transactions in question. 

As affirmative defenses, the respondents aver in the answer that the 

transactions referred to in the complaint were executed in conformity with the 

rules of the exchanges and of the Commodity Exchange Authority, and were lawful 

in all respects; that the long October futures which the respondent corporation 

held constituted hedges against forward sales commitments of the corporation; 

and that the corporation intended to take delivery of cotton in satisfaction of 

such futures and preferred such delivery but, at the specific request of the New 

York Cotton Exchange and in the interest of orderly liquidation, the corporation 

established liquidating price limits and sold its futures, less deliveries 

received, at the prices so established. 

The answer further maintains that certificated cotton does not constitute the 

sole source of supply available to satisfy futures contracts, because the rules 

of both exchanges provide that a delivering party may, under certain 
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circumstances, tender a "Deliverer's Class" notice covering cotton which has not 

yet been classed and certificated by the Board of Cotton Examiners; that the 

delivery notices which the respondent 

corporation received October 15, 1957, in the amount of 5100 bales, included 

"Deliverer's Class" notices with respect to 1192 bales; and that there were 

additional quantities of uncertificated cotton available in commercial channels 

on October 15 which could have been tendered under "Deliverer's Class" notices. 

John J. Curry, Office of Hearing Examiners, United States Department of 

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

respondents were represented by J. Donald Duncan and Irving L. Schanzer, of 

Hooker, Alley & Duncan, a New York law firm, and by Harry B. Kelleher of Lemle & 

Kelleher, a New Orleans law firm. Benjamin M. Holstein, Office of the General 

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

complainant. On October 10, 1958, the referee granted leave to the New York 

Cotton Exchange, the New Orleans Cotton Exchange, and the American Cotton 

Shippers Association to file suggested findings of fact, conclusions, orders, 

and briefs in support of their positions in this matter, and at the hearing a 

brief on behalf of the New Orleans Cotton Exchange was received and made a part 

of the record. 

The hearing began November 19, 1958, and after intervening recesses, was 

concluded February 5, 1959. Sessions of the hearing were held in New Orleans 

and New York. The respondent's motion to dismiss, made after the complainant 

had concluded the presentation of its evidence, was denied by the referee. Both 

sides offered oral and documentary evidence. Twenty-one witnesses testified and 

numerous exhibits were received on behalf of each side. Both sides thereafter 

submitted suggested findings of fact, conclusions, orders, and briefs in support 

thereof. Briefs were also filed by the American Cotton Shippers Association and 

the New York Cotton Exchange, Intervenors. 

Much of the evidence is documentary. The complainant introduced exhibits in 

the form of tabulations showing the respondent corporation's trading and 

receipts of delivery in the October 1957 future during the last four weeks in 

the life of the future (Complainant's Exhibit 4); the positions in the October 

future of all clearing members on the New York Cotton Exchange during the same 

period (Complainant's Exhibit 45); the respondent corporation's sales of 

December futures and deliveries made against such sales (Complainant's Exhibits 

6, 28); its position in futures and spot cotton as of October 11, 1957, with 

details concerning its inventory and commitments (Complainant's Exhibits 27, 50, 

51-51G); bids for spot cotton which it submitted to the Commodity Credit 

Corporation October 14, 1957 (Complainant's Exhibits 24A, 24B, 29); and an 

analysis of its trading in the October 1957 future in relation to its cash 

position (Complainant's Exhibit 52). 

Other exhibits introduced by the complainant showed the quantity of 

certificated stocks in existence near the close of trading in October 1957 

(Complainant's Exhibit 16); the source and status of the cotton tendered by the 

shorts on deliverer's class notices in October 1957 (Complainant's Exhibits 17-

23B); the prevailing market prices of October and December futures and of spot 

cotton in October 1957 and during the previous 10 years (Complainant's Exhibits 

7, 11, 12-15, 25, 26); and the prices paid by other cotton merchants for spot 

cotton during September and October 1957 (Complainant's Exhibits 32-36, 82-82C). 

Among the witnesses called by the complainant were six cotton merchants and 

brokers, who testified variously to the effect that the respondent corporation 

had a controlling long position in the October future on October 15, 1957, and 

that this fact was generally known to the trade (Tr. pp. 56, 81, 120, 133-34, 

142-43); that this brought about a rise in the price of the October future on 

October 15 and caused the price to be out of line with prices of December 
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futures and spot cotton (Tr. pp. 56-57, 65, 68-69, 76-77, 101, 143); that as of 

October 15 there was not sufficient time remaining in which a short could get 

cotton classed for delivery and, in any event, no cotton merchant who had cotton 

for sale would sell such cotton for less than the price of the October future 

minus the cost of delivery (Tr. pp. 77-78, 85, 113-16, 128, 889-92); and that 

the situation on October 15 constituted a squeeze (Tr. pp. 59, 66-68, 81-83, 

122). 

Alex C. Caldwell, an employee of the Commodity Exchange Authority, testified 

that the respondent corporation's inventory figures showed that it had enough 

cotton on hand on October 15, 1957, to supply all its sales commitments for 

several months in advance (Tr. pp. 945-49). Mr. Caldwell analyzed the 

corporation's futures trading in October 1957 in relation to its spot position 

and concluded that its futures transactions were not 

hedges and did not evidence use of the futures market in connection with 

merchandising operations (Complainant's Exhibit 52; Tr. pp. 949-50, 958-59, 962-

68). 

The respondents introduced numerous tabulations, charts, and other documents. 

These showed, among other things, the respondent corporation's position in the 

October 1957 cotton future from May 1956 forward, together with total open 

contracts and total certificated stocks (Respondents' Exhibits Series 1); the 

corporation's position in all futures during the last six months of 1957, 

together with certain aspects of its spot position (Respondents' Exhibits Series 

7); prevailing prices of various futures and of spot cotton during the last four 

months of 1957 and in other periods (Respondents' Exhibits Series 3-5, Series 

8); the cost of spot cotton purchased by the respondent corporation from midSeptember through October 1957 (Respondents' Exhibits Series 6); the cost of 

similar purchases by other cotton merchants (Respondents' Exhibits 20, 22, 29); 

bids and prices paid by the respondent corporation and by other cotton merchants 

for cotton offered for sale by the Commodity Credit Corporation (Respondents' 

Exhibits Series 9, Series 11, Series 23-27; Respondents' Exhibit 28); stocks of 

cotton stored at the ports on specified dates in October 1957 (Respondents' 

Exhibits 12, 21); and estimates of production in 1957 compared with actual 

production in 1956 (Respondents' Exhibits Series 15). 

C. W. Cooper, a data processing expert, was the principal witness for the 

respondents. Mr. Cooper prepared most of the tabulations and charts described 

above and explained their significance (Tr. pp. 268-350, 483-506, 603-96, 700-

30, 865-78). In the course of such testimony, he concluded that the percentage 

increase in the respondent corporation's position in the October future was due 

not to purchases of futures by it but to liquidation by other traders (Tr. pp. 

275-78). He also testified that such exhibits showed that prices of spot cotton 

were in a continuous rise over the two-year period May 1956 to May 1958, but 

that prices in October 1957 were an exception to this general trend (Tr. pp. 

293-94, 297); that the spot price quotations rose suddenly on October 28, 1957, 

which indicated distortion on the low side in such quotations prior to October 

28 (Tr. pp. 319-21, 676, 685-86); and that this distortion was also evidenced by 

the fact that the respondent corporation's buying prices for spot cotton in 

October 1957 exceeded the spot quotations (Tr. p. 684). 

Trade witnesses called by the respondents testified variously to the effect 

that there was no squeeze on October 15, 1957, and that the October future was 

liquidated in an orderly fashion and without control (Tr. pp. 365-66, 380, 384-

85, 403-04, 429, 538, 542, 586, 769-71, 776); that the price limits set by the 

respondent corporation with respect to its sales of futures on October 15 were 

reasonable, and that there was no distortion between such prices and the prices 

of spot cotton (Tr. pp. 366, 381, 384, 392-93, 429, 772, 776); that the spot 

price quotations in all 14 spot markets were too low (Tr. pp. 395, 431-33); and 

that the quantity of certificated stocks in existence on October 15, 1957, was 

not significant because there was free cotton available at the ports and in the 
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interior which could be delivered by the shorts under deliverer's class rules 

(Tr. pp. 366, 370-71, 539-41, 770, 774-76). 

Respondent Muller testified that the transactions of the firm in the October 

1957 future were part of a routine hedging operation against sales commitments 

of spot cotton; that there was no attempt to manipulate; that the selling price 

limits which he determined in connection with the sales of October futures on 

October 14 and 15 were based on what the firm was paying for spot cotton in the 

interior, and that these price limits were not arbitrary or unreasonable (Tr. 

pp. 817-29, 838). 

Respondent Boedtker testified that he did not act for the purpose or with the 

intent of manipulating prices; that Volkart Brothers, Inc., was using the 

futures market as a hedging medium in these transactions; and that he approved 

of respondent Muller's decision concerning the price limits set by Muller in 

connection with the sales of October futures on October 14 and 15 (Tr. pp. 798, 

802-03, 806-07). 

The referee issued a report containing proposed findings of fact, proposed 

conclusions and a proposed order. In the report the referee recommended that 

respondents be found to have violated the act as charged in the complaint but he 

also proposed lesser sanctions than asked by complainant because the price 

disturbance was "not extreme" and because the short interests "during the period 

just prior to October 15 practically invited trouble by neglecting to cover 

their exposed position or by taking steps to have cotton certificated in time 

for delivery in satisfaction of their contracts." Respondents filed exceptions 

to the report. The American Cotton Shippers Association and the New York Cotton 

Exchange also filed exceptions to the report. The complainant excepted to the 

referee's statement of reasons for recommending lesser sanctions than sought by 

complainant. Oral argument was held before the Judicial Officer August 4, 1960, 

in New York, New York, and following oral argument briefs were filed by the 

respondents and the intervenors. 

In brief outline respondents contend that the evidence does not sustain 

charges of manipulation, that the trading activities complained of were carried 

out not for manipulative purposes but for legitimate reasons and that the prices 

at which the corporate respondent's futures contracts were liquidated were not 

artificial but normal and reasonable prices. The American Cotton Shippers 

Association generally supports the position of respondents. The New York Cotton 

Exchange, while also endorsing the position of respondents, goes further. The 

Exchange contends that it is permissible under the act, and not manipulation of 

prices, for a large long at the end of trading to exact a premium from shorts 

who have "overstayed the market" by not getting out of the market sooner or by 

not arranging to have deliverable supplies of cotton. 

FINDINGS OF FACT

1. Respondent Volkart Brothers, Inc., is a New York corporation with offices 

and a place of business at 1539 Jackson Avenue, New Orleans 13, Louisiana. The 

corporation is now and has been at all times material herein engaged in the 

business of merchandising cotton and other commodities, and at all such times it 

enjoyed membership privileges on the New York Cotton Exchange and the New 

Orleans Cotton Exchange. 

2. Respondent Volkart Brothers Company is a partnership with offices and a 

place of business at 120 Wall Street, New York 5, New York. The partnership is 

now and has been at all times material herein a registered futures commission 

merchant under the Commodity Exchange Act and a clearing member of the New York 

Cotton Exchange. At all such times the partnership enjoyed membership trading 

privileges on the New Orleans Cotton Exchange. 

3. Respondents Volkart Brothers, Inc., and Volkart Brothers Company are 

affiliates of Volkart Brothers of Switzerland, not a respondent herein. 
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4. Alfred Boedtker is an individual residing at 139 East 39th Street, New 

York, New York. He is now and has been at all times material herein the 

president of Volkart Brothers, Inc., a partner in Volkart Brothers Company, a 

member of the New York Cotton Exchange, a member of the New Orleans Cotton 

Exchange, and a registered floor broker under the Commodity Exchange Act. 

5. Respondent Kurt Muller is an individual residing at 5231 St. Charles 

Avenue, New Orleans, Louisiana. He is now and has been at all times material 

herein a vice-president of Volkart Brothers, Inc., a partner in Volkart Brothers 

Company, and a member of the New Orleans Cotton Exchange. 

6. The New York Cotton Exchange and the New Orleans Cotton Exchange are now 

and have been at all times material herein duly designated contract markets 

under the Commodity Exchange Act. 

7. A cotton futures contract is a contract made on or subject to the rules of 

the New York Cotton Exchange or the New Orleans Cotton Exchange, in which one 

party agrees to sell and deliver and the other party agrees to buy and receive a 

specified quantity of cotton at a specified price in a designated month. The 

trading unit in cotton futures is one contract, consisting of 50,000 pounds of 

cotton, plus or minus one percent, contained in about 100 bales of 500 pounds 

each, more or less. The parties determine the price, number of contracts and 

month of delivery. All other terms and conditions of the transaction are fixed 

by the rules of the exchange and are incorporated in every futures contract. 

When the proper deposits are made, the clearing organization of the exchange is 

substituted as buyer from the seller and seller to the buyer and each of the 

contracting parties is thereafter obligated only to the clearing organization. 

A cotton futures contract must be satisfied by (1) an opposite and offsetting 

transaction in the future prior to the expiration of trading in the future, or 

(2) the delivery of cotton by the seller and its receipt by the buyer during the 

delivery month and in conformity with the rules of the exchange. 

8. Under the rules of the New York Cotton Exchange in effect during October 

1957, a trader who had a short position which was open on the last trading day 

was required to instruct 

his carrying broker or futures commission merchant (1) to make an offsetting 

purchase which would liquidate the trader's position, or (2) to issue a notice 

of intention to deliver against which the trader would deliver cotton. If no 

instructions were received from the trader, the futures commission merchant had 

to enter an order for the purchase of futures for execution prior to the 

termination of trading, which would liquidate the trader's short position. 

9. October 15, 1957, was the last day for trading in the October 1957 cotton 

future on the New York Cotton Exchange and the New Orleans Cotton Exchange, and 

also the "last notice day," that is, the last day on which a notice of intention 

to deliver cotton could be issued. October 22, 1957, was the last day on which 

delivery of cotton on October futures could be made. Short contracts open after 

the end of trading on October 15, which were not satisfied by delivery on or 

before October 22, were in default. 

10. The class or quality of cotton is determined by its grade and its staple 

or length of fiber. White cotton of the grade and staple known as "Middling 

inch" was the contract or basic grade and was deliverable at par on the October 

1957 futures contract, that is, without any premium or discount. Other grades 

and staples were deliverable at premiums or discounts specified by the rules of 

the exchange. 

11. The requirements and procedure for the delivery of cotton in satisfaction 

of the October 1957 cotton future on the New York Cotton Exchange were as 

follows: 

(a) The cotton must be inspected by the Joint Cotton Inspection Bureau, an 

organization maintained jointly by the New York Cotton Exchange and the New 

Orleans Cotton Exchange. 
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(b) The cotton must be classed and certificated as to grade and staple by the 

Board of Cotton Examiners of the United States Department of Agriculture. 

(c) The grade and staple must be one of the deliverable grades and staples 

specified by the rules of the Exchange. 

(d) The cotton must be stored in a warehouse licensed 

 

by the Exchange located at one of seven delivery points, namely, New York, New 

York, Charleston, South Carolina, Mobile, Alabama, New Orleans, Louisiana, 

Savannah, Georgia, Galveston or Houston, Texas. 

(e) Five business days prior to the date of delivery, the carrying broker or 

clearing member must issue and tender to the clearing house a notice of 

intention to deliver, known as a transferable notice or T/N containing, among 

other things, information as to the quantity of cotton being delivered, its 

location, and the Government class, that is, the grade and staple of each bale 

as shown on the classification certificate of the Board of Cotton Examiners. 

(f) Five days after issuance of the T/N, the delivering party must deliver to 

the receiving party all the delivery documents, including warehouse receipts. 

The warehouse receipts must show on their face the certification by the Board of 

Cotton Examiners as to the grade and staple of the cotton or, in lieu thereof, 

there must be attached to the warehouse receipt a "Validated Class Certificate" 

issued by the Board of Cotton Examiners as hereinafter described. 

(g) A deliverer may issue a T/N on the last notice day which does not show 

the Government class. In lieu thereof, the deliverer may insert in the T/N the 

grade and staple of the cotton according to his own best knowledge, known as 

"Deliverer's Class." This may be done only if the Government class certificate 

has not yet been issued by the Board of Cotton Examiners but the cotton has been 

inspected and samples are in the custody of the Board, or the cotton can be 

inspected and samples delivered to the Board in readiness for classification not 

later than 8 p.m. on the second business day preceding the last delivery day. 

With respect to the October 1957 future, a delivering party who issued a T/N 

based on "Deliverer's Class" on Tuesday, October 15, 

 

the last notice day, was required to have the cotton inspected and samples in 

the hands of the Board of Cotton Examiners not later than 8 p.m., Friday, 

October 18, 1957. 

(h) If on the actual date of delivery the Board of Cotton Examiners has not 

yet issued a classification certificate, the delivering party may deliver to the 

receiver a "Validated Class Certificate," consisting of a written notice of the 

grade and staple according to the deliverer's best knowledge (Deliverer's 

Class), validated by endorsement by the Board of Cotton Examiners. Such 

validation by the Board of Cotton Examiners will issue only if the cotton has 

been inspected and samples are then in the possession of the Board of Cotton 

Examiners. 

12. If cotton delivered under a Validated Class Certificate subsequently 

fails to meet deliverable grade and staple requirements upon classification by 

the Board of Cotton Examiners, the delivering party has no right of replacement 

and is in default. 

13. On September 23, 1957, the day before the first notice day in the October 

1957 cotton future, respondent Volkart Brothers, Inc., held a long position n3 

of 19,700 bales in such future on the New York Cotton Exchange. Between 

September 24 and October 1, inclusive, respondent corporation sold October 1957 

cotton futures and by October 1 had reduced its long position to 12,700 bales. 

Between October 1 and 11, inclusive, the respondent corporation received 300 

bales on delivery but made no sales of October 1957 cotton futures. On October 

14 respondent corporation sold 2000 bales of October 1957 cotton futures, 
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leaving it at the close of business that day with a long position of 10,400 

bales in such future on the New York Cotton Exchange. During the abovedescribed period, respondent corporation also traded in October 1957 cotton 

futures on the New Orleans Cotton Exchange. Between September 23 and October 10 

it covered a short position of 1600 bales in the future on the New Orleans 

Cotton Exchange, and on the latter date it established a long position of 1700 

bales, which position it held October 14, 1957. 

n3 Unless otherwise stated, references to positions or open interest are 

as of the close of business on the date indicated. 

14. Between October 1 and 14, 1957, inclusive, respondent Volkart Brothers, 

Inc., entered the following orders through respondent Volkart Brothers Company 

for the sale of October 1957 cotton futures on the New York Cotton Exchange, the 

orders to remain in effect until cancelled: 

Date of Order Number of Bales Price n4

October 1 1000 34.97

October 10 1000 35.02

October 10 1000 35.07

October 10 1000 35.12

October 10 1000 35.17

October 14 1000 35.22

October 14 6400 35.27

n4 All price references are in cents per pound of cotton. 

The first execution on the above orders took place October 14, on which date 

respondent Volkart Brothers Company sold 1000 bales at 34.97 and 1000 bales n5 

at 35.02, in accordance with the orders of October 1 and 10, respectively. The 

remaining orders described above were not executed, but continued in effect 

until prior to the opening of trading October 15, when they were superseded by 

the order hereinafter described in Finding of Fact 16. Between October 1 and 

14, other traders sold net 17,000 bales of October 1957 cotton futures on the 

New York Cotton Exchange. 

n5 These are the 2000 bales sold October 14, referred to in Finding of 

Fact 13. 

15. At the opening of trading October 15, 1957, the last day for trading in 

the October 1957 cotton future, the respondent corporation's long position of 

10,400 bales in such future on the New York Cotton Exchange represented 89 

percent of the open interest in the future on that exchange, and its long 

position of 1700 bales in such future on the New Orleans Cotton Exchange 

represented 97 percent of the open interest in the future on that exchange. The 

trade was aware of the fact that the respondent corporation held such position. 

16. On October 15, 1957, prior to the opening of the trading session on the 

New York Cotton Exchange, respondent Volkart Brothers, Inc., ordered respondent 

Volkart Brothers Company to liquidate the corporation's long New York position 

of 10,400 bales in the October future by selling 2000 bales at 35.17 and selling 

the balance of 8400 bales, less such deliveries as might be received, at 35.27. 

This order superseded the three unexecuted orders of October 10 to sell at 

35.07, 35.12 and 

 

35.17, and the two unexecuted orders of October 14 to sell at 35.22 and 35.27, 

described in Finding of Fact 14. In accordance with these instructions, during 

the trading session of October 15, Volkart Brothers Company accepted delivery 

notices in the amount of 5000 bales and sold for the account of the respondent 
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corporation 2000 bales of October futures at 35.17 and 3400 bales of October 

futures at 35.27, liquidating the said respondent's New York position. 

17. On October 15, 1957, prior to the opening of the trading session on the 

New Orleans Cotton Exchange, respondent Volkart Brothers, Inc., ordered its 

carrying broker in New Orleans to liquidate the respondent corporation's long 

New Orleans position of 1700 bales in the October future by sales at not less 

than 35.38, and to take delivery of any part of the position which could not be 

sold at this price or better. In accordance with these instructions, during the 

trading session on that day the respondent corporation's broker in New Orleans 

accepted delivery notices in the amount of 100 bales and sold 1600 bales of 

October futures for the account of the respondent corporation at prices ranging 

from 35.40 to 35.48, thereby liquidating the said respondent's New Orleans 

position. 

18. The October 1957 futures transactions described above were managed and 

supervised by respondent Kurt Muller, and he initiated the orders of October 15 

to sell at 35.17 and 35.27 in New York, and at not less than 35.38 in New 

Orleans. Respondent Muller informed respondent Alfred Boedtker on October 14 

that such orders were being entered for execution on the following day, and 

respondent Boedtker agreed with the action being taken and transmitted the New 

York orders to the floor clerk of Volkart Brothers Company in New York. 

19. The respondent corporation was the only receiver of cotton on the October 

1957 future. On October 22, 1957, it took delivery of 5100 bales pursuant to 

the delivery notices which it had accepted October 15. Prior thereto, on 

October 4, it had taken delivery of 300 bales. This total of 5400 bales 

represented all the deliveries in the October 1957 cotton future on the New York 

and New Orleans Cotton Exchanges. During December 1957, the respondent 

corporation redelivered 3707 bales of the cotton against short positions in the 

December future on the New Orleans Cotton Exchange which it had theretofore 

established by sales of such futures (Complainant's Exhibits 6, 28; Tr. pp. 195-

197). 

20. As required by the provisions of the Cotton Futures Act (26 U.S.C. § 

4863(a)(7)) and the rules of the New York and New Orleans Cotton Exchanges, the 

October 1957 cotton futures contract called for the delivery of certificated 

cotton stored in approved warehouses at designated locations. On Tuesday, 

October 15, 1957, there was in existence a total of 4963 bales of such cotton 

owned by persons other than the respondent corporation (Complainant's Exhibits 

16, 27). 

21. The notices of delivery which were issued October 15, 1957, in the 

aggregate of 5100 bales (Complainant's Exhibit 4; Findings of Fact 16, 17), 

included notices covering 1192 bales tendered as "Deliverer's Class." These 

notices were issued in varying quantities by six different delivering parties. 

In each instance the delivering party was a cotton merchant, and in each 

instance the cotton covered by such notice was owned by such merchant on or 

prior to October 14, 1957, and had either been certificated or was in the 

process of certification when the delivery notice was issued October 15 

(Complainant's Exhibits 17-23B). 

22. A trader who was short in the October 1957 cotton future October 15, 

1957, and who did not have certificated cotton in his possession on that date, 

would not have sufficient time in which to locate and procure cotton and have it 

inspected and certificated by October 22, the last delivery day. If such trader 

issued a "Deliverer's Class" T/N October 15 and delivered a "Validated Class" 

certificate October 22, he would be in default with respect to any cotton 

covered by such certificate which failed to meet deliverable grade and staple 

requirements. 

23. The price of a cotton future in the delivery month reflects the current 

spot price of Middling inch cotton, the contract or basic grade. The cost of 

delivering against the future is approximately 100 points, and under normal 
Page 10 

market conditions the price of the future in the delivery month exceeds the spot 

price of Middling inch cotton by the cost of delivery (Complainant's Exhibits 2, 

3; Tr. pp. 181-182, 543). On October 11, 1957, the closing price of the October 

future on the New York Exchange exceeded the Middling inch spot price n6 by 139 

points, and on the New Orleans Exchange this 

 

spread or differential was 120 points. On October 14 and 15, 1957, the 

following business days, these spreads widened because of the increases in the 

price of the future, and at the close of trading October 15, the last trading 

day, the spread was 192 points in New York and 213 points in New Orleans. These 

spreads were greater than any other October future spot cotton price spread 

which prevailed on the respective exchanges on the last trading day in the 

October future during the 11-year period from 1948 through 1958, and more than 

twice as great as the majority of such other spreads. 

n6 Calculated as the average of the prevailing spot prices for Middling 

inch at the Gulf ports of New Orleans, Houston and Galveston, the three 

principal delivery points (Complainant's Exhibits 7, 8). 

24. On October 11, 1957, the closing price of the October future on the New 

York Exchange exceeded the closing price of the December future by 56 points and 

in New Orleans this spread or differential was 39 points. At the expiration of 

the October future on October 15, owing principally to increases in the price of 

the October future on both exchanges, these spreads had widened to 92 points in 

New York and 112 points in New Orleans, and were greater than any other OctoberDecember futures price spreads which prevailed on the respective exchanges at 

the expiration of the October future during the 11-year period from 1948 through 

1958. 

25. Prevailing prices of spot cotton are published daily by the United States 

Department of Agriculture. These prices are based upon actual transactions in 

spot cotton, as ascertained and reported by Spot Cotton Quotation Committees 

which function under the supervision of the Secretary of Agriculture, pursuant 

to the provisions of the Cotton Futures Act (26 U.S.C. § 4851 et seq.), and the 

rules and regulations there under (7 CFR 27.93 et seq.), in each of 14 spot 

cotton markets designated by the Secretary of Agriculture. Included among these 

14 markets are the Gulf ports of New Orleans, Houston and Galveston. These 

three markets are also the principal delivery points for cotton delivered on 

futures sold on the New York or New Orleans Cotton Exchanges. On each day 

between October 4 and 15, inclusive, the price of Middling inch spot cotton, 

determined as above described, remained unchanged at 33.25 in New Orleans and 

33.40 in Houston and Galveston. In Memphis, Tennessee, which is also one of the 

14 designated spot cotton markets but which is not a delivery point for futures, 

the price of Middling inch spot cotton remained unchanged at 33.50 during the 

entire month of October 1957. 

26. During the last two weeks in September and throughout October 1957, 

Anderson, Clayton and Company, a large cotton merchandising firm, purchased 

150,437 bales of cotton in the Memphis, New Orleans, and Houston territories, 

based upon maximum prices which it was offering to pay for Middling inch cotton 

delivered at those points. During the same period, the company had in effect 

maximum offering prices in the Galveston territory for Middling inch cotton 

delivered at Galveston. The company's offering prices in such territories, the 

spot quotation for Middling inch cotton at those points, and the differences 

between such offering prices and the spot quotations, for each business day in 

the above period, were as follows: 

MEMPHIS NEW ORLEANS 

Buying Price Buying Price

over (+) or over (+) or

Date Spot Buying under (-) Spot Buying under (-)
Page 11 

(1957) Quotation Price Spot Quotation Quotation Price Spot

Quotation

Sept. 17 33.00 32.80 -20 33.20 33.10 -10 

18 " " " " " -10 

19 " " " 33.15 " -5 

20 " " " " " -5 

23 " " " " " -5 

24 " " " 33.05 " +5 

25 " " " 33.00 " +10 

26 33.50 " -70 33.10 " 

27 " " " " " 

30 " " " " " Oct. 33.50 32.80 -70 33.10 33.10 

1 " " " " " 

2 " " " 33.15 " -5 

3 " " " 33.25 " -15 

4 " " " " " " 

7 " " " " " " 

8 " " " " " " 

9 " " " " " " 

10 " " " " " +25 

11 " 33.20 -30 " 33.50 " 

14 " " " " " " 

15 " " " " " " 

16 " " " " " " 

17 " " " " " " 

18 " " " " " " 

21 " " " " " " 

22 " " " " " " 

MEMPHIS NEW ORLEANS 

Buying Price Buying Price

over (+) or over (+) or

Date Spot Buying under (-) Spot Buying under (-)

(1957) Quotation Price Spot Quotation Quotation Price Spot

Quotation

23 33.50 33.20 -30 33.35 33.50 +15 

24 " " " " " " 

25 " " " 33.60 " -10 

28 " " " 33.75 " -25 

29 " " " " " " 

30 " " " " " " 

31 " " " " " " 

HOUSTON GALVESTON 

Buying Price Buying Price

over (+) or over (+) or

Date Spot Buying under (-) Spot Buying under (-)

(1957) Quotation Price Spot Quotation Quotation Price Spot

Quotation

Sept. 

17 33.00 33.10 +10 33.00 33.10 +10 

18 " " " " " " 

19 32.75 " +35 " " " 

20 33.00 " +10 32.85 " +25 

23 " " " 32.90 " +20 

24 " " " 32.95 " +15 

25 " " " 33.00 " +10 

26 33.25 " -15 " " +10 

27 33.50 " -40 33.20 " -10 

30 33.40 " -30 33.30 " -20 
Page 12 

 MEMPHIS NEW ORLEANS 

 Buying Price Buying Price over (+) or over (+) or

Date Spot Buying under (-) Spot Buying under (-)

(1957) Quotation Price Spot Quotation Quotation Price Spot

 Quotation

Oct. 

1 33.50 33.10 -40 33.25 33.10 -15 

2 " " " 33.30 " -20 

3 33.40 " -30 33.40 " -30 

4 " " " " " " 

7 " " " " " " 

8 " " " " " " 

9 " " " " " " 

10 " " " " " " 

11 " 33.25 -15 " 33.25 -15 

14 " " " " " " 

15 " " " " " " 

16 33.50 " -25 33.50 " -25 

17 " " " " " " 

18 " " " " " " 

21 " " " " " " 

22 " " " " " " 

HOUSTON GALVESTON 

Buying Price Buying Price

over (+) or over (+) or

Date Spot Buying under (-) Spot Buying under (-)

(1957) Quotation Price Spot Quotation Quotation Price Spot

Quotation

23 33.60 " -35 33.65 " -40 

24 33.50 " -25 33.60 " -35 

25 33.65 " -40 33.75 " -50 

28 33.50 " -25 " " " 

29 33.65 " -40 " " " 

30 " " " " " " 

31 33.60 " -35 33.65 " -40 

27. On October 14, 1957, respondent Volkart Brothers, Inc., submitted bids 

for 740 bales of cotton of various grades and staples located at Memphis, 

Tennessee, and offered for sale by the Commodity Credit Corporation for 

unrestricted use under its program NO-C-5. It was the purpose of the respondent 

corporation to use such cotton in its merchandising operations. The weighted 

average of the bid prices submitted by the respondent corporation, adjusted for 

differences in grade and staple, was 33.31 for Middling inch. The spot price 

quotation for Middling inch cotton at Memphis on October 14, 1957, was 33.50. 

28. At the close of business October 10, 1957, respondent Volkart Brothers, 

Inc., had 31,235 bales of cotton in inventory or under purchase, earmarked for 

domestic use, as against domestic sales commitments through February 1958 in the 

amount of 30,900 bales. On the same date, the respondent corporation had a 

total inventory, including purchases, of 112,675 bales as against total sales 

commitments through October 1958 of 78,965 bales. On October 11, 1957, the 

respondent corporation's domestic inventory including purchases increased to 

33,291 bales without any change in its domestic commitments, and its total 

inventory including purchases increased to 114,531 bales while its total 

commitments through October 1958 increased to 79,561 bales. 

29. On October 14, 1957, respondent Volkart Brothers, Inc., further increased 

its total inventory including purchases by about 7700 bales, and its total 

commitments by 2000 bales. At the close of business on that day it had 41,000 

bales of cotton in inventory or on purchase earmarked for domestic use, as 

against domestic sales commitments through April 1958 in 
Page 13 

 

the amount of 39,900 bales, or an excess of domestic inventory over domestic 

requirements for the next six and a half months of 1100 bales. At the same 

time, its total inventory including purchases was 121,498 bales as against total 

sales commitments through October 1958 of 79,565 bales, or an excess of total 

inventory over total requirements for the next 11 1/2 months of 41,933 bales. 

30. On October 15, 1957, respondent Volkart Brothers, Inc., received notices 

of delivery in the amount of 5100 bales as described in Findings of Fact 16 and 

17, and made purchases of spot cotton in addition thereto. At the close of 

business on that day it had, exclusive of the cotton covered by such delivery 

notices, a domestic inventory of 44,269 bales as against domestic sales 

commitments through April 1958 of 39,900 bales, or an excess of domestic 

inventory over domestic requirements for the next six and a half months of 4369 

bales, exclusive of cotton received on delivery. At the same time its total 

inventory, exclusive of such deliveries, was 124,748 bales as against total 

commitments through October 1958 of 65,919 bales, or an excess of total 

inventory over total requirements for the next 11 1/2 months of 58,829 bales. 

Out of the respondent corporation's total inventory of 124,748 bales of cotton 

on October 11, 1957, approximately 78,000 bales had not been classified as to 

grade and staple. 

31. Respondent Volkart Brothers, Inc., continued to acquire spot cotton after 

October 15, 1957. At the close of business October 22, 1957, excluding 

deliveries which the respondent corporation had received on the October future, 

it had a domestic inventory of 61,904 bales as against domestic sales 

commitments through October 1958 of 54,306 bales, and a total inventory of 

139,382 bales as against total commitments through October 1958 of 85,316 bales. 

The respondent corporation thus had, at the close of business October 22, 1957, 

an excess of inventory over requirements for approximately the next full year of 

6598 bales on a domestic basis and 54,066 bales on an over-all basis, exclusive 

of the 5100 bales which it had received October 15, 1957. 

32. At all times between October 10 and 15, 1957, inclusive, respondent 

Volkart Brothers, Inc., had on hand or under purchase, earmarked for domestic 

use, sufficient spot cotton to fulfill its domestic requirements at least four 

and a half 

 

months in advance. At all times during this period respondent Volkart Brothers, 

Inc., had on hand or under purchase at least 34,000 bales of spot cotton in 

excess of the quantity needed to fulfill all existing requirements, export and 

domestic, for approximately one year in advance. 

33. A purchaser who buys cotton from the Commodity Credit Corporation under 

its export program has an export obligation with respect to such cotton with the 

right of free substitution -- that is, the purchaser may sell such cotton in the 

domestic market provided he later exports an equal quantity of cotton of any 

grade or staple from domestic stocks. During October 1957, respondent Volkart 

Brothers, Inc., and other cotton merchants took advantage of this right of 

substitution by selling in the domestic market export cotton acquired from the 

Commodity Credit Corporation. 

34. A fixed price purchase or fixed price sale is a purchase or sale of spot 

cotton in which the price has been agreed upon by the buyer and seller. A 

cotton merchant's fixed price position consists of his total inventory plus 

fixed price purchases of spot cotton minus fixed price sales of spot cotton. If 

the inventory plus such purchases exceeds such sales, the merchant has a long 

fixed price position, and if the reverse is true he has a short fixed price 

position. If a cotton merchant wishes to hedge, he trades in the futures market 

in an amount which is approximately equal in quantity but opposite in direction 

to the position he wishes to hedge. 
Page 14 

35. The respondent corporation's trading in cotton futures during October 

1957 did not constitute hedging. At all times between September 23 and October 

8, 1957, it had a long fixed price position and also a long futures position. 

Such positions constituted speculation in spot cotton and futures. Between 

October 9 and 22, it had a short futures position against a portion of its long 

fixed price position, but its short futures position was at all times 

substantially less than its long fixed price position, and the changes in its 

short futures position varied erratically from changes in its long futures 

position and did not indicate a pattern characteristic of a hedging operation. 

The corporation's fixed price position, its futures position, and the daily net 

changes in each of such positions, for each business day within such period, 

were as follows (Complainant's Exhibit 52): 

Long Net Futures Date Fixed Price Net Position Net Change 

1957 Position Change Long Short Long Short 

9-23 10,792 4,300 

9-24 11,173 +381 4,300 9-25 8,094 -3,079 4,300 9-26 8,795 +701 2,800 -1,500 9-27 9,232 +437 1,000 -1,800 9-30 10,600 +1,368 1,700 +700 10-1 13,108 +2,508 2,200 +500 10-2 15,451 +2,343 2,200 

10-3 15,755 +304 2,200 10-4 14,067 -1,688 2,500 +300 

10-7 16,481 +2,414 2,500 10-8 18,491 +2,010 100 -2,400 10-9 20,894 +2,403 5,500 +5,500

10-10 22,635 +1,741 3,500 -2,000

10-11 24,691 +2,056 3,500 10-14 31,999 +7,308 8,100 +4,600

10-15 40,369 +8,370 26,800 +18,700

10-16 41,389 +1,020 33,800 +7,000

10-17 41,251 -138 34,300 +500

10-18 43,917 +2,666 34,300 

10-21 51,927 +8,010 35,800 +1,500

10-22 54,798 +2,871 37,500 +1,700

36. The New York selling prices of 35.17 and 35.27, and the New Orleans 

selling price of 35.38 or better, set and obtained by respondent Volkart 

Brothers, Inc., on October 15 as the minimum prices for its October futures, did 

not reflect market conditions but were fixed and arbitrarily high, and out of 

line with prevailing prices of spot cotton. Such selling prices were also out 

of line with prevailing prices of December 1957 cotton futures. Respondent 

Volkart Brothers, Inc., was able to demand and receive the prices which it set 

October 15 because of its controlling long position in the October future and 

the limited supply of certificated cotton available on that day. This situation 

resulted in a "squeeze" in the October 1957 cotton future which was 

intentionally carried out by respondents. 

37. Respondents, by their trading operations, described above, on the last 

few days of trading in the October 1957 cotton future on the New York Cotton 

Exchange and the New Orleans Cotton Exchange sought to raise October future 

prices on such exchanges. 

CONCLUSIONS

I

The basic facts, or most of them, are not in dispute. It is conceded that 

the respondent corporation carried long positions in the October 1957 cotton 

future on the New York and New Orleans Cotton Exchanges into the last trading 
Page 15 

day October 15, 1957, that at such time the corporation had 89 percent of the 

long contracts on the New York Cotton Exchange and had practically all the long 

contracts on the New Orleans Cotton Exchange, that it was the only long to 

receive deliveries on either exchange in the October 1957 future, that the 

corporation's long position was over twice the size of the supply of 

certificated cotton, that it fixed liquidating price limits for October 15, 

1957, the last day of trading at which it sold out its contracts upon which 

deliveries were not made and that these liquidating prices were higher than the 

previous day's prices on the two exchanges. 

Nevertheless there is a lengthy record consisting of both evidence and 

argument as to whether or not respondents manipulated October 1957 cotton 

futures prices. We proceed then to examine the issues in the light of the 

record with the preliminary observation, however, that there seems to be a good 

deal of material that is perhaps peripheral rather than central to the 

controlling issues. 

It is not uncommon for futures prices on an exchange to advance toward the 

end of trading, particularly on the last day, not because of any change in 

supply or demand factors for the actual or spot commodity but solely because of 

the technical condition within the futures market itself of a shortage of 

readily available supplies for delivery by shorts who must then buy futures in 

order to get out of the market. Such a technical condition may or may not be 

manipulative in violation of the act, and is variously described as 

"congestion," "technical situation" or "squeeze." For example, Technical 

Bulletin No. 747 (January 1941), United States Department of Agriculture, Grain 

Prices and the Futures Market, has a summary on page 70 of the portion of the 

bulletin under the heading (p. 60) "The Delivery Problem." The summary is as 

follows: 

"Futures contracts, as now drawn, give to every 

 

buyer the right to demand and to every seller the right to make fulfillment by 

actual delivery. This right or privilege is socially desirable so long as 

deliverable supplies prove adequate to meet maturing futures contracts. But 

from time to time in the past this balance between deliverable supplies and 

maturing contracts has not been maintained and forced movements of supplies and 

prices have resulted. The elements present in most of these cases of congestion 

are: 

1. A small deliverable supply (relative to other years). 

2. One or a few interests have large commitments open on the long side of the 

maturing future. 

3. These leading longs make no indication of any kind that they are going to 

sell out their positions. 

4. The short interests observe a steadily decreasing period of time in which 

to acquire supplies to fulfill their contracts. 

5. To offset their commitments in the maturing future, the short interests 

may bid against one another in attempting to cover their positions. 

6. As an alternative, the short interests may bid against one another for 

available supplies of cash grain in order to fulfill their sales by delivery. 

"A setting of this kind may cause prices to advance materially but finally 

end with all contracts fulfilled either by offset or delivery, constituting a 

squeeze. Or the long interest or interests may stand for delivery, with the 

shorts unable to deliver in full, with still higher and more uncertain prices, 

constituting a corner. In either case the net effect is artificial spot and 

current futures prices causing harmful diversion of supplies, sales and 

shipments in the cash-grain trade with an equally harmful effect upon the 

speculative trade, encouraging reckless guesswork at the expense of intelligent 

forecasting." 
Page 16 

Similarly, in one of the standard works on futures trading, 

 

Hoffman, Future Trading Upon Organized Commodity Markets in the United States

(Univ. Pa. 1932), Chapter XVI, entitled, "Deliverable Cash Supplies and Futures 

Prices," under the heading (p. 313), "3. Artificial Factors Causing Abnormal 

Conditions" the following appears (p. 315): 

"The Threat of Taking Delivery. Having greater possibilities of success and 

much more common is the threat of taking delivery. Here the long interests 

attempt to profit at the expense of the 'shorts.' By continuing long up to and 

into the delivery month, speculative short sellers find it increasingly 

difficult to buy in their contracts. The short interest, it will be recalled, 

has the option of choosing the day during the delivery month when the actual 

commodity will be delivered. This option only serves to postpone the time when 

an ultimate settlement will have to be made. With the hope that prices will 

break or that the long interest will take the initiative and liquidate, they may 

carry along their position well into the delivery month with little thought of 

acquiring the necessary supplies. At the end of the month when delivery must be 

made supplies may be scarce and, in a frantic effort to close out their 

position, the current future advances rapidly. This process may or may not be 

accompanied by any manipulative intent but in any event it is an artificial 

situation producing a temporary derangement in prices." 

See also Report of the Federal Trade Commission on the Grain Trade, Vol. VII 

(1926), p. 284; Baer and Saxon, Commodity Exchanges and Futures Trading (Harper, 

1949), p. 83. 

III

We shall first attempt to ascertain whether there was any "congestion" or 

"squeeze" on October 15, 1957, on the two exchanges, prescinding at this stage 

of our deliberations from the issue as to whether the respondents intended to 

push futures prices upward by the corporation's trading.

The closing prices of the October 1957 cotton future on October 14, 1957, on 

the New York Cotton Exchange were 34.91 bid and 35.03 asked and on the New 

Orleans Cotton 

 

Exchange the closing price was 34.60 bid. The closing prices at the end of 

trading in the future on October 15, 1957, were 35.27 in New York and 35.48 in 

New Orleans. October 1957 futures prices in October 1957 (October 1-14) had 

ranged in price on the New York exchange from a low of 34.25 October 1 to a high 

of 34.87 October 9 and 10, and on the New Orleans exchange from a low of 34.27 

October 1 to a high of 34.70 October 11. 

It is seen that October futures prices rose October 15, 1957, on both 

exchanges to levels higher than prices prevailing on October 14, 1957, and prior 

thereto in the month of October. Why did this happen? The answer is 

inescapable. A concentrated long position -- more than twice the size of the 

certificated cotton -- stood for delivery or for its liquidating price limits 

which were higher than previously existing prices. 

At the opening of the trading session October 15, 1957, the total open 

interest on both exchanges was 13,400 bales, i.e., there were unliquidated 

futures in that amount held by shorts against the same quantity held by longs. 

On the long side Volkart had 12,100 bales and other longs had 1300 bales. On 

the short side the 13,400 bales had to be covered before the end of trading 

October 15, 1957, by the purchase of futures or the delivery of certificated 

cotton or cotton which was in the process of certification. There were only 

about 5000 bales of certificated cotton owned by persons other than Volkart. 

Consequently there were available, without recourse to Volkart, only about 5000 

bales of certificated cotton and 1300 bales of long contracts to meet the demand 
Page 17 

by the shorts of 13,400 bales. The remaining demand of 7100 bales had to be met 

out of Volkart's supply of long contracts and out of whatever cotton was in the 

process of certification. 

Respondents, several of their witnesses and the intervenors point to the 

large stocks of uncertificated cotton in existence October 15, 1957, and seem to 

take the position that the mere existence of these stocks is proof that there 

was no artificiality in October cotton futures prices on October 15, 1957, on 

the New York and New Orleans exchanges. The existence of these large stocks 

does not negate artificiality in October 15 cotton futures prices. The evidence 

amply demonstrates that uncertificated cotton was not readily available to the 

shorts, particularly non-merchant shorts, on the last day of trading. Every 

 

delivery by means of a deliverer's class certificate on the October 1957 future 

on both exchanges was by a merchant short who had possession of the cotton on or 

prior to October 14, 1957 (Finding of Fact 21). There was no practicable 

alternative for a short on October 15, 1957, who did not have cotton, but to pay 

the price to get out. This meant for most shorts who did not have cotton to 

deliver not less than the price fixed by the concentrated controlling long 

interest with the consequence that prices advanced. That this was the situation 

on October 15, 1957, on both exchanges seems to be self-evident n7 but in any 

event is amply demonstrated by the evidence. See the testimony of witnesses 

Lawrence E. Richmond (Tr. pp. 6-48), Charles Layton Merrill, Jr. (Tr. pp. 119-

28), Charles Layton Merrill, Sr. (Tr. p. 143), Dan T. Manget (Tr. pp. 73-119), 

and James Eblen (Tr. pp. 887-92). The testimony of Edward Modet (Tr. pp. 5-49) 

and Eli Watson Tullis (Tr. pp. 129-39) who were brokers for the sale of some of 

the few outstanding long contracts on the New York Cotton Exchange not held by 

the corporate respondent is very illuminating. The orders were to sell for E. 

F. Hutton & Company's house account 400 bales of long futures at a point or two 

below Volkart's first selling order. Thus it is seen that professional traders 

recognized the obvious fact that a concentrated long would make or determine 

market prices for cotton futures on that day. Respondents' witness Kohlmeyer 

admitted that he had told investigators for complainant that Volkart had control 

of the market for October futures on October 15 and that October futures prices 

had thereby become artificially inflated (Tr. pp. 447-55). Too, respondents' 

witnesses connected with the New York Cotton Exchange who testified that there 

was no illegal squeeze or manipulation nevertheless asserted that whenever 

congestion threatens in the way of longs standing for delivery on the last day 

with apparently inadequate deliveries 

to be made and the longs holding out for excessive prices the Exchange notifies 

cotton merchants and "prods" them into making a profit going short and 

delivering upon their short contracts. n8 If uncertificated cotton is readily 

available to existing non-merchant shorts on the last day of trading, and 

therefore there is no price-enhancing factor in a shortage of certificated 

cotton relative to outstanding long contracts, why would it be necessary to 

alert the cotton merchants who have cotton suitable for certification to come 

into the market at the last minute as new shorts? 

n7 Cf. Garside (then Economist of the New York Cotton Exchange), Cotton 

Goes To Market (Stokes 1935), p. 269: 

"When the current futures delivery on a futures exchange, that is to 

say, the maturing futures contract, advances substantially above the next 

future delivery, it is said that there is a squeeze in the current month.' 

Squeezes sometimes occur in tight supply situations, due to buyers of 

future deliveries holding them for premiums, or refusing to sell them at 

all and insisting on taking delivery of the cotton contracted for. * * * 

If the merchant is not in a position to deliver his hedged spot cotton on 

the futures contract, he must either bid up the price of the maturing 

future delivery to find someone who will sell an offsetting future delivery 

to him or he must go into a spot market and purchase other cotton for 
Page 18 

delivery on the contract. Such action raises the price of the current 

future delivery on the futures exchange and of cotton for immediate 

delivery in spot markets. * * *" [Emphasis supplied.] 

n8 See e.g., the testimony of Thomas F. Russell, Jr., chairman of the 

New York Cotton Exchange Control Committee, who testified that if Volkart's 

liquidating price limits had been a cent higher the Exchange would have 

gone to spot houses and asked them to sell four or five thousand bales and 

to deliver upon their short contracts (Tr. p. 599). 

Respondents and intervenors defend cotton futures prices on the two exchanges 

on October 15, 1957, as not being artificially high. Considerable statistical 

data as to cotton futures prices over some months including periods subsequent 

to October 15, 1957, were introduced to support the defense that cotton futures 

prices had been distorted on the low side and that futures prices on October 15 

were natural rises. The justification is advanced too that the official spot 

prices of the Spot Quotation Committees were too low and did not represent the 

actual market prices for Middling inch cotton. 

We are concerned here with cotton futures prices on both exchanges on October 

15, 1957, and the reason for the price advances on that day. By a wide margin 

respondents' evidence fails to establish any reason for the advance other than a 

concentrated long interest -- twice the size of certificated stocks -- holding 

out for delivery or for its liquidating price limits. Respondents and 

intervenors attack the official spot price quotations as being too low but 

cotton futures prices October 15, 1957, went up by virtue of the "congestion" or 

"squeeze" of a concentrated long interest standing for delivery or its 

liquidating price limits. The futures prices were therefore artificial as 

brought about by technical factors within the futures market itself and not by 

any supply or demand factors for cotton generally or by free trading opinion as 

to such factors. This is true regardless of what spot cotton prices were.

Moreover, as is seen from our discussion below under heading IV on the issue as 

to whether prices were manipulated, respondents fail to impeach the announced 

spot prices of the Spot Quotation 

 

Committees and respondents do not succeed in substituting higher prices as the 

true market prices for Middling inch cotton. The intimation by intervenor New 

York Cotton Exchange that supply and demand for futures contracts as 

distinguished from actual cotton should be considered legitimate price-making 

factors for futures prices is patently lacking in merit. Such a position would 

justify as valid corners, "squeezes" and all kinds of manipulation both up and 

down. 

The artificiality of the October 15 futures prices is reflected in the spread 

between October futures prices and December futures prices on October 15 

(Finding of Fact 24). On October 15 the October future advanced 30 points in 

New York and 88 points in New Orleans. The December future advanced five points 

in New York and six points in New Orleans. As a result of these advances, on 

October 15 the October future closed 92 points over the December future in New 

York and 112 points over the December future in New Orleans. These spreads were 

substantially in excess of the spreads between these two futures which had 

theretofore prevailed on the respective exchanges during that month, and greater 

than any similar spread at the close of the October future during the 11-year 

period 1948 through 1958. 

Too, the price of a cotton future at maturity should reflect the price of 

Middling inch spot cotton, the contract grade, plus the cost of delivery which 

is about one cent or 100 points. Accordingly, the price of the October future 

at the termination of trading October 15, 1957, should have been approximately 

equal to the price of Middling inch spot cotton plus one cent. This was not the 

fact, however. The closing price of the future in New York was 192 points over 

the Middling inch spot price, and in New Orleans it was 213 points over the 

Middling inch spot price. These spreads were greater than any other which had 

theretofore prevailed during October 1957, and substantially in excess of 
Page 19 

similar spreads at the close of the October future on either exchange during the 

11-year period 1948 through 1958. 

The movement of the prices of the October future and spot cotton is further 

evidence of artificiality in the price of the October future (Finding of Fact 

25). The closing price of the October future on October 15 advanced 

approximately 30 points n9 

 

in New York and 88 points in New Orleans without any movement in spot cotton 

prices. Spot quotations on that date remained stationary at 33.25 in New 

Orleans, 33.40 in Houston and Galveston, and 33.50 in Memphis, and had not 

changed since October 4 in New Orleans, October 3 in Houston and Galveston, and 

September 26 in Memphis. 

n9 Calculated with reference to the midpoint (34.97). of the 34.91 bid 

and 35.03 asked at the close October 14 (Complainant's Exhibit 7). 

IV

We shall consider next the question as to whether we should conclude that 

respondents intended to maintain and to employ Volkart's controlling long 

position for the purpose of influencing cotton futures prices upward on October 

15, 1957, on both exchanges. 

The size of the certificated stocks was of course public knowledge and yet 

Volkart's long contracts amounting to more than twice the size of the stocks of 

certificated cotton and constituting almost all the long position on the New 

York exchange and practically the entire position on the New Orleans exchange 

were carried into the last trading day. Obviously Volkart was in a commanding 

position and could set prices for its futures reflecting its monopoly. 

Respondents "estabished" liquidating prices October 15 above prevailing previous 

prices and these became the futures prices for the day on the New York Cotton 

Exchange and the floor for prices on the New Orleans Cotton Exchange. 

Respondents contend that Volkart "originally" purchased the long contracts as 

hedges, that Volkart retained the long position because it desired cotton for 

merchandising purposes, n10 that the cheapest spot cotton available was by 

delivery upon the futures market, that it preferred delivery of spot cotton upon 

all its futures rather than liquidation by sales and that it established 

liquidating price limits October 15 at the suggestion of New York Cotton 

Exchange officials and at levels representing what it was paying for spot 

cotton. 

n10 See p. 284, Vol. VII, Report of the Federal Trade Commission on the 

Grain Trade, supra, which says, "A large long interest may exist which has 

not been built up for manipulative or even speculative purposes, but as a 

hedge, and may be a hedge on which the buyer expects to take delivery to 

meet cash grain commitments." 

By orders of October 1 and 10, 1957, 5000 bales of the corporate respondent's 

futures were offered for sale at a five-point scale-up per thousand bales 

ranging from 34.97 October 1 to 

 

35.17 October 10. Offers of sales of futures ahead of market prices and by 

means of a scale-up in prices do not indicate use of long contracts for 

procurement purposes. Furthermore, Respondents' Exhibit 6-D showing the 

corporation's purchases of spot cotton over the period September 15 - October 

29, reveals that practically all the cotton it bought was of a staple length 

longer than one inch and some of it was of a higher grade than Middling. The 

basis for the futures contract is Middling one-inch with deliveries permitted at 

29/32 inch and with no premium for staple length exceeding 1-1/16 inches. The 
Page 20 

respondent corporation deals in hundreds of thousands of bales of cotton 

annually and there were only 5000 bales of certificated cotton October 15. Too, 

Findings of Fact 28-32 reveal that Volkart had sufficient cotton to meet 

existing sales commitments. Respondents' explanation that Volkart held its 

October long contracts into October 15 for delivery of cotton because it was 

experiencing difficulty in getting the higher quality spot cotton it wanted and 

sought to get it through deliveries on its futures contracts is simply not 

credible. 

Respondents urge too that Volkart sought merely to get for its futures the 

prices which it was paying for spot cotton and that futures prices were less 

than actual spot cotton prices at the time. They dismiss the official published 

prices of the Spot Quotation Committees as too low and invoke evidence submitted 

by them, or on behalf of them, in this proceeding as demonstrating that October 

15, 1957, cotton futures prices were not excessive or manipulated in the light 

of the alleged prices paid for spot cotton. 

Much of the evidence and much of the written and oral argument in the record 

deal with such matters as whether the corporate respondent was hedging and 

whether the corporation needed the cotton represented by its long contracts for 

merchandising purposes. Whatever the original purpose for the corporation's 

going long, we are concerned with respondents' activities in October 1957 

futures in October 1957 and particularly at the end of trading in these futures. 

The corporate respondent was not engaged in so-called bona fide hedging under 

the act or in any discernible variation thereof incident to merchandising cotton 

(Findings of Fact 34 and 35). If this were not so, manipulative motive would 

not necessarily be ruled out. Even hedging may be used for manipulative 

purposes. 

What respondents emphasize as the motivation for going 

 

into the last day of trading with their dominant and controling large long 

position is the desire to obtain spot cotton for merchandising through 

deliveries by the shorts. This is repeated throughout the proceeding beginning 

with their answer to the complaint. They claim that they would have preferred 

delivery upon all the corporation's long contracts but established liquidating 

price limits on the last day at the suggestion of the New York Cotton Exchange 

n11 and they assert that these liquidating prices were set at what the 

corporation was paying for spot cotton. 

n11 According to the testimony of Thomas F. Russell, Jr., chairman of 

the Control Committee, he was informed of the corporate respondent's 

liquidating price limits on October 14, 1957, and did not suggest or 

request that Volkart liquidate (Tr. pp. 582, 583, 594, 597, 598). 

First of all we should observe that apparently no other cotton merchant 

believed that in the latter days of trading in the October future cotton futures 

prices were less than spot cotton prices plus the cost of delivery on the 

future. It is extremely unlikely that if such were the case other cotton 

merchants would not also have been long and stayed long on a sizeable scale. 

Volkart was practically the sole long on the last day. Respondents' Exhibit 6-D 

purporting to show Volkart's costs for cotton on a Middling inch basis is 

represented to have been made up from Volkart's buyers' reports and on the 

buyers' descriptions of grade and staple. But the original invoices to the 

producers or sellers were never made available to complainant for examination by 

the complainant and for the testing of the exhibit. Too, the conversion factors 

used in the exhibit were the differentials under Commodity Credit Corporation's 

cotton loan program, whereas the official Spot Quotation Committee differentials 

for staple lengths and grades above Middling inch actually used in the trade 

during the period were higher than Commodity Credit loan differentials 

(Complainant's Exhibit 42) which would result in lower prices paid by Volkart 

for its cotton purchases on a Middling inch basis than computed by respondents 

on their exhibit. 
Page 21 

Testimony given by other merchants for respondents does not establish that 

they paid the prices for Middling inch cotton claimed for Volkart. These 

merchants testified as to computed average prices on a Middling inch basis but 

for the most part they bought grades and staples other than Middling inch, some 

on the buyer's appraisal, and they used their own differentials 

 

to get from the grades and staples they purchased to a Middling inch basis. We 

are dealing here with not too wide a margin of futures prices over spot prices 

and, depending upon what conversion factors are used, several spot prices for 

Middling inch basis may be calculated. The official Spot Quotation Committee 

prices are not shown to be inaccurately low by respondents' evidence. Volkart's 

bid on October 14, 1957, for Commodity Credit Corporation cotton (Finding of 

Fact 27) was 33.31 for Middling inch as compared to the Memphis spot quotation 

of 33.50. Creekmore's bid for the same cotton said by respondents to have been 

35.73 on a Middling inch basis turns out as 33.83 when adjusted to Middling inch 

cotton on the Spot Quotation Committee's differentials instead of the 35.73 

computed on the New York Cotton Exchange contract differences. The basis buying 

sheets of Anderson, Clayton and Company (Finding of Fact 26) were generally 

below spot quotations and the respondents' characterization of these sheets as 

containing minimum prices and not buying guides or maximum prices is incorrect. 

V

We have concluded that respondents intended to advance prices by means of 

Volkart's monopolistic control of the long interest which Volkart had October 15 

and that this was accomplished, but not by a drastically large rise. The New 

York Cotton Exchange argues that because the price rise was not greater than it 

was the price was not manipulated. The reasoning in support of this proposition 

is that a controlling long interest cannot manipulate the price even though 

certificated stocks of cotton are short relative to the outstanding long 

contracts because if the long interest holds out for too high a price, cotton 

merchants will be alerted by the exchange to the profits to be made by going 

short on the last day and by delivering cotton upon their short contracts. 

Until the price gets up to this point, the so-called "bother" price, the long or 

longs have the right to exact a premium from the shorts who have "overstayed" 

the market by not previously selling out or arranging to have deliverable 

supplies. 

It seems elementary and beyond controversy that the deliberate pressuring of 

futures prices upward by a "squeeze" technique resulting in artificial or 

fictitious prices intentionally 

 

brought about constitutes manipulation of prices. n12 It is no answer to say 

that prices were not substantially, unreasonably or excessively raised. What we 

have to decide is not whether October 15 futures prices were excessive or 

unreasonable but whether they were manipulated. Small manipulations as well as 

large manipulations are prohibited by the act. 

n12 Manipulation is, "any and every operation or transaction or practice 

* * * calculated to produce a price distortion of any kind in any market 

either in itself or in relation to other markets. If a firm is engaged in 

manipulation it will be found using devices by which the prices of 

contracts for some one month in some one market may be higher than they 

would be if only the forces of supply and demand were operative * * *. Any 

and every operation, transaction [or] device, employed to produce these 

abnormalities of price relationship in the futures markets, is 

manipulation." (Testimony of Arthur R. Marsh, former president of the New 

York Cotton Exchange, Cotton Prices. Hearings Before a Subcommittee of the 

Committee on Agriculture and Forestry, U. S. Senate, 70th Cong., 1st Sess., 

pp. 201-02.) 
Page 22 

Respondents and intervenors argue too that in other court cases finding 

manipulated prices in violation of the act there was present control over 

deliverable stocks of the commodity or a substantial part of such stocks. They 

contend that respondents here had no ownership or control of the certificated 

cotton or cotton supplies generally and that, therefore, the respondents did not 

attempt to, and did not in fact, manipulate cotton futures prices. In view of 

the relative sizes of Volkart's long holdings and the certificated stock there 

was no need for respondents to control the certificated stock in order to 

accomplish their purpose. It is plain too that futures prices may be 

manipulated upward or downward or kept from going up or down by numerous and 

diverse methods n13 and if such prices may be intentionally raised artificially 

under some circumstances without the necessity of monopoly of the deliverable 

spot commodity or control over a substantial part of the deliverable supply, we 

know of no principle of law to the effect that the prices are not manipulated. 

n14 See, e.g., Great Western Food Distributors, Inc. v. Brannan, 201 F.2d 476, 

478-79 (7th Cir. 1953), cert. denied, 345 U.S. 997 (1953). 

n13 Respondents' witness W. K. Love, Jr., president of the New York 

Cotton Exchange, explained (Tr. p. 408): "I would say a squeeze can occur 

under two sets of circumstances: one where the long interest, whether it be 

one party or a number of parties holding same, is in excess of the 

available supply of cotton that can be tendered on contract; the other 

would be where the available supply of cotton is controlled by the long 

interest." [Emphasis supplied.] 

n14 See Campbell, Trading In Futures Under The Commodity Exchange Act, 

26 George Washington Law Review 215 (Jan. 1958). 

VI

Respondents seek at this stage of the proceeding a review 

 

of the referee's ruling denying their motion to dismiss filed after the 

introduction of the complainant's case-in-chief. Complainant contends that 

respondents waived any review of the ruling by proceeding to put on their case, 

citing court decisions on court proceedings. Respondents claim that in this 

administrative proceeding they are now entitled to such a review and that such 

review shall be limited to the evidence before the referee when he made his 

ruling. 

We have some doubt as to whether a respondent in an administrative proceeding 

of this kind is entitled as a matter of due process of law to a ruling upon the 

question as to whether the complainant makes out a prima facie case on its main 

presentation as distinguished from a ruling on the merits when the hearing 

record is closed. We have some doubt too as to whether respondents are also due 

a review of such ruling, after they put in their evidence, that is restricted to 

examination of complainant's case-in-chief. And it is a difficult task at the 

end of the proceeding for the deciding officer to close his eyes to some of the 

record and make a ruling limited to part of the record. But, at any rate, we 

agree with the referee that the complainant made out a prima facie case. 

Respondents stress an entire lack of evidence as to participation by the 

individual respondents but these respondents were president and vice-president, 

respectively, of the corporate respondent, as well as being partners in Volkart 

Bros., the partnership respondent, and these admitted facts were enough to deny 

the motion to dismiss as to them. Cf. United States v. Dotterweich, 320 U.S. 

277 (1943). 

Respondents and intervenors attack the series of physical acts by respondents 

cited in the complaint and in the evidence, such as the corporate respondent's 

staying long on such a relatively large scale into the last day, and maintain 

that each activity was legitimate in itself and should not be considered as an 

indication of, or as evidence of, manipulative intent. They insist that a long 

has a legal right to stand on his contract and demand delivery. Certainly he 
Page 23 

has such right in general. But there are circumstances such as inadequate 

deliverable supplies relative to his long interest in which his standing for 

delivery to push prices up constitutes manipulation of prices in violation of 

the act. Actions otherwise licit may amount to manipulation when the 

manipulative motivation is present. Both individual respondents denied at the 

hearing that they intended 

 

to "manipulate" prices. But it is not an essential ingredient of violation of 

the act in this respect that a respondent intend to commit what he knows to be a 

prohibited act. It is enough that he intends to do what he did. We have found 

and concluded on the evidence that respondents intended to move futures prices 

up by their activities and that this was accomplished. Intervenors see a grave 

threat to the continued existence of futures trading if we reach such a result, 

because, they say, no long can stand for delivery without the danger of being 

accused of manipulation, etc. What we hold here is reached upon a careful study 

of the evidence and the applicable law. Other facts or circumstances may or may 

not end in the same conclusions. 

The referee proposed lesser sanctions than sought by complainant because (1) 

the futures prices were not drastically raised by the manipulation and (2) the 

shorts were somewhat to blame by not getting out or arranging to have 

deliverable cotton prior to October 15, 1957. Complainant excepts to the latter 

ground as erroneous and immaterial in the evaluation of appropriate sanctions. 

We share the view of complainant in this respect. Respondents and intervenors 

repeatedly urge that a short has either to deliver upon his short contracts or 

pay the price to get out. A short has the option to deliver or to liquidate by 

purchasing futures. But this does not mean that a long has the right to require 

shorts to pay manipulated prices in order to get out. While we disavow the 

referee's reference to the so-called negligence of the shorts, we conclude, upon 

all the facts and circumstances of the case, that the sanctions proposed by the 

referee be adopted. 

All objections, exceptions, suggested findings, etc., inconsistent with this 

decision and order are overruled or denied. Of course since we decide that 

respondents manipulated futures prices it necessarily follows that respondents 

also attempted to manipulate such prices as also charged in the complaint. 

ORDER

Effective May 22, 1961, the registration of Volkart Brothers Company as a 

futures commission merchant and the registration of Alfred Boedtker as a floor 

broker are suspended for a period of 15 days. 

Effective May 22, 1961, all contract markets shall refuse all 

 

trading privileges to Volkart Brothers, Inc., Volkart Brothers Company, Alfred 

Boedtker and Kurt Muller, for a period of 15 days, such refusal to apply to all 

trading done and positions held directly by any of the said persons or firms, 

and also to all trading done and positions held indirectly through persons owned 

or controlled by them, or any of them, or otherwise. 

A copy of this decision and order shall be served on each of the respondents 

and on each contract market. 

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