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Commodity Futures Trading Commission 

CEA CASES 

NAME: SECRETARY OF AGRICULTURE V. GREAT WESTERN DISTRIBUTORS, INC., HARRY 

HARRIS, NATHANIEL E. HESS, CHARLES S. BORDEN 

DOCKET NUMBER: 21 

DATE: SEPTEMBER 28, 1940 

DOCUMENT TYPE: COMPLAINT 

UNITED STATES OF AMERICA 

BEFORE THE SECRETARY OF AGRICULTURE 

CE-A DOCKET NO. 21 

Secretary of Agriculture, Complainant, v. Great Western Distributors, Inc., 

Harry Harris, Nathaniel E. Hess, Charles S. Borden, Respondents. 

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

Act. 

There being reason to believe that the respondents have violated the 

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

and regulations promulgated pursuant thereto, this complaint is issued alleging 

the following: 

1. 

Great Western Distributors, Inc. is a New York corporation having its 

principal place of business in New York, New York, with a branch office in 

Chicago, Illinois. 

2. 

Harry Harris and Nathaniel E. Hess were, during the time covered by this 

complaint, and are at this time, officers of the Great Western Distributors, 

Inc., being President and Vice President, respectively. 

Charles S. Borden was, during the time covered by this complaint, and is at 

this time, Manager of the Chicago office of the Great Western Distributors, Inc. 

3. 

Great Western Distributors, Inc. were, during the year 1939 and have been 

continuously to the present time, registered as futures commission merchants 

under the provisions of the Commodity Exchange Act. 

4. 

Nathaniel E. Hess was, during the year 1939 and has been continuously to the 

present time, registered as a floor broker under the provisions of the Commodity 

Exchange Act. 

5. 

The individuals named herein as respondents during the year 1940 exercised 

management and control over the Great Western Distributors, Inc. as to all 

affairs relating to the matters and things hereinafter set forth. 

6. 

Great Western Distributors, Inc., through its operations in the butter 

futures market on the Chicago Mercantile Exchange, for its own account and for 

the account of four customers over whose accounts it exercised trading control, 
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traded in March 1940 butter futures contracts on said exchange during February 

and March of 1940, which 

trading resulted in: (a) A long position in said future being held by Great 

Western Distributors, Inc. on March 21st amounting to 72 cars, 30 of which were 

for the account of the Great Western Distributors, Inc. and 42 for the account 

of the four customers. (b) The position referred to in "a" was increased 

between March 21st and March 27th resulting in a position of 139 cars being held 

on March 27th, 95 of which were for the account of Great Western Distributors, 

Inc. and 44 for the account of the four customers. This increase was 

represented by a purchase of five cars for the house account and one for 

customer account on March 23rd, purchase of eight cars for the house account and 

two for customers on March 25th, a purchase of 36 cars for house account and one 

for customers on March 26th and a purchase of 22 cars for house account on March 

27th. On March 25th, three cars were sold for house account and on March 27th, 

three cars were sold for house account and two cars for customer account. 

7. 

The position of 139 cars held by the Great Western Distributors, Inc. in 

March 1940 butter futures on March 27th was liquidated by trading on March 28th 

and 29th, resulting in a reduction of 12 cars on the 28th and 10 cars on the 

29th, and the balance of this position was liquidated by deliveries and defaults 

resulting in settlement as follows: 

See original document-page 3 

Deliveries and Defaults 

Deliveries Received Defaults 

Date House Customers Total House Customers Total

March 

28 55 22 77 -- -- --

29 14 7 21 -- -- -- 30 13 -- 13 2 4 6

Total 82 29 111 2 4 6

8. 

With the exception of three contracts filled by deliveries early in the 

month, all butter delivered on March 1940 butter futures contracts on the 

Chicago Mercantile Exchange to other clearing firms was eventually redelivered 

to Great Western Distributors, Inc. 

9. 

The six contracts of March butter which were defaulted by the sellers were 

settled by the payment of 29 cents per pound, this representing the actual value 

of contract grade butter at Chicago for merchandising purposes as determined by 

the "fair market value committee" of the Chicago Mercantile Exchange, which 

value was determined to be 27-1/2 cents per pound and a penalty for default in 

the amount of 1-1/2 cents per pound, 

10. 

On March 28, 1940, Great Western Distributors, Inc. bought for its own 

account 18 contracts in March butter futures at 28.40-28.50 

cents per pound and on the same day the company sold a car of cash butter of 

deliverable grade at 27.50 cents per pound. 

11. 

Fifteen of the cars of butter received by the Great Western Distributors, 

Inc. on delivery on March contracts were fresh butter which usually sells at a 

premium over storage butter of a contract grade. 
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12. 

From March 21st to March 29th, the Great Western Distributors, Inc. 

participated in 189 contracts cut of a total of 406 contracts in March 1940 

butter futures executed on the Chicago Mercantile Exchange during that period. 

13. 

The Great Western Distributors, Inc., for itself and its customers, was long 

56 cars of March butter at the opening of business March 21st, which was 29 

percent of the total open interest in this future on the Chicago Mercantile 

Exchange. By March 27th, its long position was increased to 139 cars, which was 

87 percent of the total open interest and on March 28th and 29th the company's 

long position represented the entire open interest on the market. 

14. 

The rules of the Chicago Mercantile Exchange permit delivery on butter 

futures contracts at a number of warehouses outside of 

Chicago in important butter producing areas prior to the last six business days 

of the delivery month. Delivery during those six business days is required to 

be made in Chicago. 

15. 

The total supply of butter in storage in Chicago on March 27th was 137.9 cars 

of 19,200 pounds each. 

Of the 137.9 cars of butter in storage in Chicago on March 27th 37.9 cars 

were held by the Federal Surplus Commodities Corporation and the Dairy Products 

Marketing Association, which butter was not available for delivery on March 1940 

butter futures contracts. 

16. 

The delivery notices received by the Groat Western Distributors, Inc, on 

March 1940 butter futures contracts were not transferred or redelivered, 

although the futures price was in excess of the merchandising value of the spot 

butter. 

17. 

The price of Chicago spot 90 score butter from March 12th to the 20th was 27 

3/4 28 cents per pound. The price of this butter increased the last four days 

of March, prices for those days being as follows: March 27th @ 28 cents, March 

28th @ 28 1/4 cents, March 29th @ 28 1/4-28 1/2 cents, March 30th @ 28 cents, 

and on April 1st the price declined to the previous prevailing price of 27 3/4-

28 cents and continued to decline thereafter during the month of April. 

18. 

The closing prices of March 1940 butter futures contracts on the Chicago 

Mercantile Exchange and the November 1940 butter futures contracts from March 

21st to March 30th were as follows: 

Date 1940 March Future November Future

March 

21 26.25 26.75 

22 No trading 

23 26.50 26.75 

25 26.50 26.75 

26 27.15 26.70 

27 28.05 26.65 

28 28.50 26.50 

29 28.50 26.50 

30 26.45 
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19. 

The corporate respondent and the individual respondents by and through the 

means of the corporate respondent by reason of their operations in connection 

with the March butter futures market on the Chicago Mercantile Exchange as 

alleged in paragraphs 5 to 16, inclusive, were guilty of attempting to 

manipulate the price of butter futures contracts on and subject to the rules of 

the Chicago Mercantile Exchange, a duly designated contract market, and the 

price of actual butter on the Chicago Mercantile Exchange and elsewhere in 

interstate commerce and, in fact, did manipulate such prices and were 

responsible for the price movement set forth in paragraphs 17 and 18, all in 

violation of the Commodity Exchange Act and the rules and regulations 

promulgated pursuant to said act. 

20. 

By reason of the actions of the respondents as alleged in paragraphs 5 to 16, 

the respondents were guilty of attempting to corner the 1940 March butter future 

on the Chicago Mercantile Exchange and the supply of contract grade storage 

butter in Chicago between March 28 and March 30, 1940, in violation of the 

provisions of the Commodity Exchange Act. 

21. 

Nathaniel E. Hess and Charles S. Borden were, during the time covered by this 

complaint, members of the Chicago Mercantile Exchange, a contract market duly 

designated as such by the Secretary of Agriculture pursuant to the provisions of 

the Commodity Exchange Act and their memberships were, during such time, 

registered for the use of the Great Western Distributors, Inc. 

22. 

Nathaniel E. Hess and Harry Harris were, during the time covered by this 

complaint, members of the New York Mercantile Exchange, a contract market duly 

designated as such by the Secretary of Agriculture pursuant to the provisions of 

the Commodity Exchange Act and their memberships were, during such time, 

registered for the use of the Great Western Distributors, Inc. 

23. 

The butter belonging to the four customers heretofore referred to, namely, 

Vincent Albano, Abe Harris, Harry Harris and S. Rothkopf and Son, which was 

received on delivery on March futures contracts, was merchandised by the company 

along with the butter received by the company on delivery of March futures 

contracts and settlements were made to the customers on the basis of an average 

selling price of 26.216 cents per pound rather than on the basis of the actual 

selling price, 

24. 

In determining the average price at which settlement was made with customers 

as alleged in paragraph 23, sales at prices in excess of 27-1/4 cents per pound 

were not included and the sales of the 15 cars of fresh butter were also 

disregarded in determining the selling price applied to customers' butter and to 

the remainder of the company's own butter. 

25. 

The corporate respondent reported to customers costs of receiving delivery of 

butter on March futures contracts other than the actual cost of receiving 

delivery resulting in customers being over-charged on a number of storage lots, 

among which were storage lots Nos. 13093, 11754, 13460, 14263, 14264, 12713 and 

13366. In the case of these particular lots, the customers were over-charged 

various amounts from $ 58 to $ 97 on each lot. 
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26. 

H. D., Shoemaker of Seattle, Washington, purchased one contract of March 

butter futures on March 4, 1940, through the Great Western Distributors, Inc. 

Delivery on this purchase was made on March 28, 1940, and Mr. Shoemaker 

instructed the company by telegraph on March 29, 1940, as follows: 

"Confirming telephone conversation it is understood that you are to sell and 

deliver our car of butter on the board today." 

27. 

The Great Western Distributors, Inc. sold to Swift & Company on March 28, 

1940, at 27-1/2 cents per pound, a car of butter identified as storage lot No. 

94965 in Central Cold Storage. This car had been delivered on the futures 

market that day, assigned by the clearing organization of the Chicago Mercantile 

Exchange as applying against an open purchase contract of March 21, 1940. 

28. 

The lot of butter referred to in paragraph 27 was applied against Mr. 

Shoemaker's contract by the Great Western Distributors, Inc., which then wired a 

reply to Mr. Shoemaker's telegram as follows: 

"Re telephone conversation your car actual butter delivered yesterday sold 

today 27.25 net to you." 

29. 

The Great Western Distributors, Inc., on March 28, 1940, received on delivery 

on March contracts three cars of butter assigned 

 

by the clearing organization as applying against open purchase contracts of 

March 4, 1940, and these three cars wore not sold until after March 30, 1940. 

30. 

The March butter futures market had a range of 28.45-28.70 on March 29, 1940, 

31. 

Under date of April 1, 1940, the Great Western Distributors, Inc. made an 

accounting to Mr. Shoemaker for the car of butter which it had applied to his 

futures purchase contract. The delivery cost of this car was invoiced to Mr. 

Shoemaker as being 18,018 pounds at 28 cents per pound, or $ 5,045.04, whereas 

the actual amount stated on the tender notice and which was paid by Great 

Western Distributors, Inc. was $ 5,041.76. 

32. 

The corporate respondent and the individual respondents by and through the 

means of the corporate respondents by reason of their acts and the facts alleged 

in paragraphs 21 to 31 in connection with orders to make and the making of 

contracts of sale of butter for future delivery for and on behalf of customers, 

made on and subject to the rules of the Chicago Mercantile Exchange, a contract 

market, such contracts being subject to use for hedging any transaction in 

interstate commerce in butter and determining the price basis of any 

 

transaction in interstate commerce in butter did attempt to cheat and defraud 

and did cheat and defraud such customers and did wilfully make or cause to be 

made to such customers false reports and statements and attempted to deceive and 

did deceive such customers in regard to the disposition and execution of such 

orders and contracts, and acts of agency performed with respect thereto, all in 

violation of the Commodity Exchange Act. 

33. 
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The Great Western Distributors, Inc. on March 30, 1940, and April 1, 1940, 

were accountable to commodity customers for $ 15,358.20, representing funds 

received from such customers and amounts due such customers as a result of 

trades in butter for future delivery. 

34. 

On March 30, 1940, the Great Western Distributors, Inc. had segregated for 

the benefit of regulated commodity customers the sum of $ 8,206.04, representing 

deposits in a segregated bank account of $ 5,722.04, deposits with clearing 

organizations of a contract market of $ 1,000 and $ 1,484 due from the clearing 

organization of a contract market. 

35. 

On April 1, 1940, the Great Western Distributors, Inc. had segregated for the 

benefit of regulated commodity customers the sum of $ 6,722.04, representing 

deposits in a segregated bank account of $ 5,722.04 and deposits with a clearing 

organization of a contract market of $ 1,000. 

36. 

The Great Western Distributors, Inc., from January 1, 1940 to May 9, 1940, 

failed to obtain a waiver from the bank wherein its regulated commodity 

customers' funds were deposited with respect to using such funds to satisfy 

claims other than those of such customers. 

37. 

The Great Western Distributors, Inc. received a total of $ 15,996.40 from the 

clearing organization of the Chicago Mercantile Exchange as settlement and 

release of margins on customers' trades for March 27, 28, 29 and 30, 1940, and 

deposited this money in a general bank account with the company's own funds. 

38. 

The corporate respondent and the individual respondents by and through the 

means of the corporate respondent by reason of their acts and the facts alleged 

in paragraphs 33 to 37, inclusive, did, while engaged as futures commission 

merchants in soliciting and accepting orders for the purchase and sale of 

commodities for future delivery involving contracts of sale of such commodities 

for future delivery on or subject to the rules of the Chicago Mercantile 

Exchange, accept orders from various persons for the purchase and sale of 

butter, a commodity as defined in the Commodity Exchange Act, for future 

delivery and receive funds from said persons to 

 

margin and guarantee respective trades and contracts of said persons in such 

commodity and as a result of such trades received additional funds belonging to 

such persons and at such times and places, and while so engaged, the respondents 

violated the Commodity Exchange Act by failing to account separately for the 

funds so received and by commingling these said funds with the funds of the 

Great Western Distributors, Inc. The respondents violated the regulations 

promulgated pursuant to said act by failing to obtain a waiver from the bank 

where regulated commodity customers' funds were deposited, with respect to using 

such funds to satisfy claims other than the customers'. 

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 October 28, 1940, in Room 1026, at 332 South LaSalle 

Street, Chicago, Illinois, 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 the corporate respondent 

as a futures commission merchant and Nathaniel E. Hess as a floor broker and 
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directing that all contract markets, until further notice of the Secretary of 

Agriculture, refuse all trading privileges to the respondents. 

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

fifteen days after the receipt of the complaint, answers 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 

fifteen day period may be deemed an admission of the truth of the allegations of 

the complaint for the purpose of this proceeding unless application for an 

extension of time in which to answer has been made by the respondents and 

granted by the Secretary of Agriculture or a referee designated by him to 

conduct the hearing herein. 

(SEAL) 

Done at Washington, D. C., this 28th day of September, 1940. Witness my hand 

and the seal of the Department of Agriculture. 

Grover B. Hill, 

Acting Secretary of Agriculture. 

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