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ARBITRAGE SERVICES CORPORATION
CASE OUTCOME: PERMANENT WITHDRAWAL FROM NFA MEMBERSHIP
NFA ID:
0002878
Individuals Involved:
- JOSEPH CAPRIO
- GARY R HARRELL
- STANLEY KENNETH JASEK
- DONALD E LARSON
- THOMAS JOHN LEE
- ROBERT L SCHILLACI
ON DECEMBER 21, 1987, THE CENTRAL REGIONAL BUSINESS CONDUCT COMMITTEE ("CENTRAL COMMITTEE") ISSUED A COMPLAINT AGAINST MASTERS TRADING ORGANIZATION, LTD. ("MTO"), ARBITRAGE SERVICES CORPORATION ("ASC"), ROBERT L. SCHILLACI ("SCHILLACI"), STANLEY KENNETH JASEK ("JASEK"), THOMAS JOHN LEE ("LEE"), GARY R. HARRELL ("HARRELL") AND JOSEPH CAPRIO ("CAPRIO"). THE COMPLAINT ALLEGED THAT MTO AND JASEK USED PROMOTIONAL MATERIAL WHICH OPERATED AS A FRAUD, WHICH WAS LIKELY TO DECEIVE THE PUBLIC, WHICH CONTAINED MATERIAL MISSTATEMENTS OF FACT AND FAILED TO SUPPORT THE ALLEGED RATE OF RETURN IN VIOLATION OF NFA COMPLIANCE RULES 2-2(A), 2-4, 2-29(B)(1), 2-29(B)(2) AND 2-29(B)(6); SCHILLACI AND CAPRIO ARE ALLEGED TO HAVE BEEN THE CAUSE OF SUCH VIOLATIONS; THAT ASC USED PROMOTIONAL MATERIAL WHICH OPERATED AS A FRAUD, WHICH CONTAINED MATERIAL MISSTATEMENTS OF FACT AND FAILED TO SUPPORT NUMERICAL INFORMATION REGARDING ALLEGED PAST PERFORMANCE OF ACTUAL ACCOUNTS IN VIOLATIONS OF NFA COMPLIANCE RULES 2-2(A), 2-4, 2-13, 2-29(B)(1), 2-29(B)(2) AND 2-29(B)(6); SCHILLACI IS ALLEGED TO HAVE BEEN THE CAUSE OF SUCH VIOLATIONS. THE COMPLAINT FURTHER ALLEGED THAT MTO AND HARRELL DECEIVED COMMODITY FUTURES CUSTOMERS IN VIOLATION OF NFA COMPLIANCE RULES 2-2(A) AND 2-29(A)(1) AND THAT LEE DECEIVED COMMODITY FUTURES CUSTOMERS IN VIOLATION OF NFA COM- PLIANCE RULE 2-29; THAT MTO, HARRELL AND LEE MADE HIGH-PRESSURE COMMUNICATION WITH THE PUBLIC IN VIOLATION OF NFA COMPLIANCE RULE 2-29; THAT MTO FAILED TO MAINTAIN WRITTEN PROCEDURES FOR REVIEW OF PROMOTIONAL MATERIAL AND FAILED TO MAINTAIN A RECORD OF REVIEW OF PROMOTIONAL MATERIAL IN VIOLATION OF NFA COMPLIANCE RULES 2-29(D) AND 2-29(E); THAT ASC FAILED TO MAINTAIN COPIES OF ALL PROMOTIONAL MATERIAL IN VIOLATION OF NFA COMPLIANCE RULE 2-29(E); AND THAT MTO AND JASEK CHEATED, DEFRAUDED OR ATTEMPTED TO CHEAT AND DEFRAUD COMMODITY FUTURES CUSTOMERS BY ENGAGING IN UNAUTHORIZED TRADING IN VIOLATION OF NFA COMPLIANCE RULE 2-2(A). THE COMPLAINT GOES ON TO ALLEGE THAT MTO AND JASEK FAILED TO OBTAIN WRITTEN AUTHORIZATION TO TRADE DISCRETIONARY ACCOUNTS IN VIOLATION OF NFA COMPLIANCE RULE 2-8(A); THAT MTO FAILED TO ADOPT AND ENFORCE WRITTEN REVIEW PROCEDURES REGARDING DISCRETIONARY TRADES IN VIOLATION OF NFA COMPLIANCE RULE 2-8(B); THAT MTO FAILED TO SUPERVISE DISCRETIONARY TRADING IN VIOLATION OF NFA COMPLIANCE RULE 2-8(C); THAT MTO INTRODUCED CUSTOMER ACCOUNTS WITHOUT OBTAINING A COPY OF THIRD-PARTY ACCOUNT CONTROLLER'S WRITTEN TRADING AUTHORI- ZATION AND WITHOUT OBTAINING ACKNOWLEDGEMENTS OF RECEIPT OF DISCLOSURE DOCUMENT FROM A THIRD-PARTY ACCOUNT CONTROLLER IN VIOLATION OF NFA COMPLIANCE RULE 2-8(E); THAT MTO FAILED TO OBTAIN ACCURATE INFORMATION ABOUT COMMODITY FUTURES CUSTOMERS IN VIOLATION OF NFA COMPLIANCE RULES 2-4, 2-30(A) AND 2-30(C) AND THAT LEE ALSO FAILED TO OBTAIN ACCURATE INFORMATION ABOUT COMMODITY FUTURES CUSTOMERS IN VIOLATION OF NFA COMPLIANCE RULE 2-4; THAT MTO FAILED TO MAINTAIN A RECORD OF CUSTOMER INFORMATION AND FAILED TO MAINTAIN ADEQUATE PROCEDURES TO REVIEW RECORDS MADE PURSUANT TO NFA COMPLIANCE RULE 2-30 IN VIOLATION OF NFA COMPLIANCE RULES 2-30(G) AND 2-30(H); THAT MTO ASSOCIATED TWO UNREGISTERED PERSONS WITH THE FIRM IN VIOLA- TION OF NFA BYLAW 301(B) AND NFA COMPLIANCE RULE 2-4; THAT MTO AND JASEK WILLFULLY SUBMITTED MATERIALLY FALSE OR MISLEADING INFORMATION TO NFA IN VIOLATION OF NFA COMPLIANCE RULE 2-2(F); AND THAT MTO, ASC AND JASEK FAILED TO COOPERATE PROMPTLY AND FULLY WITH NFA IN VIOLATION OF NFA COMPLIANCE RULE 2-5; SCHILLACI IS ALLEGED TO HAVE BEEN THE CAUSE OF ASC'S VIOLATION OF NFA COMPLIANCE RULE 2-5. THE COMPLAINT GOES ON TO ALLEGE THAT MTO FAILED TO MAINTAIN ADEQUATE BOOKS AND RECORDS IN VIOLATION OF NFA COMPLIANCE RULE 2-10; THAT MTO AND ASC FAILED TO SUPER- VISE ITS EMPLOYEES AND AGENTS IN VIOLATION OF NFA COMPLIANCE RULE 2-9; THAT MTO VIOLATED NFA FINANCIAL REQUIREMENTS SECTION 9; THAT MTO FAILED TO LIST A PRINCIPAL ON FORM 7-R IN VIOLATION OF NFA BYLAW 305, SCHEDULE A, SECTION I(B); THAT MTO, JASEK AND ASC FAILED TO OBSERVE HIGH STANDARDS OF COMMERCIAL HONOR AND JUST AND EQUITABLE PRINCIPLES OF TRADE IN VIOLATION OF NFA COMPLIANCE RULE 2-4; SCHILLACI IS ALLEGED TO HAVE BEEN THE CAUSE OF SUCH VIOLATIONS ON THE PART OF MTO AND ASC; AND THAT ASC FAILED TO MAINTAIN ADEQUATE BOOKS AND RECORDS IN VIOLATION OF NFA COMPLIANCE RULE 2-13. Decision:
DECISION - ROBERT L. SCHILLACI AND ARBITRAGE SERVICES CORPORATION: ON JULY 1, 1988, THE CENTRAL COMMITTEE ISSUED A DECISION IN WHICH IT ACCEPTED THE OFFER OF SETTLEMENT OF SCHILLACI AND ASC. THE DECISION REQUIRES THAT SCHILLACI WITHDRAW FROM ASSOCIATION WITH ANY NFA MEMBER AND NOT REAPPLY FOR NFA MEMBER- SHIP IN ANY CAPACITY FOR A PERIOD OF TWO YEARS FROM THE DATE OF THIS DECISION; AND THAT SCHILLACI NOT ACT AS AN AGENT, EMPLOYEE, CONSULTANT OR INDEPENDENT CONTRACTOR OF ANY NFA MEMBER FOR A PERIOD OF TWO YEARS FROM THE DATE OF THIS DECISION. THE DECISION ALSO REQUIRES THAT ASC WITHDRAW FROM NFA MEMBERSHIP AND NEVER REAPPLY FOR MEMBERSHIP IN THE FUTURE. THE DECISION FURTHER STATES THAT WITHOUT ANY ADMISSION OF LIABILITY, SCHILLACI IS FOUND TO HAVE VIOLATED NFA COMPLIANCE RULE 2-2(A), AND FURTHER REQUIRES SCHILLACI TO PAY A FINE IN THE AMOUNT OF $38,225.00.
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