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DE JONES COMMODITIES, INC
CASE OUTCOME: PERMANENT INJUNCTION
NFA ID:
0002586
Overview
Washington -- The Commodity Futures Trading Commission announced today that the Hon. Whitman Knapp, United States District Court Judge for the Southern District of New York, has issued an opinion granting the Commission's motion for a permanent injunction against D.E. Jones Commodities, Inc. (Jones) The company is a registered futures commission merchant (FCM). The opinion, dated July 2, 1985, holds that Jones had failed in its obligation to diligently supervise its agents under Regulation 166.3, 17 C.F.R. 166.3, promulgated under the Commodity Exchange Act. Judge Knapp's opinion was issued in the case of CFTC v. Commodity Fluctuations System, Inc., 83 Civ. 5909 (WK), which had been brought in August 1983 by the Commission against Commodity Fluctuations Systems, Inc. (CFS), Karen T. Genovese (Genovese) and Jones. The complaint charged that CFS was violating anti- fraud provisions of the Commodity Exchange Act in connection with the solicitation of investors for a certain commodity trading program run by CFS, and that it was also violating section 4.43 of the Regulations, which proscribes deceptive advertising. The Commission's complaint alleged that Genovese aided and abetted CFS in its violations. As for Jones, which carried the accounts solicited for the CFS trading program, the Commission charged, among other things, that it had violated Regulation 166.3 by failing to supervise its associated persons (APs) who solicited for the CFS trading program. In May 1984, the court issued a permanent injunction against CFS for violations of the anti-fraud provisions of the Act and of deceptive advertising (Regulation 4.41.) A permanent injunction against Genovese for violations of the same provisions was issued in February 1985. Judge Knapp's July 2, 1985, opinion finds that soon after the close of trial and the issuance of an injunction against CFS, Jones decided to terminate its relationship with all CFS APs, and that during the months following this decision, most of the CFS customer accounts which Jones had carried were transferred, pursuant to customer instructions, to other FCMs. The opinion holds that Jones' obligation to supervise its agents (under Regulation 166.3) included an obligation to oversee the agents' activity in advising their customers to transfer their accounts to another firm. The opinion holds that Jones, upon receipt of a request from a customer of a former CFS AP to transfer his or her account, should have advised that customer that it had terminated its relationship with CFS because of facts developed in the Commission's lawsuit and should have directed the customer to the Commission for further information. The opinion further holds that Jones' obligation to supervise the activity of its agents carries with it a duty to follow up on problems created by those agents i.e., even after the CFS APs were terminated, Jones had a continuing duty to properly attend to customer complaints relating to the activity of the former APs. The opinion finds that Jones had failed these obligations, and thus its duty to diligently supervise under Regulation 166.3, and grants the Commission's motion for a permanent injunction against further violation of Regulation 166.3 by Jones.
Source: National Futures Association
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