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FIRST COMMODITY CORP OF BOSTON
CASE OUTCOME: REGISTRATION REVOKED
• CEASE AND DESIST ORDER
• MAY NOT APPLY TO REGISTER
NFA ID:
0002574
Overview:
July 26, 1989 Washington--The Commodity Futures Trading Commission announced today that it has accepted offers of settlement submitted by First Commodity Corporation of Boston (FCCB), a Massachusetts corporation registered with the Commission as a futures commission merchant from January 1976 to February 1987, Don Schleicher of Santa Barbara, California, the majority shareholder and former president and Chairman of the Board of FCCB, and Richard Schleicher of Incline Village, Nevada, the minority shareholder and former vice-president and director of FCCB. The offers of settlement relate to a six-count administrative complaint filed by the Commission against FCCB, Don Schleicher, Richard Schleicher (settling respondents) and 10 former branch managers of FCCB on February 24, 1986. The complaint alleged that from October 1980 through February 1986, FCCB made false, deceptive and misleading oral representations and failed to disclose material facts in order to induce customers to open up-front fee accounts with FCCB. The complaint alleged that the misrepresentations and omissions concerned the basis for FCCB's recommendations of certain commodities to solicited customers; the likelihood of making a profit as a result of opening a commodity futures trading account with FCCB; the nature of the trading program being offered; the expertise, experience, and capabilities of the salesmen soliciting the account; the quality and size of the FCCB research department; the performance record of FCCB and/or the salesman soliciting the account; the up-front fee charged by FCCB and the services secured by payment of that fee; and the risk involved in trading commodity futures through accounts at FCCB. The complaint also alleged that FCCB sent fraudulent advertising and promotional material to solicited customers. The complaint alleged that Don Schleicher and Richard Schleicher (Schleichers) were controlling persons of FCCB and that they failed to act in good faith and/or knowingly induced the actions of FCCB and its employees. The complaint also alleged that the fraudulent activities of the settling respondents violated a cease and desist order issued by the Commission against them in October 1980. The complaint finally alleged that the settling respondents failed to supervise the sales solicitations and handling of customer accounts by FCCB employees from October 1980 through February 1986, in violation of Commission regulations. FCCB was alleged to have had nine branch offices located in Larkspur, Santa Barbara and Mountain View, California; North Miami, Florida; Chicago and Oak Brook, Illinois; Boston, Massachusetts; Ft. Lee, New Jersey; and Zephyr's Cover, Nevada, from which FCCB solicited customers throughout the country by telephone to open commodity futures trading accounts. These telephone solicitations allegedly generated between 80 and 100 million dollars in customer funds annually, which resulted in annual fees and commissions to FCCB of approximately 30 million dollars. In November 1986, following the filing of the administrative complaint by the Commission, a search warrant was executed by the Federal Bureau of Investigation (FBI) on the premises of FCCB headquarters in Boston, Massachusetts, for FCCB books and records. The execution of the warrant was the beginning of a nationwide criminal investigation of FCCB that is being coordinated by the United States Attorney's Office for the Northern District of Illinois. FCCB Ceased operations in February 1987. The settlements accepted by the Commission provide that, without admitting or denying the allegations of the complaint, the settling respondents each consent to a Commission order finding that each of them violated the anti-fraud provision of the Commodity Exchange Act, violated a previous Commission cease and desist order, and failed diligently to supervise the accounts at FCCB. The Commission also ordered the settling respondents to cease and desist from further violations of the provisions they were found to have violated, ordered FCCB never to seek registration with the Commission in any capacity, ordered the Schleichers never to seek registration with the Commission in any capacity, never to act in the capacity of any registrant, whether such action requires registration or not, never to be officers, directors or employees of any Commission registrant, revoked FCCB's registration as a futures commission merchant, revoked the Schleichers' registration as associated persons, and ordered the Schleichers jointly to pay a civil penalty of $500,000. The $500,000 civil penalty is in addition to a payment by the Schleichers on behalf of FCCB of $5.15 million in July 1988 in settlement of class actions filed against FCCB, the Schleichers and others starting in 1984, and the payment of $500,000 by the Schleichers on behalf of FCCB to the Mid-America Commodity Exchange in July 1988 in settlement of an action brought by that exchange against FCCB. On January 17, 1989, aided by assistance and documents provided by the Commission to the United States Attorney's Office in Chicago and the FBI, a federal grand jury indictment was returned against 16 former employees of FCCB and a criminal indictment was returned against two former employees of FCCB. The indictments included FCCB's former National Vice President for Sales, David Connolly, and three branch managers of FCCB, Bruce Piazza and John P. Strauss, and Ross Barnard, all of whom were named in the Commission's administrative complaint. These criminal charges were in addition to those issued in November 1988 against three other former FCCB employees in the Chicago area and charges issued in April 1989 by the United States Attorney for the Northern District of California against three former employees of the Larkspur branch office of FCCB. The criminal proceedings are continuing.
Source: National Futures Association
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