Yesterday’s blog describes the CFTC sanctions against INT FCSTONE for activity that began in 2008. This blog describes sanctions imposed on them on November 14, 2017, a year before the collapse of OptionSellers.
The CFTC order required INT FCStone to pay a $280,000 civil money penalty and change their practices. While this as not as severe a penalty as the earlier penalty for illegal conduct that began in 2018, it shows a pattern of conduct.
In talking with the lawyers of other victims I have been concerned that there is not more information sharing. Therefore, I hope that other lawyers and their victims will exchange their experiences. That is the purpose of my blogs. I hope my readers will contact their Members of Congress.
We should always remember that this is the biggest financial scandal since Bernie Madoff ten years ago. He will live out his life serving his 145 year jail sentence. The most significant difference is that his conduct was regulated by the SEC while these are under the CFTC.
Michael R. McLeod
When OptionSellers.com defaulted in 2018 and INT FCStone came after the innocent investors, I thought that it was probably the first time.
Nothing could be further from the truth!
A quick review of CFTC press releases shows a pattern of misconduct that goes back to 2008. In one case FCSTone LLC was charged with failure to supervise its officers and employees. The pattern of misconduct occurred in 2008 and part of 2009.
Ultimately, FCStone was forced to take over the account and lost approximately $127 million. The CFTC ordered them to pay a monetary penalty of $1.5 million, retain an independent consultant to review its internal controls and procedures, and cease and desist from violating its supervisory obligations.
There was a similar case in 2017. However they never learned and the OptionSellers default of 2018 is the worst ever. In this case, FCStone at first billed the innocent investors for everything that had been lost. In many cases the investors were billed for over a million dollars. Subsequently they seemed to be content to merely take the investors’ money and refund nothing of the hundreds of millions of dollars lost by these investors.
It is to be hoped that the CFTC will soon begin proceedings in this case. I know that attorneys for the investors have already petitioned the CFTC for relief. Also, I am asking Congress to hold public hearings on this case. The regulatory framework for the CFTC will break down if this kind of conduct goes unpunished.
Michael R. McLeod
The current scandal involving OptionSellers.com and INT FCStone brings to mind my memories of my representation of the Chicago Board of Trade and it’s Clearing Corporation.
One of our best leaders was Karsten (Cash) Mahlmann . In his fourth year of
four one-year terms as Chairman of the Chicago Board of Trade (CBOT) his firm the Stotler Group had to file for bankruptcy. Cash had to resign as Chairman of the CBOT. It turned out that he was devoting all of his time to the representation of the entire futures industry while he trusted others to run the Stotler Group.
He and I often walked the halls of Congress together. His family and mine got to be friends when we attended the annual conference of the Futures Industry Association in Boca Raton. His little boy Conner played with my son Chris on the beaches of Boca Raton
Unlike the current situation of INT FCStone, his firm did not even try to stay afloat by extracting the money from innocent investors. This is a sad story, but it does point out the importance of having a clearing corporation with integrity.
I will always remember him as a very fine and honest man.
Michael R. McLeod
The latest financial scandal involving a futures clearing corporation made me think of my old friend Les Rosenthal. He was the chairman of the Chicago Board of Trade Clearing Corporation until it was merged into the Chicago Mercantile exchange in 2007.
There would occasionally be some floor traders who lost money and they would have to settle up with Les. If they couldn’t they were out of business. Even Karsten (Cash) Mahlman , the elected Chairman of the Chicago Board of Trade had to resign when his company could not meet margin.
Never until the case of INT FCStone has a clearing corporation welshed on an obligation and penalized innocent investors
Like many of us this holiday has special significance for me. I was a young law graduate working for Senator Herman Talmadge. I had graduated from law school, passed the bar and done my basic training as a member of the D.C. National Guard. I went to work as a young legislative assistant for Senator Talmadge.
I was happy to attend a Democratic Fundraiser when Senator Hubert Humphrey was the prime speaker. As the event began, we were shocked to hear that Martin Luther King Jr. had been shot. Senator Humphrey got up to relay the news to the crowd and call the event off.
There had already been racial unrest in some of the nation’s cities. I stood around for a while to listen to Humphrey talking with the press and then went home and answer the phone call I knew would come. I took off my rented tuxedo and put on my Army fatigues.
The riots did come, and I was on active duty for what seemed like forever. I was stationed in a fire house in what was known as the U Street Corridor. As the firemen were called to put out the many fires that were set, our job was to ride with them to put out the fires. We did not use bullets, just heavy doses tear gas. One of our guys would use a tear gas pump that blanketed the street.
The liquor stores fared especially bad. They were ransacked. As we were leaving the National Guard Armory, a nicely dressed black man begged us to help him. He said, help me, these boys are burning down my store”. We had to go to turn him down to go to our destination, but I will never forget that guy’s face.
When this unfortunate experience in my life was over, I would go to Atlanta to run Senator Talmadge’s Atlanta office. I got to know and admire Martin Luther King Senior. He and I would see each a community meetings. Unlike his son, who was cut down in his prime, he lived to the ripe old age of 82. Among the many stories was that of a friend at the Atlanta Farmers Market. Reverend King would bargain hard on the price of chicken saying “I have got to get a good price, so I can feed my flock”.
Michael R. McLeod