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June 15, 1977.

CROWN COLONY COMMODITY OPTIONS, LTD., a New York Corporation, Allen M. Goldschmidt, Arnold Tenney, Joseph Alter, Joel Steiner, Samuel Pattera, Martin Davidson, Ronald Yales, Defendants.

The opinion of the court was delivered by: WEINFELD

EDWARD WEINFELD, District Judge.

Plaintiff, the Commodity Futures Trading Commission (the "Commission"), a regulatory agency established under the 1974 amendments to the Commodity Exchange Act *fn1" (the "Act" or "Commodity Act") and charged with the enforcement and administration of various provisions of the Act, *fn2" brings this action for preliminary and permanent injunctive relief restraining the defendants from engaging in alleged practices in violation of the Act and regulations promulgated thereunder. *fn3"

 The corporate defendant is Crown Colony Commodity Options, Ltd. ("Crown Colony"), a New York corporation that maintains an office in this district and formerly conducted operations in Miami, Florida, and Chicago, Illinois. The individual defendants include Allen M. Goldschmidt, chief executive officer of Crown Colony, who directed its operations and affairs in New York City; Joseph Alter, an officer, and Joel Steiner, a management employee, both of whom directed the affairs and policies of Crown Colony's Miami office; Arnold Tenney, a director and fifty percent shareholder of Crown Colony and a resident of Canada, who, together with Goldschmidt, participated in the overall control and operation of Crown Colony; and Martin Davidson, a supervisor-manager employed at the Miami office. *fn4"

 Since February 1976, Crown Colony has been engaged primarily in the business of offering and selling London commodity options to investors throughout the United States. The gravamen of the Commission's complaint is that the defendants engaged in pervasive, continuing fraudulent conduct calculated to cheat and deceive customers in connection with their purchases of commodity options. The Commission initially applied for a temporary restraining order upon notice to the defendants, as required by the Commodity Act. *fn5" Upon representations by the defendants' attorneys that neither Crown Colony nor any individual defendant was any longer active in offering or selling commodity options, the Court refrained from issuing a temporary restraining order and set a date for a hearing on the Commission's motion for a preliminary injunction. During the hearing, which extended over a three-day period, the Commission supplemented its affidavits and exhibits with the testimony of witnesses, including several customers of Crown Colony and a former supervisory salesman in the Miami office. The witnesses included, unfortunately for the defendants, a securities commissioner of Texas, who, after hearing the initial sales pitch made to him over the telephone, tape recorded subsequent conversations with Crown Colony salesmen.The defendants neither testified themselves nor offered affidavits to negate the charges made by plaintiffs.

 After a careful review of all relevant and material evidence and an evaluation of the demeanor of the witnesses, the Court is persuaded that the plaintiff has abundantly established its charges that the defendants, singly and in concert with one another, engaged over an extended period in acts and practices proscribed by the Commodity Act and the rules adopted by the Commission thereunder.

 As noted, the defendants were in the business of offering and selling London commodity options to investors. A commodity option must be differentiated from a commodity futures contract. The latter is a contractual undertaking, which can be transferred to third parties, to buy or sell a fixed amount and grade of a certain commodity on some specified date. A commodity option, on the other hand, confers upon the holder the right to buy ("call option") or to sell ("put option") either a specified amount of a commodity or a futures contract for that amount of a commodity within a certain period of time at a given price (the "strike price"). *fn6"

 In passing the 1974 amendments to the Commodity Act, Congress delegated nearly unfettered authority to the Commission to regulate, or indeed ban, trading of commodity options in the United States. *fn7" Pursuant to this grant of authority, the Commission adopted Rule 32.9, which reads as follows:

 It shall be unlawful for any person directly or indirectly -

 (a) To cheat or defraud or attempt to cheat or defraud any other person;

 (b) To make or cause to be made to any other person any false report or statement thereof or cause to be entered for any person any false record thereof;

 (c) To deceive or attempt to deceive any other person by any means whatsoever; in or in connection with an offer to enter into, the entry into, or the confirmation of the execution of, any commodity option transaction. *fn8"

 As adopted, Rule 32.9 is as broad as, if not broader than, Rule 10b-5 adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934. *fn9" The legislative history of the Commodity Act and the Commission's express intent in adopting Rule 32.9 indicate that the Rule, like Rule 10b-5, should be read so as to effect the purposes of the Act and the policies of the Commission in regulating commodity options. *fn10" In this regard, cases decided under the antifraud provisions of the securities acts are instructive in interpreting Rule 32.9. *fn11" It should be noted, however, that the activities of the defendants in the present case do not pose difficult questions of statutory interpretation. As will be seen, the defendants purposefully engaged in the sort of continuous, concerted fraudulent practices that lie at the core of the prohibitions contained in Rule 32.9. *fn12" The essence of the Commission's charges is that the defendants actively operated a high-powered "boiler room," *fn13" principally from the Miami office, in attempting to sell, and selling, London commodity future options to persons throughout the United States, and in so doing engaged in various acts and conduct aimed to cheat, to defraud, or to deceive their customers.

 The origin of the Miami branch office of Crown Colony suggests the nature of its operations. Defendants Tenney and Goldschmidt, the founders of Crown Colony, organized the Miami branch as a base for conducting nationwide, "cold-canvass" *fn14" telephone solicitations of potential purchasers of commodity options. In setting up the Miami operation, Tenney and Goldschmidt enlisted the aid of defendant Alter, who had experience in running telephone solicitation operations. Alter assisted Tenney and Goldschmidt in locating the Miami offices in a building owned by Alter's father-in-law, out of which wigs and chemicals were sold over the telephone during the day. The building housed numerous telephones tied into a long distance WATS facility and a central monitoring system that allowed salesmen's supervisors to listen in on conversations or to broadcast such conversations to other salesmen over a speaker system. Crown Colony established its offices in a section of the building not being used by the wig and chemical operations, and it made use of the WATS facilities during the evening hours when wigs and chemicals were not being sold. *fn15"

 The Miami sales room, out of which Crown Colony's telephone operators made their calls, was divided into two work areas, each of which contained approximately twenty-five telephone cubicles with directional microphones that allowed supervisors to address the salesmen without being overheard by customers on the line. Crown Colony made no attempt to hire salesmen with any knowledge of the commodity markets and only instructed salesmen in the rudimentary terms applicable to options trading. The training given salesmen was geared to produce sales and overcome customer resistance, and salesmen were told that the less they knew about commodities the better salesmen they would be. The salesmen worked in two three-hour evening shifts of approximately fifty persons each; each supervisor was responsible for the activities of approximately twelve salesmen. The salesmen received a commission of ten per cent of the purchase price paid by a customer for an option, and supervisors received a commission of ten per cent on their own sales and of one-half per cent on the sales of their ...

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