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CFTC v. INCOMCO

February 29, 1984

COMMODITY FUTURES TRADING COMMISSION, Plaintiff, against INCOMCO, INC., PHILIP M. SMITH, LINCOLNWOOD, INC., and ROBERT S. NOVICK, Defendants.


The opinion of the court was delivered by: DUFFY

KEVIN THOMAS DUFFY, D.J.:

Plaintiff, the Commodity Futures Trading Commission ("CFTC") brought this action pursuant to 7 U.S.C. § 13a-1 against Incomco, Inc., Philip Smith, Lincolnwood, Inc. ("Lincolnwood"), and Robert Novick alleging violations of the statutory record-keeping provisions applicable to commodity futures' traders, see 7 U.S.C. §§ 6g & 6i, and the regulations promulgated thereunder, see 17 C.F.R. §§ 1.31 & 1.35. On July 29, 1981 the action was terminated as to defendants Incomco, Inc. and Smith by the entry of an order of permanent injunction and final judgment.

 On February 16, 1984, I held a one-day bench trial on plaintiff's complaint against the two remaining defendants. At trial CFTC alleged that Lincolnwood, aided and abetted by Novick, denied CFTC complete access to an inspection of the books and records required to be kept by a commodity futures commission merchant. These records pertained to the trade transactions and positions of Lincolnwood and its customers in various commodity futures contracts. CFTC now seeks a permanent injunction against Lincolnwood and Novick asserting that there is a reasonable likelihood that they will commit future violations of the record inspection regulations.

 Before trial, the parties stipulated to the following facts:

 1. Lincolnwood is an Illinois corporation which was registered with the Commission as a futures commission merchant, pursuant to Section 4f of the Commodity Exchange Act, as amended ("Act"), 7 U.S.C. § 6f (1976), during all times relevant hereto, up to and including December 31, 1981. Lincolnwood is presently registered with the Commission as a futures commission merchant.

 2. From at least November 23, 1979, until on or about February 9, 1981, Lincolnwood maintained its principal office at 141 West Jackson Boulevard, Chicago, Illinois, and its New York branch office at One World Trade Center, New York, New York. At the present time, the principal office of Lincolnwood is located at Gateway Plaza, 355 Southend Avenue, Suite 10J, New York, New York.

 3. On or about January 26, 1981, the Ira Kuhlik Trading Corporation assumed responsibility for the supervision, control, expenses, and liabilities of all pending and subsequent administrative, exchange, governmental, and private proceedings, lawsuits, and investigations. Since on or about January 26, 1981, Ira Kuhlik effectively purchased control of and became president of Lincolnwood.

 4. Robert S. Novick, who resided at 1365 71st Street, Brooklyn, New York, was employed by Lincolnwood in the New York branch office at One World Trade Center, New York, New York, from at least 1977 until in or about July 1980. From at least May 8, 1980, until his employment with Lincolnwood was terminated in July 1980, Novick was a vice-president of Lincolnwood's New York branch office. He is currently employed by a futures commission merchant in New York, New York. Novick has an application pending to become a member of a contract market (i.e., commodity futures exchange), and he is registered with the Commission as a floor broker.

 5. On May 8, 1980, at Lincolnwood's office, Commission representatives met with Novick, who was then a vice-president of Lincolnwood and the manager of the firm's back office operations.

 6. At 10:45 a.m. on June 2, 1980, this Honorable Court issued an "Order to Show Cause for Preliminary Injunction and Temporary Restraining Order," which, among other things, temporarily restrained Lincolnwood and Novick from "refusing to permit authorized representatives of [the Commission] to inspect, when and as requested, all books and records required by the Act or the Regulations thereunder to be maintained by futures commission merchants."

 7. On January 5, 1983, a Commission representative issued a subpoena to Ira Kuhlik, the President of Lincolnwood, and on January 6, 1983, the subpoena was served upon Kuhlik.

 8. The subpoena required Kuhlik to appear at the Commission's offices in New York County on February 8, 1983, to testify in an investigation being conducted by the Commission. The subpoena also required Kuhlik to produce various documents described in the attachment annexed to the subpoena, which documents included trading cards required to be kept and readily accessible to Commission representatives.

 9. On July 1, 1983, upon the Commission's application, the Honorable John E. Sprizzo, United States District Judge, Southern District of New York, issued an Order to Show Cause ("July 1 Order") directing Kuhlik to show cause why an order should not be entered compelling his compliance with the ...


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