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December 27, 2000

CFTC Complaint: Brown and Thompson Scheme $1.5 Million From Client Accounts

Martin Brown and Geoffrey S. Thompson of Saul Stone & Company LLC allegedly were involved in a scheme, which moved profitable trades into accounts they specifically had setup. One account was opened by Brown’s girlfriend and the other by Brown’s sister.

In February 2000, Brown and Thompson were employed in Stone’s Futures Direct unit. Thompson was Stone’s Risk Manager, had overall supervisory responsibility for the Futures Direct unit and was Brown’s direct supervisor. Futures Direct accountholders are generally large traders and are permitted to place orders for commodity interest trades directly to the floor of the exchange using, at least in some instances, execution brokers.

Their plan was fairly simple. When these large account holders would place trades, the Defendants would move profitable trades in their “own” accounts and unprofitable trades would go to the clients at the end of the day. (Moving trades from one account to another is a fairly normal practice, but it is usually done to make sure each client gets his proper trades). It looks like these guys saw an opportunity to pad their own accounts and make themselves rich. In at least eight months that the Defendants perpetrated the scheme, their accounts amassed approximately $1,500,000 in profits. The victim accounts suffered losses of approximately $1,200,000.

The Defendants returned approximately $714,000 for the benefit of the customers whose accounts were victimized in the scheme. However, since that date, neither the Defendants nor the Relief Defendants have returned the approximately $585,000 still owed to customers victimized by the scheme.

Brown and Thompson and their accomplices are facing an order requiring them to pay civil penalties in amounts of not more than the higher of $100,000 to $120,000 for each violation or triple the monetary gain to Defendants, for each violation of the Commodities Exchange Act. That could turn out to be mighty expensive venture.

Yes, there are crooks in this business just like there are in most other businesses. The complaint does not detail how they were actually caught. I imagine some client complained of the unusual losses they were getting over the six-month period or someone just blew the whistle on them. It amazes me that people are arrogant enough to think they can actually get away with this stuff. This activity is not really anything for the average $10,000 accountholder to worry about. This type of activity normally gets lost among the large account with a lot of trading activity. There is still about $585,000 owed to customers. Saul Stone will most likely have to pay the customers out of their own pocket if the money can’t be recovered.

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