Washington, D.C. — The U.S. Commodity Futures Trading Commission
(CFTC) announced today that the Honorable Donald M. Middlebrooks of
the U.S. District Court for the Southern District of Florida issued a
final judgment against Wilshire Investment Management Corporation, Inc.
(WIMC), a Florida corporation; its president and CEO, Andrew Alan
Wilshire of Jupiter, Florida, and employees Eric Scott Malcolmson and
James Joseph Russo of Tequesta and Palm Beach Garden, Florida,
respectively; and National Commodities Corporation, Inc. (NCC) of Fort
Lauderdale, Florida. The court denied defendants’ Motion to Amend the
final judgment on June 1, 2006.
The final judgment trial order, entered on December 5, 2005, followed
a four-day bench trial stemming from a complaint filed by the CFTC on
September 14, 2004. The complaint alleged that the defendants
fraudulently solicited customers by misrepresenting the likelihood of
realizing large profits from commodity options trading and
misrepresenting the risk involved in trading commodity options (see
CFTC News Release 4997-04).
The final judgment order found Malcolmson and Russo committed
solicitation fraud in violation of the Commodity Exchange Act and
Commission regulations and held WIMC vicariously responsible for its
employees’ conduct. The order also held WIMC president, Andrew Alan
Wilshire, liable on two theories-as a controlling person and for
failing to diligently supervise WIMC employees. The order found that
Wilshire knew of his employees’ fraudulent sales practices or that
Wilshire was “willfully blind” to these practices. The order also
held defendant National Commodities Corporation, WIMC’s guarantor,
jointly and severally liable for WIMC’s violations.
Specifically, the court found that since at, least from September
2000, WIMC, Wilshire, Malcolmson, and Russo fraudulently solicited customers
by misrepresenting the likelihood of large trading profits and
downplaying the risks involved in trading commodity options, and by
linking profit expectations to well-known weather events, seasonal
trends, and historical prices. For example, according to the order,
Malcolmson claimed to help his clients “double or triple” their
money, turning $5,000 and $10,000 accounts into $100,000 — even
though 88 percent of his clients lost money between 2000 and 2004, with the
largest gain realized by any of his clients of approximately $8,000.
In ruling against the defendants, the court rejected WIMC’s argument
that their written risk disclosure statements signed by the customers
balanced exuberant descriptions of profit potential.
Sanctions Ordered Total More than $500,000
The court ordered the defendants to pay a total of $147,891.99 in
restitution to eight defrauded customers and imposed a $100,000 civil
penalty against each of the three individual defendants and a $100,000
civil penalty against WIMC-for which the National Commodities
Corporation guarantor is jointly and severally liable. This type of
liability means NCC may have to satisfy the entire judgment amount if
the other defendants cannot pay.
Based on the court’s finding that defendants’ behavior was blatant,
brazen, and repeated, the order also permanently prohibits Wilshire,
Malcolmson, and Russo from engaging in any commodity-related activity
in the future.