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Futures Regulators Charge Nymex Chairman, Two Others

February 18, 1993

WASHINGTON (AP) _ A month before he was to stand for re-election, federal regulators accused the chairman of the world’s biggest market for oil and gasoline futures of violating commodity law on another exchange.

Z. Lou Guttman, chairman of the New York Mercantile Exchange, or Nymex, and two other brokers were accused of wrongdoing in the trading of sugar futures options in 1989.

In an administrative complaint filed Wednesday, the Commodity Futures Trading Commission accused Guttman, of New York; his former partner, Harold Jay Magid, Harrison, N.Y., and another futures broker, Gary Glass, Merrick, New York, of non-competitive, prearranged trading.

Prearranged trades, which have no element of risk and thus are not subject to market forces, are illegal.

Dennis Klejna, chief of the CFTC’s Enforcement Division, said Guttman was not accused of actual illegal trades himself but of overseeing a joint account he had with Magid, making him liable for any alleged violations by Magid. Glass was accused of helping Magid in the alleged bogus trades.

The prearranged trades were allegedly designed to give the Guttman-Magid trading account the appearance of having enough capital to carry large futures and options positions. Traders are required to meet specific capital limits depending on the size of their trading positions.

Klejna said it was believed to be the first time the CFTC had charged a sitting chairman of a major commodity futures exchange.

″We remain confident that the charges against Mr. Guttman are unfounded and unprecedented,″ Guttman’s lawyer Barry Bohrer said in a statement. ″The commission’s timing in bringing these charges is both unseemly and unfair, particularly given the impending elections at the New York Mercantile Exchange. Mr. Guttman retains confidence in the system in spite of this action by the CFTC and remains confident that he will be fully vindicated.″

The 760 members of the Nymex, based in the World Trade Center in lower Manhattan, are scheduled to vote March 16 on their next chairman. Guttman, 43, a former platinum trader, who has been chairman and chief executive officer of the Nymex since 1988, is opposed by the exchange’s current vice chairman, Daniel Rappaport.

The alleged illegal trades were executed on the New York Coffee, Sugar & Cocoa Exchange - not the Nymex - between March and October 1989, according to the CFTC action.

The Nymex, the nation’s third largest commodity exchange, had no comment on Wednesday’s charges.

Guttman, who took a leave of absence in July when press reports indicated he was the subject of a CFTC investigation, returned as chairman in December when no charges were brought.

The CFTC will now conduct a hearing to determine if the allegations in the administrative action are true. If so, the three could face penalties ranging from fines of up to $100,000 per violation to suspension or revocation of trading privileges.

In addition, Gerald Inc., a Chicago futures trading firm where Guttman and Magid had their joint account, has agreed to pay a $65,000 fine to settle civil charges of violating federal commodities laws including filing false statements with the CFTC.

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