Stotler unit fraud charged

A Stotler Group unit has defrauded its commodity pool customersand a receiver should be appointed to safeguard investor funds, itsfederal regulator said in a complaint filed late Tuesday.

The Commodity Futures Trading Commission is requesting aninjunction that would bar the Chicago-based trading firm from"further misuse of public funds," an agency spokesman said. Thecomplaint also alleges that Stotler's use of pool money to fund itsoperations violates agreements with customers that specify the moneyshould be used for commodity trading.

The action follows disclosure that Stotler pool operatorsinvested $4.5 million from its Compass Futures Fund in its parentcompany's commercial paper. The parent also accepted a $1 millionloan from its Advanced Portfolio Management private commodity pool.

Stotler's use of pool assets for those purposes amounted to "afraud or deceit," the two-count civil complaint says. It alleges thecompany failed to properly disclose the transactions to poolparticipants or the CFTC. U.S. District Judge Milton Shadur ofChicago is expected to hear the complaint as soon as today. Stotlerofficials didn't respond to repeated requests for comment.

In a related move announced Tuesday, Chicago Board of Tradedirectors said they had given a unanimous vote of confidence toexchange Chairman Karsten "Cash" Mahlmann, who also is Stotler'schairman.

News of the vote, which coincided with news of the questionablecommodity pool transactions, drew a negative reaction from manyexchange members who believe the directors acted prematurely. "Toinvade customer funds for capital is just sacrilege," said onemember. "I honestly think he should've resigned," said another.

Exchange members familiar with the board meeting said Mahlmanntold directors he knew nothing of the pool transactions until "twohours before" the Monday afternoon briefing.

"That came as a surprise to Cash as well," said one Mahlmannsupporter, who noted the exchange chairman gave up day-to-daymanagement of Stotler three years ago when Thomas Egan became thecompany's chief executive. "I personally have strong confidence inCash and his integrity," the member said. "With Cash, it's the Boardof Trade first."

Also Tuesday, Stotler warned employees at its six operatingsubsidiaries, including the Des Moines-based R.G. Dickinson & Co.securities firm, to expect a "mass layoff" beginning immediately.

In a notice enclosed with paychecks distributed to Stotleremployees Tuesday, the company attributed the layoffs to "sudden,dramatic and unexpected actions outside Stotler's control."

The company's "unforeseeable business circumstances" result fromthe Board of Trade's declaration two weeks ago that Stotler hadfailed to meet capital requirements, the notice says.

Stotler last week said it is shutting down its largest unit, theStotler & Co. commodity futures firm, and sources say transfer ofcustomer accounts to other firms should be completed by Friday. Thatcould pave the way for a bankruptcy filing, the sources say.

Some Stotler employees already are finding other jobs. TheChicago Corp. on Tuesday announced the hiring of Robert J. Genetski,who has served as president of Stotler Economics since 1988.

Genetski will serve as senior vice president and chiefeconomist at the Chicago Corp.

Also ending a relationship with Stotler is Edwin L. Miller, theDallas-based commodity pool operator who directed trading of theCompass fund that's now the subject of the CFTC complaint.

Miller said in an interview Tuesday he was unaware until lastweek of the decision by Stotler's general partners to invest most ofthe $5.5 million fund's assets in the company's own commercial paper.

When he learned of the investment, Miller said, he promptlyresigned. The Compass fund has demanded repayment from StotlerGroup, and it's not allowing customers to redeem shares, he said.

"There are general partners who see the moral, ethical and legalobligations here," said Miller, president of ELM Financial. "Withoutthe investor, we're all out of a job."