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NFA’s restitution service returns millions of dollars to investors

It’s an unpleasant fact of life, but investors lose money to unscrupulous salespeople every day. They think they are investing in legitimate futures and options contracts, when in reality they are lining someone’s pockets with their hard-earned money.

Most of these crooks are non-registrants and not Members of NFA, so NFA has no jurisdiction over them. But NFA has found a way to help investors and provide a valuable service to the futures industry. Since 1988, NFA has provided a restitution service to help investors recover some of the money they lost. Since NFA began offering the service, the Association has paid out over $8 million in restitution to 15,000 investors.

NFA’s first restitution case occurred in March 1988, when the U.S. District Court in Massachusetts appointed NFA to act as the administrator of a class action lawsuit which involved commodities fraud against First Commodity Corp of Boston (FCCB). The suit involved approximately 12,500 claims against FCCB.

In an effort to reduce handling costs and get as much money as possible back to the customers, the attorneys asked NFA to handle the administration of the case. In December 1989, NFA distributed approximately $4.6 million to the investors.

NFA’s restitution service usually applies to judgments awarded in CFTC cases. Typically, the cases are against non-NFA members who are ordered to pay a percentage of their income each year to the customers they have harmed. NFA monitors the distribution and does not charge any costs to the restitution account.

“Without NFA, the court would have to appoint a receiver, who would charge its costs to the account,” says NFA Treasurer Dave Hawrysz. “We feel good that our approach results in the highest possible return to the harmed investors.”

In 1997, NFA received its first restitution case from the CFTC. Unlike the FCCB class action suit, the order in this case called for restitution to be paid to the investors based on a specific five-year repayment plan. NFA set up a program to receive and distribute funds to the investors.

Although each restitution case is unique, there are some standard operating procedures that NFA follows. All of the cases NFA receives start as either a CFTC injunctive matter or an administrative order, and all of the cases involve some type of commodity fraud.

“Once the CFTC settles a case, we receive a copy of the signed order that outlines the specifics of the case and the amount of restitution to be paid,” says Hawrysz. “Our job is to make sure that the respondent complies with the terms of the order.”

Of course, the money NFA receives for distribution is not commingled with NFA’s money. They are maintained in separate accounts.

“As of the end of 2002, we have opened bank accounts and administered funds for 46 separate cases,” says Hawrysz. Aside from the FCCB case, case sizes range from as little as $1,000 to nearly $1 million in deposits. In addition to the 12,500 customers in FCCB, we have distributed another $3 million to about 3,200 people.”

NFA is currently monitoring approximately 70 CFTC cases that may require restitution services.

“We have been able to administer this program with existing staff and resources,” says Hawrysz. “We are happy to provide this low-cost service for the greater good of the industry.”

NFA is the premier independent provider of efficient and innovative regulatory programs that safeguard the integrity of the derivatives markets.
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