HOUSTON, TX – John Novak of The Woodlands, Texas, has been ordered to pay a $20,000 penalty for failing to register as a commodity trading advisor (CTA) with the U.S. Commodity Futures Trading Commission (CFTC), according to a court order issued July 27, 2006. The judgment, handed down by U.S. District Court Judge Ewing Werlein Jr. in the Southern District of Texas, stems from a CFTC complaint filed in 2004.
The CFTC alleged that Novak, through his now-defunct company Nexgen Software Systems, Inc. (Nexgen), used fraudulent and misleading representations to solicit investments from the public. Novak failed to register with the CFTC as legally required.
Between early 2002 and February 2003, Nexgen offered a subscription service called “Nexgen Live.” This service generated trading signals transmitted directly to futures commission merchants (FCMs) where Nexgen Live subscribers held accounts. Subscribers signed “Letter of Direction” agreements with the FCM, instructing them to execute trades based solely on Nexgen’s signals, without independent approval.
The court found that Novak was aware the Nexgen Live signals were being used to direct trades in customer accounts, effectively bypassing any discretionary control by the FCM. This practice led the court to conclude that Nexgen operated as an unregistered CTA, violating the Commodity Exchange Act (CEA).
In addition to failing to register, Novak and Nexgen were found to have neglected providing mandatory disclosure documents to customers, further violating CEA regulations. The case was led by CFTC staff members Lael Campbell, John Dunfee, and Joan Manley.
The judgment was announced by the CFTC on August 10, 2006.
Source: CFTC.gov
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