## Facts

- The Michigan Attorney General sued James A. Carr and Charles P. LeMieux III, their partnerships (doing business as Lloyd, Carr & Co. and Lloyd Carr Financial Co.), and the individuals for misconduct in selling “London commodity options” and related advisory services.
- The action was removed to federal court; the Commodity Futures Trading Commission (CFTC) intervened as a plaintiff.
- Lloyd, Carr & Co. solicited customers by telephone to sell options tied to commodity futures, products the court found highly risky and capable of producing total loss, especially given the size of the premium/markup charged.
- Defendants recruited largely untrained salespeople and trained them primarily in sales techniques; commissions and quotas encouraged high-pressure “cold calling” and closing sales.
- Promotional materials portrayed the firm as established and highly reputable despite its short operating history and reliance on inexperienced sales staff.
- The court found oral sales presentations commonly stressed large profits while minimizing or obscuring risk, through misstatements and omissions.
- Customers were charged markups far above standard industry commissions; the court found defendants did not clearly disclose the level and effect of these costs.
- Defendants used written risk disclosures intended to comply with CFTC Rule 32.5, but the court found the disclosures, taken as a whole with oral pitches, still created a misleading impression.
- Before this suit, the CFTC had expressed regulatory concerns and determined in an administrative proceeding that defendants were selling commodity options without proper federal registration.
- The court had previously entered a temporary restraining order enjoining fraudulent or deceitful business conduct; plaintiffs sought a preliminary injunction to stop ongoing activity.

## Issues

1. Whether plaintiffs showed a likelihood of proving that defendants made material misrepresentations or omissions in connection with the offer and sale of commodity options in violation of the Commodity Exchange Act’s antifraud provisions and Michigan securities and consumer-protection statutes.
2. Whether defendants’ written risk disclosures were sufficient to prevent liability for misleading oral sales practices and omitted cost information.
3. Whether the standards for preliminary injunctive relief (including likelihood of success, irreparable harm, and public interest) were satisfied.

## Decision

- The court granted plaintiffs’ motions for a preliminary injunction and continued/expanded injunctive relief against the partnerships and the individual partners.
- The court found plaintiffs were likely to succeed in proving material misrepresentations and omissions, including misleading profit-focused solicitations and inadequate disclosure of unusually large commissions/markups.
- The court concluded the written risk disclosures did not cure the deceptive “overall impression” created by the combined written and oral communications.
- The court found a continuing risk of irreparable harm to the investing public and determined that injunctive relief served the public interest in preventing ongoing violations.

## Legal Principles

- Antifraud liability may be based on material misrepresentations and material omissions in the marketing and sale of commodity-related products, including nondisclosure of costs that substantially affect the probability of profit and the risk of loss.
- Compliance-oriented risk disclosure language does not bar injunctive relief when the total mix of communications—especially oral solicitations—creates a misleading overall impression.
- Evidence of an organized sales program (untrained sales staff, sales-focused training, quotas, and compensation structures rewarding volume) may support a finding of a pattern or practice of deceptive conduct relevant to injunctive relief.
- In enforcement actions protecting investors and consumers, courts may grant broad preliminary injunctive relief when ongoing conduct threatens harm not readily remedied by later monetary awards and when the public interest favors prevention.

## Conclusion

The court preliminarily enjoined defendants’ commodity-options sales practices after finding a strong showing that their high-pressure solicitations, misleading portrayals of experience and profit potential, and inadequate disclosure of excessive markups likely violated federal commodities antifraud provisions and Michigan securities and consumer-protection laws, and that continued sales posed a significant risk of harm to the public.


Kelley v. Carr, 442 F. Supp. 346 (W.D. Mich. 1977)