SEC CHARGES TWO SOUTH FLORIDA COMPANIES WITH COMMODITIES FRAUD

The following case involves the hot topic of commodities. Commodity price ran up for several months but have been softening recently. Fraud in securities, commodities, real estate etc., usually is not looked into by the public while prices are falling. It is more usual that it is when prices fall that people start taking an interest in any possible fraud cases. The case below is an excerpt from the SEC web site:

April 21, 2011
‘The Securities and Exchange Commission obtained the appointment of a receiver over two South Florida companies and permanent injunctions on April 1, 2011 and April 8, 2011, respectively, for conducting a fraudulent $27.5 million investment scheme with funds raised by offering and selling unregistered securities to investors nationwide from January 2010 until March 2011.
In its Complaint the SEC alleges that Commodities Online, LLC (“Commodities Online”) and Commodities Online Management, LLC (“Commodities Management,” and together, the “Defendants”), beginning in January 2010, represented to investors that Commodities Online was in the business of arranging and funding commodities contracts. The SEC further alleges that the Defendants represented to potential investors that Commodities Online purchased commodities only after arranging for a buyer and a seller. Defendants claimed that Commodities Online made money based on the price spread and told investors they would “earn 5% or more per month without price speculation.” Commodities Online sold participation units in such contracts and claimed to have invested at least $24 million raised from investors. Commodities Online also claimed to have raised at least $2.4 million from investors who invested in membership units in Commodities Online. Neither the participation units nor the membership units were registered with the Commission.
In its Complaint, the Commission alleges that Defendants made numerous material misrepresentations in connection with the offering and sale of the participation units and membership units. Although Commodities Online claimed on its website that, as of March 14, 2011, it had offered and paid a total of 48 contracts and that all completed contracts had returned the promised level of profits to the investors, the Commission alleges that in fact all completed contracts did not return the promised level of profit to investors and Commodities Online performed only a limited percentage of the commodities transactions it promised investors. Instead, according to the Complaint, Commodities Online dissipated investor funds by sending millions of dollars to companies controlled by its co-founder and former managing member and to one of its vice presidents. Further, Commodities Online held itself out as providing a viable, profitable investment vehicle to prospective investors, but, the Commission alleges, in reality it did not earn any net profits from entities it dealt with in connection with the purported commodities contracts. In addition, Commodities Online failed to disclose to prospective investors that its co-founder and former managing member is a convicted felon and failed to disclose that a vice president pled guilty to federal bank fraud and other felonies and is currently serving a term of supervised release.
The SEC’s Complaint charges Commodities Online and Commodities Management with violating Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Defendants consented to the appointment of a Receiver, to the entry of permanent injunctions against future violations of the provisions of the securities laws with which they were charged, and to disgorgement, prejudgment interest, and civil money penalties in amounts to be determined by the Court.
The Court appointed David Mandel, an attorney with the law firm of Mandel & Mandel LLP of Miami, Florida, as a receiver over the Defendants. Among other things, the receiver is responsible for marshaling and safeguarding assets held by these entities.”