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Monday, August 4, 2014

CFTC CHARGES MAN AND BUSINESS WITH OPERATION OF ILLEGAL PRECIOUS METALS SCHEME

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 
CFTC Charges Florida-Based Southern Trust Metals, Inc. and Robert Escobio, and His BVI-Based Entity Loreley Overseas Corp., with Operating an Illegal Precious Metals Scheme, among other Violations
Defendants Solicited over $3.5 Million from Customers in the Precious Metals Scheme and in a Separate Unlawful Commodity Futures and Options Scheme

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) filed a civil enforcement Complaint in the U.S. District Court for the Southern District of Florida against Defendants Southern Trust Metals, Inc. (ST Metals) and Robert Escobio, both of Coral Gables, Florida, and Loreley Overseas Corp. (Loreley), a British Virgin Island entity that Escobio incorporated in 2004. The CFTC Complaint charges that, from at least July 16, 2011 to May 1, 2013, the Defendants operated a scheme that defrauded retail customers in connection with illegal, off-exchange, financed precious metals transactions. In operating the precious metals scheme, the Defendants received more than $2.6 million from at least 135 customers, who collectively lost $600,000 of the funds invested with ST Metals, according to the Complaint.

In a separate unlawful scheme, the Defendants, between February 2011 and May 2013, solicited and accepted more than $900,000 from customers for the purchase or sale of commodity futures and options, without registering with the CFTC as a Futures Commission Merchant, according to the Complaint.

ST Metals solicited retail customers to engage in off-exchange leveraged, margined, or financed precious metals transactions. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act), these transactions are illegal unless they result in actual delivery of metal within 28 days. The Complaint alleges that metals were never actually delivered in connection with these precious metals transactions. Instead, the Complaint alleges, ST Metals engaged in a series of transactions that ended with over-the-counter derivative trades in margin trading accounts in the name of Loreley with two U.K.-based trading firms. Additionally, according to the Complaint, ST Metals told customers that it was making loans to purchase precious metals in connection with these transactions, but in fact, no loans were made, no metals were purchased, and the transactions were illegal commodity transactions under the Dodd-Frank Act.

In its continuing litigation against ST Metals, Loreley, and Escobio, the CFTC seeks disgorgement of ill-gotten gains, restitution for the benefit of customers, civil monetary penalties, permanent registration and trading bans, and a permanent injunction from future violations of the Commodity Exchange Act, as charged.

The CFTC thanks the U.K. Financial Conduct Authority for its assistance in this matter.

CFTC Division of Enforcement staff members responsible for this action are Carlin Metzger, Heather Johnson, Joseph Konizeski, Scott Williamson, and Rosemary Hollinger.

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