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Monday, October 13, 2014

COURT ORDERS MAN AND COMPANY TO PAY $2.5 MILLION FOR ILLEGAL, OFF-EXCHANGE PRECIOUS METALS TRANSACTIONS

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 
Federal Court Orders Florida Resident Richard Morello and His Florida Company, Vertical Integration Group LLC, to Pay over $2.5 Million in Monetary Sanctions for Engaging in Illegal, Off-Exchange Precious Metals Transactions

Junior Alexis, Florida Resident and Vertical Integration Group, LLC Employee, ordered to pay over $700,000 in monetary sanctions for his role in the unlawful venture

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that Judge Beth Bloom of the U.S. District Court for the Southern District of Florida entered an Order of Default Judgment against Vertical Integration Group LLC (Vertical) of Lake Worth, Florida, and its Managing Members, Richard V. Morello of Lake Worth, Florida, and Junior Alexis of Boynton Beach, Florida, for engaging in illegal, off-exchange precious metals transactions.

The Order, entered on September 29, 2014, requires Vertical and Morello, jointly and severally, to pay restitution of $893,859 and Alexis, jointly and severally with Morello and Vertical, to pay restitution of $563,131; requires Vertical and Morello, jointly and severally, to pay a civil monetary penalty of $1,663,698, and Alexis to pay a civil monetary penalty of $140,000; imposes permanent trading, solicitation, and registration bans against all of the Defendants; and prohibits them from engaging in illegal, off-exchange retail commodity transactions, as charged.

The Court’s Order stems from a CFTC Complaint filed on January 13, 2014, that charged the Defendants with engaging in illegal, off-exchange transactions in precious metals with retail customers on a leveraged, margined, or financed basis (see CFTC Press Release and Complaint 6824-14). The Complaint further charged and the Order found that Morello, as controlling person for Vertical, is liable for Vertical’s violations of the Commodity Exchange Act.

The Order provides that Melanie Damian, Esq. is responsible for collecting restitution and making any distributions to Vertical’s customers. Ms. Damian was appointed by the U.S. District Court for the Southern District of Florida as Special Monitor, Corporate Manager, and Equity Receiver in the CFTC’s enforcement action against, among others, Hunter Wise Commodities LLC (Hunter Wise) and certain of its associated entities (see CFTC Press Releases 6447-12, December 12, 2012 and 6935-14, May 22, 2014).

The Order further finds that, since at least July 16, 2011 and continuing through at least February 2013, Vertical, by and through its employees, including Morello and Alexis, solicited retail customers to engage in off-exchange leveraged, margined, or financed precious metals (including gold, silver, platinum and palladium) transactions that were executed through Hunter Wise. During that period, according to the Order, approximately 39 of Vertical’s customers paid $1,008,583 to Vertical in connection with these precious metals transactions. The Order finds that these customers lost $893,859 of their funds to trading losses, commissions, fees, and other charges by Vertical and other companies, and that Vertical received commissions and fees totaling $554,566 in connection with these precious metals transactions.

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, leveraged, margined, or financed transactions, such as those conducted by Vertical, are illegal off-exchange transactions unless they result in actual delivery of the commodity involved within 28 days. The Order finds that metals were never actually delivered in connection with the leveraged, margined, or financed precious metals transactions made on behalf of Vertical’s customers.

The CFTC cautions victims that restitution orders may not result in the recovery of money lost because the wrongdoers may not have sufficient funds or assets. The CFTC will continue to fight vigorously for the protection of customers and to ensure the wrongdoers are held accountable.

CFTC Division of Enforcement staff members responsible for this action are Michelle Bougas, Alan Edelman, Michael Solinsky, and Charles D. Marvine

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