CFTC ORDERS POOL OPERATOR TO PAY $100,000 PENALTY

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 

CFTC Orders Tennessee-based Commodity Pool Operator Hope Advisors LLC to Pay a $100,000 Civil Monetary Penalty for Registration and Reporting Violations

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today entered an Order requiring Hope Advisors LLC (HAL), a Brentwood, Tennessee, Commodity Pool Operator (CPO), to pay a $100,000 civil monetary penalty for acting as a CPO without registering with the CFTC, as required, and for providing monthly statements to pool participants that failed to show all the information required by Commission Regulation.

Registration Violations

The Order finds that HAL operates Hope Investments LLC (HIL) as a commodity pool. However, it commenced operating HIL in March 2011 and continued to operate HIL through January 23, 2013, without the benefit of registration with the CFTC as a CPO, in violation of the registration provisions of the Commodity Exchange Act. These provisions ensure that persons dealing in commodities meet certain minimum financial and fitness requirements, and enable the CFTC to monitor the trading activities of market members, the Order states.

Regulation 4.22(d) Reporting Deficiencies

In addition, the CFTC Order states that the principal purpose of financial reporting required by CFTC Regulation 4.22(d) is to ensure that pool participants receive accurate, fair, and timely information on the overall trading performance and financial condition of the pool.  According to the Order, as relevant here, Regulation 4.22(d) requires that commodity pool statements report both realized and unrealized gains and losses; however, the Order states that HAL was providing monthly reporting statements to HIL participants that showed only realized gains and losses.

According to the Order, HAL learned it was required to register as a CPO in August 2012, and thereafter undertook the registration process; it has been registered in that capacity since January 24, 2013. HAL also took remedial action to correct the monthly pool statements it sent to pool participants, by retaining a consultant, who designed a compliant performance report that HAL sends to participants each month. The Order also states that as of August 2013, HAL began issuing two monthly reports to HIL participants, one showing realized gains/losses, and a second based on net asset value showing realized and unrealized gains and losses that complies with the specific Commission reporting regulations. According to the Order, no customers were injured by any of the previous omissions.

The following CFTC Division of Enforcement staff members are responsible for this case: Diane M. Romaniuk, Ava M. Gould, Judith McCorkle, Scott R. Williamson, and Rosemary Hollinger.

The CFTC appreciates the assistance of the National Futures Association.

COURT ORDER MAN AND COMPANY TO PAY $2.2 MILLION FOR COMMODITY POOL FRAUD

FROM:   COMMODITY FUTURES TRADING COMMISSION 

Federal Court Orders Boston Resident John B. Wilson and His Company, JBW Capital LLC, to Pay a Civil Penalty of More than $2.8 Million for Commodity Pool Fraud

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that the Honorable Richard G. Stearns of the U.S. District Court for the District of Massachusetts entered a Final Judgment against Defendants John B. Wilson and his company, JBW Capital LLC (JBW) (collectively, the Defendants), both of Boston, Massachusetts, for fraud and registration violations of the Commodity Exchange Act (CEA). The court’s Final Judgment orders the Defendants, jointly and severally, to pay a $2.86 million civil penalty; it permanently enjoins the Defendants from further violations of the CEA, as charged; and it imposes permanent trading and registration bans on the Defendants.

The court’s action stems from a CFTC Complaint filed on September 28, 2012, that charged Defendants with violating the anti-fraud provisions of the CEA in connection with a commodity pool by falsely representing to investors on multiple occasions the pool’s Net Asset Value (NAV). The Complaint also charged Defendants with failing to register with the CFTC as Commodity Pool Operators (CPOs) (see CFTC Complaint and Press Release 6372-12).

On May 16, 2014, the court granted Summary Judgment to the CFTC and found that Defendants had defrauded and deceived their pool participants by misrepresenting on multiple occasions the NAV of the pool. For example, in September 2008, the Defendants falsely represented the pool’s NAV to be $2,475,941, when the actual NAV was $1,149,628, according to the court’s findings. The court also found that Defendants had illegally acted as unregistered CPOs.

The CFTC acknowledges the assistance of the Massachusetts Securities Division in this matter.

CFTC staff members responsible for this matter include W. Derek Shakabpa, Judith M. Slowly, David W. Oakland, Patryk Chudy, David Acevedo, Lenel Hickson, Jr., and Manal M. Sultan.

CFTC ORDERS MAN TO PAY $344,000 FOR ROLE IN COMMODITY POOL FRAUD SCHEME

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 

CFTC Orders New York Resident Jacob N. Stein to Pay More than $344,000 in Restitution and Civil Monetary Penalty for Commodity Pool Fraud and Misappropriation

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that it entered an Order requiring Jacob N. Stein of Hankins, New York, individually and doing business as TEPdesign, Inc., to pay restitution of $244,400 to defrauded customers and a $100,000 civil monetary penalty, for committing fraud and misappropriation in connection with a commodity pool that traded leveraged or margined off-exchange foreign currency contracts (forex). Neither Stein nor TEPdesign, Inc. has ever been registered with the CFTC.

According to the CFTC’s Order, from about January 2010 through September 2012, Stein, without registering with the CFTC as a Commodity Pool Operator, solicited and obtained approximately $524,000 from at least 17 investors (Pool Participants) to participate in a commodity pool for the purpose of trading leveraged or margined forex. Stein used approximately $83,000 of the funds solicited to trade forex, of which over $80,000 was lost in forex trading, the Order states. Instead of reporting these losses to the Pool Participants, Stein created and distributed to the Pool Participants false account statements indicating that Stein was earning profits for the Pool Participants through forex trading. The Order also finds that the remaining funds, approximately $441,000, were misappropriated by Stein to pay fabricated “profits” and returns of principal to Pool Participants and for Stein’s personal expenses, such as car payments and retail purchases. Ten Pool Participants are still owed approximately $244,400 in principal, the Order finds.

In addition to ordering restitution and imposing a civil monetary penalty, the CFTC Order also requires Stein to cease and desist from further violations of the Commodity Exchange Act and CFTC regulations, as charged, and imposes permanent bans on Stein’s trading, registration, and certain other CFTC-regulated activities.

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 case are Patrick Daly, Xavier Romeu-Matta, Michael C. McLaughlin, David W. MacGregor, Lenel Hickson, Jr., and Manal M. Sultan.

CFTC OBTAINS DEFAULT JUDGEMENT IN COMMODITY POOL FRAUD CASE

FROM:  COMMODITY FUTURES TRADING COMMISSION 

CFTC Obtains Default Judgment against New York-based SK Madison Commodities, LLC and its Principals, Michael James Seward and Yan Kaziyev, for Commodity Pool Fraud and Other Violations

Federal Court Orders Defendants to Pay More than $3.5 Million in Restitution and a Monetary Penalty in CFTC Anti-Fraud Action

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that Judge Sidney H. Stein of the U.S. District Court for the Southern District of New York (Manhattan) entered an Order of default judgment and permanent injunction against CFTC Defendants Michael James Seward, Yan Kaziyev, and their company SK Madison Commodities, LLC (SKMC), a Commodity Pool Operator based in New York City. The Order requires the Defendants to pay restitution totaling $1,036,981.01 and a civil monetary penalty of $2,486,865.57. The Order also imposes permanent trading and registration bans against the Defendants and orders that assets controlled by SK Madison, LLC, a successor company named as a Relief Defendant in the action, be released and applied toward payment of Defendants’ restitution obligation.

The court’s Order, entered on June 9, 2014, stems from a CFTC Complaint filed on March 24, 2014 (see CFTC Press Release 6892-14) alleging that Seward and Kaziyev, by and through SKMC, fraudulently solicited more than $1.3 million from members of the public to trade futures in a commodity pool by, among other things, misrepresenting their trading practices and historical trading returns. The Complaint further alleged that the Defendants prepared and distributed to pool participants false account statements and performance reports showing huge profits while at the same time, Defendants were losing money trading futures and diverting large amounts of pool participants’ funds for Defendants’ own use. In addition to fraud, the Complaint charged Defendants with certain registration violations. As a result of the filing of this action, more than $500,000 of pool participant funds controlled by the Defendants and the Relief Defendant were frozen.

The CFTC Division of Enforcement staff members responsible for this case are Daniel Jordan, Michael Loconte, Matthew Elkan, and Rick Glaser.

CFTC FILES CHARGES FOR OPERATING PONZI SCHEME AGAINST TWO SOUTH CAROLINA RESIDENTS

FROM:  COMMODITY FUTURES TRADING COMMISSION 
CFTC Charges South Carolina Residents Robert S. and Amy L. Leben with Commodity Pool Fraud for the Operation of a Multi-Million Dollar Ponzi Scheme

Federal Court Issues Emergency Order Freezing Defendants’ Assets and Protecting Books and Records

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) announced today that, on March 14, 2014, Judge Terry L. Wooten of the U.S. District Court for the District of South Carolina issued an emergency Order freezing assets under the control of Robert S. Leben and Amy L. Leben (Lebens) of Columbia, South Carolina, in connection with a commodity pool called Structured Finance Group Corporation (SFG).  The Order also prohibits the Lebens from destroying books and records and allows the CFTC immediate access to those records.

This court’s emergency Order arises out of a CFTC enforcement action filed under seal on March 12, 2014, charging the Lebens with fraudulently soliciting and/or accepting at least $3.2 million from pool participants in connection with their operation of the SFG commodity pool from August 2008 to the present.  The CFTC Complaint also charges the Lebens with misappropriating pool participant funds and failing to register with the CFTC as Commodity Pool Operators in connection with their operation of SFG.  In addition, the complaint charges Amy Leben with improper operation of the pool.

The Lebens allegedly misappropriated at least $1.77 million for their personal use

According to the Complaint, the Lebens misappropriated at least $1.77 million of pool participant funds for their personal use, including to purchase their residence and a swimming pool, among other things.  The Complaint also charges Robert Leben with fraudulently guaranteeing pool participants’ principal investment against risk of loss, guaranteeing annual returns of 14 percent, and bolstering these guarantees by issuing written false statements to pool participants.  In addition, to perpetuate their fraud, the Lebens operated SFG as a Ponzi scheme through which they used pool participant funds to pay other pool participants a total of approximately $1 million as purported profits, according to the Complaint.

In its continuing litigation, the CFTC seeks a permanent injunction from future violations of federal commodities laws, permanent registration and trading bans, full restitution to defrauded pool participants, disgorgement of any ill-gotten gains, and civil monetary penalties.

The CFTC appreciates the cooperation of the South Carolina Attorney General’s Office, the U.S. Marshals Service, and the Office of the U.S. Attorney for the District of South Carolina in this matter.

CFTC Division of Enforcement staff members responsible for this case are Amanda Harding, Elizabeth Davis, Michael Loconte, Erica Bodin, Richard Foelber, and Rick Glaser.

ARIZONA RESIDENT GETS 30 MONTHS IN PRISON IN COMMODITY POOL FRAUD CASE

FROM:   COMMODITY FUTURES TRADING COMMISSION 

CFTC Obtains Court Order against Arizona Resident Thomas L. Hampton for Issuing False Account Statements and Operating as an Unregistered Commodity Pool Operator

Hampton ordered to pay a $1.5 million penalty and permanently barred from any commodity-related activities

In a related criminal matter, Hampton sentenced to 30 months in prison and ordered to pay over $4.8 million in restitution

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that Judge H. Russel Holland of the U.S. District Court for the District of Arizona entered an Order of final judgment by default and permanent injunction against Defendant Thomas L. Hampton of Scottsdale, Arizona. The Order requires Hampton to pay a $1.5 million civil monetary penalty, imposes permanent trading and registration bans on him, and prohibits him from violating the Commodity Exchange Act (CEA), as charged. Hampton has never been registered with the CFTC.

The Order, entered on January 23, 2014, stems from a CFTC Complaint filed on June 11, 2013, charging Hampton with acting as an unregistered Commodity Pool Operator (CPO) and issuing false account statements in violation of the CEA (see CFTC Press Release 6609-13, June 12, 2013).

The Order finds that, from approximately September 2010 through at least September 2011, Hampton, while acting as an unregistered CPO, operated Hampton Capital Markets, LLC, an Arizona limited liability company, as a commodity pool. The Order finds that Hampton solicited approximately $5.2 million from at least 72 pool participants to invest in the pool for the purpose of trading commodity futures contracts, including E-mini S&P 500 futures contracts and E-mini Dow futures contracts, as well as securities-based index products. The Order also finds that Hampton defrauded pool participants by issuing false account statements that represented that the pool was generating significant trading profits, when, in fact, Hampton’s actual trading in the HCM Pool accounts resulted in net losses virtually every month.

In a related criminal action, on April 19, 2013, Hampton pleaded guilty to one count of commodities fraud. In October 2013, Hampton was sentenced to 30 months in prison and was further ordered to pay over $4.8 million in restitution (United States v. Thomas Hampton, Case No. 13-cr-00301-RWS (United States District Court for the Southern District of New York)).

The CFTC appreciates the assistance of the Arizona Corporation Commission, Securities Division, and the U.S. Attorney’s Office for the Southern District of New York.

CFTC Division of Enforcement staff responsible for this case are Eugene Smith, Tracey Wingate, Kyong J. Koh, Peter M. Haas, Paul G. Hayeck, and Joan Manley.

COMMODITY POOL OPERATOR ORDERED TO PAY OVER $470,000 TO SETTLE FRAUD CHARGES

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 
CFTC Orders David R. Lynch to Pay More than $470,000 in Restitution and a Civil Monetary Penalty to Settle Charges of Fraudulent Misappropriation, Fraudulent Solicitations, and False Statements

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that it entered an Order requiring David R. Lynch of Stuart, Florida, to make restitution of $171,297 to defrauded customers and pay a $300,000 civil monetary penalty, among other sanctions, for fraudulent misappropriation, fraudulent solicitations, and false statements in connection with a commodity pool trading leveraged or margined off-exchange foreign currency contracts (forex). Lynch has never been registered with the CFTC.

According to the CFTC’s Order, from about December 2008 through July 4, 2013, Lynch operated a commodity pool and fraudulently solicited at least $348,450 from at least 14 pool participants. Lynch falsely told pool participants that he had earned as much as 7 percent per month trading forex, that they could never lose their principal, and that they could get their funds back at any time. However, Lynch deposited only a portion of his pool participants’ funds in forex trading accounts and the trading he did was unprofitable, the Order finds.

The CFTC’s Order also finds that Lynch misappropriated over $126,000 of his pool participants’ funds by using part of those funds to pay his personal expenses and the remainder to pay false profits or purported returns of capital to some pool participants in the manner of a Ponzi scheme. Further, to conceal his trading losses and misappropriations, Lynch issued monthly account statements to pool participants that falsely showed that pool participants were earning consistent profits.

In addition to ordering restitution to be made and imposing a civil monetary penalty, the CFTC Order also requires Lynch to cease and desist from further violations of the Commodity Exchange Act and a CFTC regulation, as charged, and imposes permanent bans on trading, registration, and certain other commodity related activities.

CFTC Division of Enforcement staff members responsible for this case are Glenn I. Chernigoff, Alison B. Wilson, Kara L. Mucha, and Gretchen L. Lowe.

COURT ORDERS COLORADO MAN TO PAY $1.2 MILLION TO SETTLE CFTC FRAUD CHARGES

FROM: U.S. COMMODITY FUTURES TRADING COMMISSION

Federal Court in Colorado Orders Michael Gale to Pay More than $1.2 Million to Settle Fraud Charges in CFTC Enforcement Action


Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that it obtained a federal court Order against Defendant Michael Gale of Littleton, Colorado, individually and doing business as Capital Management Group, requiring him to pay $479,402.35 in restitution to defrauded customers. The Consent Order of Permanent Injunction, entered on June 25, 2013, by Senior U.S. District Judge John L. Kane of the District of Colorado, also imposes a $750,000 civil monetary penalty. The Order imposes permanent trading and registration bans against Gale and prohibits him from violating the anti-fraud provisions of the Commodity Exchange Act (CEA), as charged.

The Order stems from a CFTC Complaint filed July 25, 2012, that charged Gale with fraudulently operating a commodity futures pool, making false statements and providing false tax records to prospective and actual pool participants, misappropriation of pool funds, commingling of pool funds, and failing to register with the CFTC as a commodity pool operator (see CFTC Press Release 6324-12).


The Order finds that Gale solicited and accepted approximately $900,000 from at least nine participants to invest in his commodity pool. Gale lied about his trading record and the pool’s profitability and value, and rather than trade the pool participants’ funds, Gale deposited only a fraction of the funds into an account for trading, and used much of the pool participant money to pay his business and personal expenses, the Order finds. In order to perpetuate the fraud, Gale continued to represent that investments in his pool were profitable and distributed false account performance documentation and false tax records to actual and prospective pool participants, according to the Order. In fact, the Order finds, Gale knew the representations were false because he knew his trading was not profitable and that he had misappropriated significant portions of the pool’s money.

CFTC Division of Enforcement staff members responsible for this case are Allison Passman, Mary Elizabeth Spear, Ava Gould, Scott Williamson, Rosemary Hollinger, and Richard Wagner.

CHICAGO RESIDENT ORDERED TO PAY OVER $1.3 MILLION TO SETTLE SETTLE FOREX PONZI SCHEME

FROM: U.S. COMMODITY FUTURES TRADING COMMISSION
Federal Court Orders Chicago Resident Christopher Varlesi to Pay over $1.3 Million to Settle Ponzi Scheme Fraud and Misappropriation Action

Varlesi used misappropriated investor funds for business and personal expenses, such as entertainment, travel, restaurants, his children’s tuition, and spa treatments

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that it obtained a federal court Order against Defendant Christopher Varlesi of Chicago, Illinois, individually and doing business as Gold Coast Futures and Forex, requiring him to pay restitution of more than $638,000 to defrauded investors and a $700,000 civil monetary penalty. The consent Order of permanent injunction, entered June 12, 2013, by Judge James B. Zagel of the U.S. District Court for the Northern District of Illinois, also imposes permanent trading and registration bans against Varlesi and prohibits him from violating the anti-fraud provisions of the Commodity Exchange Act (CEA), as charged.

The Order stems from a CFTC Complaint filed March 7, 2012, charging Varlesi with fraudulently operating a commodity pool to trade commodity futures and off-exchange foreign currency (forex), making false statements to pool participants, misappropriating pool funds, and failing to register with the CFTC as a Commodity Pool Operator.

The Order finds that Varlesi solicited and accepted at least $1.7 million from at least 20 individuals to trade commodity futures and forex contracts by touting his past trading record and ability to profitably trade futures and forex contracts. In exchange for their investment, Varlesi issued promissory notes to pool participants purportedly paying a fixed monthly interest rate on principal, according to the Order. However, Varlesi used no more than $220,000 of the $1,716,169 that he accepted from pool participants to trade commodity futures and forex contracts, the Order finds. Varlesi spent misappropriated investor funds on business and personal expenses, including food, utilities, gas, life insurance, entertainment, travel, restaurants, his children’s tuition, and spa treatments and used approximately $1,343,471 to pay participants purported profits in the manner of a Ponzi scheme, according to the Order.

To perpetuate the fraud, Varlesi made false verbal representations and provided pool participants with fabricated account statements and false account performance documentation, showing that their investments were growing, according to the Order. In fact, the Order finds that Varlesi knew the representations, statements, and account performance documentation were false because he failed to disclose to pool participants that he had misappropriated a significant amount of the pool’s money.

In or around March 2011, Varlesi stopped making interest payments on the promissory notes and admitted to a pool participant that there was no money in his account, the Order finds. Furthermore, despite subsequent promises to repay the pool participants, Varlesi has not done so and still owes 17 pool participants approximately $638,227, the Order finds.

The CFTC appreciates the assistance of the United States Attorney’s Office for the Northern District of Illinois and the Illinois Secretary of State Securities Department.

CFTC Division of Enforcement staff members responsible for this case are Robert Howell, Mary Elizabeth Spear, Ava M. Gould, Scott Williamson, Rosemary Hollinger, and Richard Wagner.

MAN AND COMPANY CHARGED IN COMMODITY POOL FUND COMINGLING CASE

FROM: COMMODITY FUTURES TRADING COMMISSION

CFTC Charges North Carolina Resident James A. Shepherd and James A. Shepherd, Inc. with Commodity Pool Fraud
Defendants charged with fraudulently soliciting approximately $10 million from approximately 176 investors and misappropriating and commingling at least $4.45 million of the pool’s funds


Washington, DC —The U.S. Commodity Futures Trading Commission (CFTC) today announced the filing of a civil enforcement Complaint against James A. Shepherd (Shepherd) and James A. Shepherd Inc., a registered Commodity Pool Operator, charging them with fraudulently soliciting, accepting, and pooling approximately $10 million from approximately 176 individuals to invest in a commodity pool called the Shepherd Major Play Option Fund LP (Pool) for the purpose of trading options on futures contracts. Shepherd allegedly misappropriated at least $4.45 million of the pool’s funds.

According to the CFTC’s Complaint, Shepherd fraudulently told pool participants and prospective pool participants that their funds would be invested in on-exchange options on commodity futures and that the Pool’s assets would not be commingled with the assets of any other entity. Rather than trade funds as represented, Defendants allegedly misappropriated a large portion of Pool funds and commingled those funds with funds unrelated to the Pool. Beginning in 2006, Shepherd allegedly transferred a large portion of Pool funds to: (i) Shepherd’s own bank account, for his own personal use and to repay other business obligations unrelated to the Pool; (ii) futures and options trading accounts maintained in Shepherd’s own name, which suffered significant trading losses; and (iii) a bank account in the name of a separate hedge fund operated by Shepherd, which he used to pay redemptions to those hedge fund investors.

The Complaint further alleges that Defendants concealed the fraud by distributing to pool participants periodic statements and annual certified financial statements that falsely represented the net asset value of the Pool. Defendants further concealed the fraud by forging bank statements and bank confirmations and making false statements to the Pool’s outside auditor and the NFA during the course of their respective audits, according to the complaint.

In its continuing litigation, the CFTC seeks restitution, disgorgement of ill-gotten gains, civil monetary penalties, trading and registration bans, and permanent injunctions against further violations of the Commodity Exchange Act as charged.

The CFTC appreciates the assistance of the U.S. Attorney’s Office for the Western District of North Carolina, the Federal Bureau of Investigation and the National Futures Association.

CFTC Division of Enforcement staff members responsible for this case are Elizabeth C. Brennan, Patryk J. Chudy, W. Derek Shakabpa, Michael P. Geiser, Philip Rix, David Acevedo, Lenel Hickson, Jr., Stephen J. Obie, and Vincent A. McGonagle.

COURT ORDERS PAYMENT OF $4.8 MILLION IN COMMODITY POOL FRAUD SCHEME

FROM: COMMODITY FUTURES TRADING COMMISSION

Federal Court Orders Illinois Resident Brant L. Rushton and his Company, Summit Trading & Capital LLC, to Pay over $4.8 Million for Fraud and other Violations in Commodity Pool Scheme

B. Rushton pled guilty to criminal charges in a parallel federal criminal action and was sentenced to eight years in prison

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) announced today that it obtained a federal court Order requiring Defendants Brant L. Rushton (B. Rushton) and Summit Trading & Capital LLC (Summit) of Champaign, Illinois, to jointly pay approximately $1.6 million in restitution to defrauded pool participants and a civil monetary penalty of approximately $3.2 million. The court’s grant of summary judgment also imposes permanent trading and registration bans against the Defendants and prohibits them from violating the anti-fraud and other provisions of the Commodity Exchange Act and Commission Regulations, as charged.

The Order, entered April 3, 2013, by Judge James E. Shadid of the U.S. District Court for the Central District of Illinois, stems from a CFTC enforcement action filed November 29, 2011 against Summit, B. Rushton and his wife Melissa C. Rushton (M. Rushton), charging them with fraudulent operation of a commodity pool.

The Order finds that B. Rushton and Summit fraudulently solicited and accepted almost $2 million from multiple pool participants for investment in one or more commodity pools that traded futures contracts. The Order specifically finds that in soliciting participants, B. Rushton falsely represented that he was a successful futures trader who generated consistent profits, when, in fact, B. Rushton’s trading resulted in consistent losses that were concealed from pool participants by issuance of false account statements. According to the Order, almost $1.2 million of participant funds was misappropriated by B. Rushton and Summit.

On July 12, 2012, B. Rushton pled guilty to criminal charges in a parallel federal criminal action stemming from the same conduct and will begin serving an eight-year prison sentence later this year. The CFTC’s action is still pending against M. Rushton, the sole remaining Defendant.

The CFTC Division of Enforcement staff members responsible for this action are Daniel Jordan, Michael Loconte, Erica Bodin, Rick Glaser, and Richard Wagner.

COMMODITY POOL OPERATOR CHARGED WITH ALLEGED FRAUD BY CFTC

The following excerpt is from the CFTC website:

“Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced the filing of a complaint in federal court in North Carolina, charging defendant Mitchell Brian Huffman of Charlotte, N.C., with operating a fraudulent commodity pool scheme that defrauded participants of more than $3.2 million in connection with exchange-traded commodity futures contracts. Huffman has never been registered with the CFTC.

From at least August 2006 to March 11, 2011, Huffman allegedly solicited prospective and actual pool participants, mainly family and friends, via in-person and direct telephone solicitations, to buy and sell exchange-traded commodity futures contracts on their behalf. During the period, Huffman allegedly fraudulently solicited and accepted approximately $3.2 million from at least 30 participants throughout the United States. In doing so, he also allegedly misled prospective and actual participants about the likelihood of profits and the substantial risks involved in such investments.

According to the CFTC complaint filed on February 7, 2012, Huffman entered into “sponsorship agreements” with pool participants. Huffman told pool participants that he would trade commodity futures contracts on their behalf. Huffman allegedly said that he utilized a “proprietary trading program” that generated “profits” of 100 percent to 150 percent per year and claimed that he retained 20 percent of all purported profits from the “proprietary trading program” as a fee for his services. However, according to the complaint, all of Huffman’s representations of “profits” from trading were false, and his claimed rates of return were completely fictitious.

Furthermore, Huffman allegedly misappropriated participants’ funds for a variety of personal uses, including 1) purchasing multiple motor vehicles, including two Land Rovers and a Smart Car, 2) using at least $71,255 on purchases related to his classic car collection, 3) spending approximately $188,583 on personal travel and luxury vacations, including Disney cruises and first class airfare to Hawaii and Las Vegas, Nevada, and 4) using approximately $51,540 for charitable contributions in his name. The trip to Hawaii was allegedly a 25thwedding anniversary celebration for Huffman, and he brought along several pool participants on the trip, purportedly at his own expense. Huffman never disclosed to these participants that he was using their funds to pay for the luxury vacation, according to the complaint.
When Huffman could no longer sustain his fraudulent scheme, he admitted to special agents of the Charlotte, North Carolina office of the Federal Bureau of Investigation the fraudulent scheme and his participation, according to the complaint.
In September 2011, Huffman pleaded guilty to one count of commodities fraud (U.S. v. Mitchell Brian Huffman, Case No. 3:11-cr-246-RJC, U.S. District Court for the Western District of North Carolina).

The CFTC appreciates the assistance of the Office of the U.S. Attorney for the Western District of North Carolina and the Federal Bureau of Investigation, Charlotte Office.
CFTC Division of Enforcement staff responsible for this case are Timothy J. Mulreany, Michael Amakor, Paul Hayeck, and Joan Manley.”

NEBRASKA RESIDENT CHARGED WITH FRUAD IN COMMODITY POOL

The following case is an excerpt from the CFTC website:

"CFTC Charges Grand Island, Nebraska Resident with Fraud and Records Violations in Connection with $4 Million Commodity Pool
Grace Elizabeth Reisinger and ROF Consulting, LLC charged with solicitation fraud and records violations.
Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) filed a complaint in the U.S. District Court for the District of Nebraska, charging Grace Elizabeth Reisinger of Grand Island, Neb., and ROF Consulting, LLC (ROF) with operating a fraudulent commodity pool scheme. The defendants operated the commodity pool NCCN, LLC (NCCN).

The CFTC complaint, filed on June 29, 2011, alleges that from at least February 28, 2005 to October 26, 2009, Reisinger and ROF fraudulently solicited and accepted approximately $4 million from NCCN pool participants. The defendants allegedly operated NCCN while not being registered as Commodity Pool Operators (CPOs), as required under the Commodity Exchange Act and CFTC regulations. Reisinger also allegedly acted as a CPO for a part of the relevant period under a falsely claimed exemption from the registration requirement.

The complaint also charges Reisinger with making several fraudulent representations to actual and prospective pool participants. Such fraudulent misrepresentations included that she was exempt from the CFTC’s registration requirement, that the pool only solicited and accepted funds from participants who met the definition of a “qualified eligible person” (QEP), and that the minimum required investment in the pool was $5 million. Reisinger and ROF also allegedly failed to (1) furnish pool participants with required monthly account statements and annual reports, (2) advise pool participants that Reisinger and ROF directed fees paid from pool participants’ funds to an undisclosed “foreign introducing broker,” and (3) advise pool participants that Reisinger and ROF were required to be registered as CPOs.

Specifically, the CFTC complaint alleges that months after the date Reisinger and ROF delivered subscription agreements for the pool to some prospective pool participants and began acting as the CPOs of NCCN, she filed a letter with the National Futures Association (NFA) on June 24, 2005 claiming exemption from the requirement to register as a CPO pursuant to CFTC regulation 4.13(a)(4), 17 C.F.R. § 4.13(a)(4)(2005). Accordingly, prior to June 24, 2005, Reisinger acted as the CPO of NCCN without registration or a claimed exemption from registration, according to the complaint. Throughout this same period ROF also allegedly acted as the CPO of NCCN without being registered as a CPO and without a claimed exemption from the requirement to register as a CPO, according to the complaint.

Because Reisinger could not reasonably believe all persons participating in the pool were QEPs, admitted that she “did not know” whether some participants were QEPs at the time she accepted their funds, and failed to provide all participants with the required written statements mandated by CFTC regulation 4.13(a)(5)(i)(A) and (B), 17 C.F.R. § 4.13(a)(5)(i)(A) and (B) (2005), according to the complaint. Reisinger was not eligible for the exemption that she claimed and, therefore, should have been registered as a CPO, according to the complaint.

At no time during the relevant period did Reisinger amend her claimed notice of exemption from the requirement to register as a CPO, despite knowledge that her claimed exemption was invalid, according to the complaint.

In its continuing litigation, the CFTC seeks restitution to defrauded customers, disgorgement of ill-gotten gains, a civil monetary penalty, permanent trading and registration bans and a permanent injunction against further violations of the federal commodities laws."