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.

COURT ORDERS ARIZONA MAN TO PAY OVER $1.2 MILLION STEMMING FROM SOLICITATION FRAUD CASE

FROM:  COMMODITY FUTURES TRADING COMMISSION 
Federal Court Orders Arizona Resident Ray Thomas Brown to Pay over $1.2 Million for Solicitation Fraud and Misappropriation in Operating Two Commodity Scams

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that Judge Frederick J. Martone of the U.S. District Court for the District of Arizona granted the CFTC’s motion for summary judgment and entered an Order of permanent injunction against Defendant Ray Thomas Brown, of Phoenix, Arizona. The Order imposes permanent trading and registration bans against Brown and requires him to pay restitution and disgorgement totaling $1,131,941.98 and a civil monetary penalty of $140,000.

The Order stems from a CFTC Complaint filed on November 26, 2012 (see CFTC Press Release 6448-12, December 6, 2012), charging Brown with fraud, misappropriation, and registration violations in operating two scams, one involving fraud while acting as a Commodity Pool Operator (CPO) and the other involving fraud while acting as a Commodity Trading Advisor (CTA). Brown duped customers into sending at least $1.2 million to bank and trading accounts under his control, according to the Complaint. The CFTC Complaint also charged Brown with illegally operating as an unregistered CPO and CTA.

The Order finds that Brown fraudulently solicited approximately $1,163,519 from more than 200 individuals. Of that amount, Brown deposited only approximately $86,000 into commodity pool trading accounts, which was promptly lost in trading. The Order also finds that Brown used the bulk of the funds he solicited on personal expenses and to further his fraudulent scheme. In making his solicitations, Brown lied about his background, fabricated his past and present investment performance, disseminated false account statements, and failed to disclose that he was not registered with the CFTC in any capacity, according to the Order.

A Related Criminal Action

In a related criminal action, Brown pleaded guilty on May 7, 2013, to wire fraud. Brown is currently awaiting sentencing (United States v. Ray Thomas Brown, Case No. 8:13-cr-00035-UA (United States District Court for the Central District of California)).

The CFTC thanks the United States Attorney’s Office for the Central District of California, the Federal Bureau of Investigation, the Black Mountain Precinct of the Phoenix Police Department, and the Arizona Corporation Commission for their assistance and cooperation on this matter.

CFTC Division of Enforcement staff members responsible for this case are Dmitriy Vilenskiy, Jonathan Robell, Richard Foelber, Paul Hayeck, and Joan Manley.

CFTC PROPOSES RULE REGARDING MEMBERSHIP IN REGISTERED FUTURES ASSOCIATION

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION

CFTC Issues Proposed Rule to Require All Registered Introducing Brokers, Commodity Pool Operators, and Commodity Trading Advisors to Become and Remain Members of a Registered Futures Association

Washington, DC —The Commodity Futures Trading Commission (CFTC or Commission) proposed a rule today to amend its regulations to require that all persons registered with the Commission as introducing brokers (IBs), commodity pool operators (CPOs), and commodity trading advisors (CTAs) become and remain members of at least one registered futures association (RFA). Currently, the National Futures Association (NFA) is the only RFA.

The Commission is proposing new Section 170.17 to address recent changes to the Commodity Exchange Act (CEA) by the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Commission’s authority to regulate swaps. Currently, under Sections 170.15 and 170.16 of the Commission’s regulations, all registered futures commission merchants (FCMs), swap dealers (SDs) and major swap participants (MSPs) are required to become members of NFA. However, there is no mandatory membership requirement for other registrants. Through the interaction of the Commission’s rules and NFA Bylaw 1101, any IB, CPO or CTA required to be registered with the Commission that desires to conduct business directly with an FCM, SD, or MSP must become a member of NFA, and derivatively, must ensure that it conducts business only with those IBs, CPOs or CTAs that also are NFA members. However, due to the unique nature of swap transactions, it may be possible for certain IBs, CPOs or CTAs to not be captured by the intersection of Sections 170.15 or 170.16 and NFA Bylaw 1101, and therefore, it may be possible for these Commission registrants to serve clients without becoming members of NFA. The Commission intends the proposed rule to avoid this possibility.

The comment period for the proposed rule will remain open for 60 days after publication in the Federal Register.