COURT ORDERS $1.5 MILLION IN SANCTIONS IN FOREX FRAUD CASE

FROM:  COMMODITY FUTURES TRADING COMMISSION 
Federal Court in Texas Orders $1.5 Million in Sanctions against Defendant Mark E. Rice for Fraudulent Forex Scheme

Washington, DC — The U.S. Commodity Futures Trading Commission (CFTC) obtained a federal court Order requiring Defendant Mark E. Rice, of Sugar Land, Texas, to pay $827,000 in restitution and a $673,000 civil monetary penalty to settle CFTC charges related to fraudulent solicitation and misappropriation of customer funds to trade leveraged off-exchange foreign currency contracts (forex). The Consent Order of Permanent Injunction, entered on January 13, 2014, by Judge Lee H. Rosenthal of the U.S. District Court for the Southern District of Texas, also imposes permanent trading and registration bans against Rice and prohibits him from violating provisions of the Commodity Exchange Act, as charged.

The Consent Order stems from a CFTC Complaint filed on June 29, 2011, against Rice and Rice’s company, Financial Robotics, Inc. (see CFTC Press Release 6067-11).

The Order finds that, from June 2008, Rice operated a fraudulent scheme that solicited approximately $1.7 million from one individual to trade leveraged off-exchange forex contracts. According to the Order, Rice falsely told his customer, among other things, that his investment was “risk free” and insured against loss and that the return of his principal was guaranteed. The Order further finds that Rice misappropriated at least $576,000 of his customer’s funds by transferring the money to unrelated Rice-controlled companies and, thereafter, spending at least $404,000 of those funds for Rice’s personal and business expenses.

The CFTC’s litigation continues against Financial Robotics, Inc.

The CFTC thanks the National Futures Association, the British Virgin Islands Financial Services Commission, The Netherlands Authority for the Financial Markets, and the United Kingdom’s Financial Conduct Authority for their assistance.

CFTC Division of Enforcement staff members responsible for this case are Kevin S. Webb, Michelle S. Bougas, James H. Holl, III, and Gretchen L. Lowe.

OWNERS AND COMPANY ORDERED TO PAY OVER $1.8 MILLION FOR PARTS IN FOREX PONZI SCHEME

FROM: COMMODITY FUTURES TRADING COMMISSION

Federal Court Orders North Carolina Residents Timothy Bailey and Michael Hudspeth, and their Company, PMC Strategy, LLC, to Pay over $1.8 Million for Fraud in Foreign Currency Ponzi Scheme

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that it obtained federal court orders requiring Defendants Timothy Bailey of Monroe, North Carolina, Michael Hudspeth, formerly of Statesville, North Carolina, and their company, PMC Strategy, LLC (PMC), to pay over $1.8 million for solicitation fraud and misappropriation in connection with an off-exchange foreign currency (forex) Ponzi scheme that solicited at least $669,000 from more than 22 individuals

Judge Graham C. Mullen of the U.S. District Court for the Western District of North Carolina entered an Order of Default Judgment and Permanent Injunction against Defendants PMC and Bailey on October 18, 2012, requiring PMC and Bailey jointly to pay over $429,700 in restitution to defrauded pool participants. The Order also imposes a civil monetary penalty of $560,000 on PMC and $420,000 on Bailey and permanently bans them from trading and registering with the CFTC. The Order finds that PMC and Bailey violated the anti-fraud provisions of the Commodity Exchange Act (CEA) by fraudulently soliciting pool participants to trade forex, misappropriating pool participant funds, issuing false account statements, and refusing to return pool participant funds. PMC claimed to have earned a profit of $160,000 from January through June 2008 as a result of its forex trading, according to the Order. However, these representations were false, as PMC was not formed until June 18, 2008, and engaged in no forex trading until July 2008. Furthermore, PMC and Bailey sent false monthly profit checks to pool participants purporting to represent profits earned, when in fact PMC incurred trading losses in 15 of the 22 months it traded, and was overall net negative from October 2008 onward, according to the Order.

Subsequently, on April 3, 2013, Judge Mullen granted Summary Judgment against Defendant Hudspeth finding him liable for the same violations of the CEA as Bailey and PMC, and making Hudspeth jointly and severally liable with Bailey and PMC for the $429,700 restitution award previously ordered by the Court. The Order also imposes a $420,000 civil monetary penalty against Hudspeth and permanently bans him from the commodities industry.

The CFTC Division of Enforcement staff members responsible for this case are Eugenia Vroustouris, Michael Loconte, Daniel Jordan, Rick Glaser, and Richard B. Wagner.

ASSETS FROZEN IN ALLEGED COMMODITY POOL FOREX SCHEME

FROM: U.S. COMMODITY FUTURES TRADING COMMISSION

CFTC Charges Florida Resident William Jeffery Chandler with Forex Fraud and Misappropriation

Federal court enters emergency order freezing defendant’s assets and protecting books and records

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that on September 11, 2012, Judge James D. Whittemore of the U.S. District Court for the Middle District of Florida entered an emergency order freezing the assets of defendant William Jeffery Chandler of Ft Myers, Fla. The court’s order also prohibits Chandler from destroying or altering books and records. The judge set a hearing on the CFTC’s motion for a preliminary injunction for September 26, 2012.

The court’s order arises out of a civil enforcement action filed by the CFTC on September 10, 2012, charging Chandler with foreign currency (forex) fraud and misappropriation. Chandler has never been registered with the CFTC in any capacity, according to the complaint.

The CFTC complaint alleges that, since at least July 2010, and continuing to the present, Chandler has solicited at least six individuals to contribute at least $773,100 to a pooled account to trade off-exchange forex contracts in Chandler’s account at Dukascopy Bank SA, a Switzerland-domiciled bank. To entice prospective pool participants to invest, Chandler allegedly guaranteed a two percent to 12.5 percent monthly return on participants’ principal.

However, according to the complaint, Chandler’s Dukascopy Bank account was closed on or about July 15, 2011, due to changes in U.S. regulations. The Dukascopy Bank account was transferred to Alpari US LLC, a U.S.-based registered Retail Foreign Exchange Dealer, on August 8, 2011, according to the complaint. At that time, the pooled account allegedly had a balance of only $292.49, far less than the amount contributed by pool participants.

Chandler allegedly continues to solicit and receive funds from pool participants to trade in his Dukascopy Bank account, even after it had closed, and continues to represent to pool participants that their funds remain in the pool in his Dukascopy Bank account. Although Chandler has received requests from many pool participants to return their funds, he refuses to refund participant’s principal, instead asserting a litany of fabricated excuses, according to the complaint. Chandler has misappropriated the vast majority of the pool’s funds for his personal use, the complaint charges.

Furthermore, pool participants received statements from a purported accounting firm named A.R. Watkins; however, upon information and belief, A.R. Watkins is a fictitious entity controlled by Chandler, according to the complaint.

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

The CFTC appreciates the assistance of the Pasco County Sheriff’s Office.

CFTC Division of Enforcement staff responsible for this case are Jo Mettenburg, Jeff Le Riche, Stephen Turley, Rick Glaser, and Richard Wagner.