CALIFORNIA MAN CHARGED BY CFTC WITH FRAUD RELATED TO PRECIOUS METALS

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 

September 11, 2015

CFTC Charges California Resident Hannes Tulving, Jr., through his company, The Tulving Company, Inc., with Misappropriation and Fraudulent Solicitation in a $17.8 Million Precious Metals Scheme

At Least 381 Customers Nationwide Allegedly Defrauded in the Scheme

Washington, DC — The U.S. Commodity Futures Trading Commission (CFTC) today filed a civil Complaint against Defendants Hannes Tulving, Jr. of Newport Beach, California, and his company, The Tulving Company, Inc., charging them with fraudulent solicitation and misappropriation in connection with the precious metals markets. Neither Defendant has ever been registered with the CFTC.

In its enforcement action, the CFTC alleges that the Defendants fraudulently offered contracts of sale of commodities in interstate commerce, namely, contracts for the sale of gold, silver, platinum, and palladium bullion and coin (precious metals). In offering these contracts, the Defendants obtained and misappropriated at least $17.8 million from at least 381 customers located throughout the United States for the purchase and sale of precious metals, according to the Complaint.

In their solicitations, the Defendants allegedly made false and fraudulent representations, including that The Tulving Company was a highly reputable, stable, and established precious metals firm that delivered precious metals to customers; that it bought and sold in excess of $2.1 billion in precious metals from 1999 through March 2013; and that precious metals were shipped quickly to customers after placement of orders and receipt of customer funds. These representations were false, according to the Complaint.

The Defendants allegedly purchased and sold little or no precious metals with the funds they collected from customers. Instead, according to the Complaint, the Defendants defrauded customers by lying to them and misappropriating their funds for improper and unauthorized uses, including for the Defendants’ own financial benefit.

To conceal their fraud, according to the Complaint, the Defendants made false and/or deceptive statements, including falsely representing that (1) customers owned specific amounts of precious metals when, in fact, they did not, (2) customers holdings in precious metals had significant value when, in fact, the non-existent holdings had no value whatsoever, and (3) customers were realizing profits from their investments when, in fact, no profit whatsoever had been realized.

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

CFTC Division of Enforcement staff members responsible for this case are Luke B. Marsh, Richard Foelber, Dmitriy Vilensky, and Paul G. Hayeck.

SEC ANNOUNCES COURT IMPOSED JUDGEMENT OF $55 MILLION AGAINST INVESTMENT ADVISER CEO

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Litigation Release No. 23228 / April 2, 2015

Securities and Exchange Commission v. Charles R. Kokesh, Civil Action No. 6:09-cv-1021

Federal Court Imposes $55 Million Final Judgment Against Investment Adviser CEO

On March 30, 2015, the United States District Court for the District of New Mexico entered a final judgment against Charles R. Kokesh, permanently enjoining him from violating federal securities laws and ordering him to pay a civil penalty of $2,354,593 as well as disgorgement and prejudgment interest totaling $53,004,432. The final judgment follows a five-day trial in November 2014, in which the jury found that Kokesh had committed securities fraud by misappropriating and misusing tens of millions of dollars at two registered investment advisers he controlled.

From at least 1995 through July 2007, Kokesh controlled two registered investment-adviser firms, though which he controlled and provided investment advice to four business-development companies ("BDCs"). Together, the BDCs had approximately 21,000 investors located throughout the United States. Through his control over the investment advisers, Kokesh was able to misappropriate investor funds by causing the BDCs to pay illegal distributions, performance fees, bonuses, and expense reimbursements to the investment advisers, which Kokesh then used for his own benefit. Kokesh tried to hide his scheme by directing the investment advisers to distribute misleading proxy statements to investors, and to have the BDCs file false reports with the Commission.

After short deliberations, the jury found that Kokesh had violated Section 37 of the Investment Company Act of 1940. The jury also found that Kokesh had aided and abetted violations of Sections 205, 206(1), and 206(2) of the Investment Advisers Act of 1940, and Sections 13(a) and 14(a) of the Securities Exchange Act of 1934 and Rules 12b-20, 13a-1, 13a-13, and 14a-9 thereunder.

The case was tried by David Reece, Jennifer Brandt, and Timothy McCole of the Commission's Fort Worth Regional Office. An examination by Kyle Holmberg of the Fort Worth Regional Office and Curtis Kolinek of the San Francisco Regional Office uncovered the misconduct.

CFTC CHARGED HUSBAND, WIFE AND COMPANIES WITH FRAUD

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 

February 3, 2015

CFTC Charges California Residents Christopher Valois and Cynthia Wong and Their Companies with Fraud and Registration Violations

Husband and wife team allegedly stole more than $300,000 of the $750,000 their customers invested

Federal court enters emergency Order freezing Defendants’ assets and protecting books and records

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that Judge Cormac J. Carney of the U.S. District Court for the Central District of California entered an emergency restraining Order freezing assets and prohibiting the destruction or concealment of books and records of Defendants Christopher Valois, Cynthia Wong, and their companies, Bertram Trade LLC (Bertram) and Churchhill Commodities Trading LLC (Churchhill), all of Orange County California. The judge set a hearing date for February 12, 2015.

The court’s Order arises from a CFTC Complaint filed on January 28, 2015, charging the Defendants with precious metals and futures fraud, misappropriation, engaging in illegal off-exchange precious metals transactions, and registration violations, in violation of the Commodity Exchange Act and CFTC Regulations from October 2011 to the present.

According to the Complaint, husband and wife Valois and Wong, acting by and through Bertram and Churchhill, fraudulently solicited approximately $450,000 from six customers, some of whom were senior citizens, to purchase precious metals or engage in futures trading. The Complaint states that the precious metals transactions offered by Valois and Wong and their companies were illegal off-exchange instruments and alleges that Valois and Wong misappropriated more than $300,000 of customer money to pay their personal expenses.

The Complaint also alleges that Valois and Wong acted as Commodity Trading Advisors by trading another $300,000 of at least four members of the general public in futures contracts and receiving advisory fees for such futures trading, even though they were not registered with the CFTC, as required. In fact, Valois previously had been banned from the futures industry for cheating and defrauding customers, 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 a permanent injunction against further violations of federal commodities laws, as charged.

The CFTC appreciates the cooperation of the National Futures Association in this matter.

CFTC Division of Enforcement staff members responsible for this case are Camille Arnold, Joseph Patrick, Robert Howell, Scott Williamson, and Rosemary Hollinger.

SEC FILES EMERGENCY ACTION IN ALLEGED MILLION DOLLAR MISAPPROPRIATION CASE

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Litigation Release No. 23130 / November 12, 2014

Securities and Exchange Commission v. Eric W. Johnson, Civil Action No. 1:14-cv-08825

On November 5, 2014, the Securities and Exchange Commission filed an emergency action alleging that from at least 2004 to the present, Eric W. Johnson, of Hinsdale, Illinois, misappropriated at least $1 million from certain of his advisory clients. The SEC's complaint alleged that he did so while affiliated with a Chicago-based broker-dealer and investment adviser. The SEC's complaint further alleged that Johnson admitted to the SEC that he misappropriated the funds by forging his clients' signatures on more than 100 separate wire transfer instructions so that he could funnel cash from his clients' accounts directly into his own personal bank account. The complaint charged Johnson with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5(a) and (c) thereunder and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940.

After a hearing on the matter, the Honorable Edmond E. Chang of the United States District Court, Northern District of Illinois, issued an Order granting injunctive relief, freezing assets and other emergency relief including expedited discovery.

The SEC's investigation in this matter is continuing.

COURT ORDERS $44 MILLION IN SANCTIONS FOR COMMODITY POOL FRAUD AND MISAPPROPRIATION

FROM:  COMMODITY FUTURES TRADING COMMISSION 

Federal Court in Utah Imposes over $44 Million in Sanctions against Robert Andres and His Company, Winsome Investment Trust, and Robert Holloway and His Company, US Ventures, for Commodity Pool Fraud and Misappropriation

The U.S. Attorney’s Office for the District of Utah Filed Parallel Criminal Actions against Andres and Holloway

Washington, DC — The U.S. Commodity Futures Trading Commission (CFTC) obtained a federal court Order requiring Defendants Robert J. Andres of Houston, Texas, his company, Winsome Investment Trust (Winsome), Robert L. Holloway of San Diego, California, and his company US Ventures LC (USV), to pay a civil monetary penalty of $32,370,000 and restitution for defrauded customers totaling $12 million. The court’s Order also imposes permanent trading and registration bans against Andres, Winsome, Holloway, and USV and prohibits them from violating provisions of the Commodity Exchange Act, as charged.

The default judgment Order stems from a CFTC civil enforcement action filed on January 24, 2011, that charged the Defendants with fraud in the operation of a commodity futures pool (see CFTC Press Release 5976-11). The Order (see Related Link) was entered by the Honorable Bruce S. Jenkins of the U.S. District Court for the District of Utah on June 6, 2014.

Specifically, the Order finds that:

• From at least May 2005 through November 2008, Andres and Winsome fraudulently solicited and accepted at least $50.2 million from at least 243 individuals to invest in a commodity futures pool operated by Holloway and USV.  In their solicitations, Andres and Winsome falsely claimed a successful track record and guaranteed the return of participants’ principal and profits; however, contrary to Andres’s and Winsome’s claims of consistently profitable trading, USV’s and Holloway’s futures trading was not successful, sustaining overall net losses of approximately $10.7 million.

• The Defendants allegedly traded only a portion of Winsome’s pool’s funds and misappropriated the majority of participant funds to pay purported “profits” to pool participants in a manner akin to a Ponzi scheme, to provide money to Andres’ wife, and to invest in various unrelated and undisclosed businesses, including using $4.2 million of participant funds to purchase an aerospace consulting business.

• Holloway used participant funds to pay personal and unrelated business expenses, and to pay for houses, cars, home furnishings, jewelry, lawn and maid services, and credit card bills in the name of his wife.  Holloway also used participant funds to finance his wife’s eBay business, Alcoy Enterprises, LLC.

• Andres and Holloway attempted to conceal the fraud by directing employees to falsify participants’ account records and by providing e-mailed account statements to participants falsely representing that Holloway profitably traded pool funds -– sustaining virtually no losses during the relevant period.

In a parallel criminal actions brought by the U.S. Attorney’s Office for the District of Utah, Andres was indicted on five counts of wire fraud, and Holloway was indicted on four counts of wire fraud and one count of making and filing a false income tax return. Holloway’s trial date is currently set for July 8, 2014. Andres pleaded guilty to one count of wire fraud, and he is scheduled to be sentenced on August 20, 2014.

The CFTC appreciates the assistance of the Comisión Nacional del Mercado de Valores (Spain), the Dubai Financial Services Authority, and the British Virgin Islands Financial Services Commission.

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

CFTC FREEZES ASSETS IN MISAPPROPRIATION CASE INVOLVING ALLEGED FOREX FRAUD

FROM:  COMMODITY FUTURES TRADING COMMISSION 

Federal Court Freezes Assets of EJS Capital Management, LLC, Alex Vladimir Ekdeshman and Edward J. Servider and Relief Defendants in CFTC Action Charging Misappropriation of Nearly $2 Million in Ongoing Forex Fraud Scheme

Defendant Ekdeshman also charged with violating Federal Court Order

Washington, DC — The U.S. Commodity Futures Trading Commission (CFTC) today announced that The Honorable Kevin P. Castel of the U.S. District Court for the Southern District of New York, on May 1, 2014, entered a restraining order freezing assets and prohibiting the destruction or concealment of books and records of Defendants EJS Capital Management, LLC (EJS), Alex Vladimir Ekdeshman of Holmdel, N.J., and Edward J. Servider of Staten Island, N.Y (collectively Defendants), and of Relief Defendants Alisa Ekdeshman of Holmdel, N.J. (Ekdeshman’s wife), Executive Services of Florida LLC, Executive Management Services of Montana Inc., and Michael Vilner of Sunny Isles Beach, Fla.

The Court’s order arises out of a Complaint filed on May 1, 2014, charging Defendants with fraudulent solicitation of more than $2 million, misappropriation of most of those funds, issuing false account statements, and registration violations in an ongoing retail foreign currency (forex) fraud scheme.

The CFTC also charged that Ekdeshman is in violation of a U.S. District Court Order entered on July 8, 2013, arising out of a prior CFTC action against Ekdeshman where he was charged with solicitation fraud and misappropriating “the vast majority” of customer funds for business expenses. Specifically, the Complaint charged Ekdeshman and Paramount Management, LLC with operating a fraudulent scheme that solicited more than $1.3 million from approximately 110 retail customers to engage in leveraged or margined foreign currency (forex) transactions with unregistered off-shore counterparties. CFTC v. Paramount Management, LLC and Alex Vladimir Ekdeshman, C.A. No. 13-Civ. 4436 (CM) (SDNY Sept. 9, 2013) (see CFTC Press Release 6690-13). The prior court Order against Ekdeshman permanently prohibited Ekdeshman from cheating or defrauding other persons, from soliciting, receiving or accepting funds from any person for the purpose of purchasing or selling forex contracts, and from engaging in any activity requiring registration with the CFTC.

According to the CFTC’s Complaint filed yesterday, between April 2013 and the present, the Defendants fraudulently solicited more than $2 million from at least 90 retail customers. The Complaint alleges that the Defendants misappropriated almost all of the customer funds for their own use, including vacations in Florida and Italy, automobile leases, liquor purchases, employee salaries and commissions, and office rent. The Complaint further alleges that Defendants issued false account statements to customers that listed profits from forex trading although no customer funds were traded in forex and no profits were generated from forex trading. And the Complaint charges that EJS’s website falsely reported that specified EJS trading had been profitable.

The CFTC Complaint also alleges that the Relief Defendants directly and indirectly received funds from EJS bank accounts to which they have no legitimate claim. None of the Defendants or Relief Defendants has ever been registered with the CFTC.

The Court has set a hearing date on the CFTC’s motion for a preliminary injunction for May 12, 2014. In its continuing litigation, the CFTC seeks disgorgement of ill-gotten gains, restitution for the benefit of defrauded EJS customers, civil monetary penalties, permanent registration and trading bans, and a permanent injunction from future violations of federal commodities laws, as charged.

In a criminal action, on May 2, 2014, the U.S. Attorney’s Office for the Southern District of New York announced that it had filed a criminal complaint charging Ekdeshman with one count each of commodities fraud, mail fraud, and wire fraud.  Ekdeshman was arrested in Holmdel, N.J., by agents from the Federal Bureau of Investigation (FBI).

The CFTC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York, the FBI, the United Kingdom Financial Conduct Authority, l'Autorité des Marchés Financiers du Québec, and the Financial Services Board of the Republic of South Africa.

CFTC Division of Enforcement staff members responsible for this action are Nathan B. Ploener, Philip D. Rix, Elizabeth C. Brennan, Steven Ringer, Lenel Hickson, Jr., and Manal M. Sultan.

COMMODITY POOL FRAUDSTER RECEIVES SANCTIONS, PRISON TIME FOR MISREPRESENTING PERFORMANCE RECORDS

FROM:  COMMODITY FUTURES TRADING COMMISSION 
Federal Court in Illinois Imposes over $3.5 Million in Sanctions against Dimitry Vishnevetsky and his Company, Oxford Capital, for Orchestrating Commodity Fraud Schemes and Misappropriation

In a Related Criminal Action, Vishnevetsky Sentenced to Six Years in Prison

Washington, DC — The U.S. Commodity Futures Trading Commission (CFTC) obtained a federal court Order requiring Defendants Dimitry Vishnevetsky formerly of Chicago, Illinois, and his company, Oxford Capital, LLC (Oxford) to pay a civil monetary penalty of $1,910,982 and restitution for defrauded customers totaling $1,608,327. The default judgment Order, entered by the Honorable Ruben Castillo of the U.S. District Court for the Northern District of Illinois on February 26, 2014, stems from a CFTC enforcement action filed on May 1, 2012, that charged the Defendants with fraud in connection with operating two commodity pools and an additional fraudulent commodity trading scheme (see CFTC Press Release 6249-12). The court’s Order also imposes permanent trading and registration bans against Vishnevetsky and Oxford and prohibits them from violating provisions of the Commodity Exchange Act, as charged.

As a result of a parallel criminal action brought by the US Attorney’s Office, Judge Castillo on March 4, 2013 sentenced Vishnevetsky to serve six years in prison. Vishnevetsky is currently incarcerated in the Federal Prison Camp in Duluth, Minnesota.

Specifically, the Order finds that, from at least the fall of 2006 through April 2012, the Defendants fraudulently solicited approximately $1.74 million from commodity pool participants and commodity customers. Vishnevetsky and Oxford defrauded pool participants by representing that their commodity pools had profitable performance records based on audited results when, in fact, they never conducted any trading for the pools, the Order finds. Furthermore, the Order finds that Vishnevetsky, individually and doing business as Hodges Trading LLC and Hodges Court Trading, defrauded other pool participants by misrepresenting that Hodges Trading issued Libor Notes and invested in commodity futures contracts to enhance the value of the purported Libor Notes. Vishnevetsky and Oxford also issued false account statements to pool participants and defrauded other customers by not opening and funding commodity trading accounts for them and issuing them fictitious account statements, the Order finds.

Defendants misappropriated at least $637,000 of customer and pool participant funds

While engaging in these fraudulent schemes, the Order finds that the Defendants misappropriated at least nearly $637,000 from pool participants and customers, which Defendants used for their own benefit.

The CFTC appreciates the assistance of the Federal Bureau of Investigation and the United States Attorney’s Office for the Northern District of Illinois.

CFTC Division of Enforcement staff members responsible for this case are Diane M. Romaniuk, Ava M. Gould, Heather Johnson, Scott R. Williamson, Rosemary Hollinger, and Richard B. Wagner.

COURT ORDERS DEFENDANTS TO PAY $16 MILLION IN CFTC FRAUD CASE

FROM:  COMMODITY FUTURES TRADING COMMISSION 
CFTC Obtains Default Judgment against Altamont Global Partners LLC and John G. Wilkins for Commodity Pool Fraud, Misappropriation, and Making False Statements to National Futures Association

U.S. District Court in Florida Orders Defendants to Pay More than $15.8 Million in CFTC Anti-Fraud Action

Washington, DC — The U.S. Commodity Futures Trading Commission (CFTC) today announced that Judge Gregory A. Presnell of the U.S. District Court for the Middle District of Florida entered a default judgment and permanent injunction Order against Defendants Altamont Global Partners LLC (AGP) of Longwood, Florida, and its owner, John G. Wilkins, formerly of Chuluota, Florida. The Order requires AGP to pay $10,969,843 in disgorgement and Wilkins to pay $1,214,902 in disgorgement and a $3,644,706 civil monetary penalty. The Order also imposes permanent trading and registration bans against them and prohibits them from violating the Commodity Exchange Act and a CFTC regulation, as charged.

The court’s Order, entered on February 20, 2014, stems from a CFTC Complaint filed on July 16, 2012 against AGP and Wilkins, as well as Defendants Philip Leon and Paul Rangel (see CFTC Press Release 6315-12). The Order confirmed and adopted U.S. Magistrate Judge Thomas B. Smith’s Report and Recommendation of January 31, 2014, which stated that from approximately March 2009 to at least June 22, 2012, AGP and Wilkins operated a fraudulent scheme that solicited at least $13 million from approximately 198 commodity pool participants to trade, among other things, commodity futures contracts, options on futures, and off-exchange foreign currency contracts.

The Order states that AGP and Wilkins, along with the other Defendants, misappropriated more than $5.2 million of pool participants’ funds in “loans” and “advances” to Defendants, which were sham transactions designed to disguise Defendants’ misappropriation, and issued false statements to pool participants regarding the profitability and value of their accounts. In addition, the Order states that AGP and Wilkins provided false information and documentation to the National Futures Association (NFA).

CFTC Previously Settled with Defendants Leon and Rangel

Previously, on December 17, 2013, the court entered consent Orders of permanent injunction against Defendants Leon and Rangel, requiring them to pay a combined total of over $8 million in disgorgement and civil monetary penalties, among other sanctions, to settle the CFTC action (see CFTC Press Release 6797-13).

With the entry of the Order against AGP and Wilkins, the CFTC’s litigation is concluded; however, the court-appointed receiver, Mark Silverio, continues his efforts to marshal and distribute Defendants’ assets to their fraud victims.

A Related Criminal Action

In a related criminal action, on August 22, 2013, Wilkins pleaded guilty to one count of conspiracy to commit mail fraud and wire fraud (see United States v. Wilkins, No. 13-cr-181 (M.D. Fla. July 19, 2013)). Wilkins was sentenced to 108 months in federal prison and ordered to pay $17,042,026.89 in restitution, jointly and severally with defendant Leon, who received the same prison sentence.

The CFTC thanks the NFA for its assistance.

CFTC Division of Enforcement staff members responsible for this case are Rachel Hayes, Peter Riggs, Stephen Turley, Charles Marvine, Rick Glaser, and Richard Wagner.

* * * * * *

CFTC’s Commodity Pool Fraud Advisory

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.

SEC CHARGES TRADER WITH DEFRAUDING OLDER INVESTORS

FROM:  SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission today charged a self-described institutional trader in Colorado with defrauding elderly investors into making purported investments in government-secured bonds as he used their money to pay his mortgage.

The SEC alleges that Gary C. Snisky of Longmont, Colo., primarily targeted retired annuity holders by using insurance agents to sell interests in his company Arete LLC, which posed as a safe and more profitable alternative to an annuity.  Investors were told their funds would be used to purchase government-backed agency bonds at a discount, and Snisky as an institutional trader would use the bonds to engage in overnight banking sweeps.  However, Snisky did not purchase bonds or conduct any such trading, and he misappropriated approximately $2.8 million of investor funds to pay commissions to his salespeople and make personal mortgage payments.

“With one hand Snisky ushered investors into a supposedly safe investment opportunity with guaranteed profits, and with the other hand he put investors’ money into his own pocket,” said Julie K. Lutz, director of the SEC’s Denver Regional Office.

In a parallel action, the U.S. Attorney’s Office for the District of Colorado today announced criminal charges against Snisky.

According to the SEC’s complaint filed in federal court in Denver, Snisky raised at least $3.8 million from more than 40 investors in Colorado and several other states. Beginning in August 2011, Snisky recruited veteran insurance salespeople who could sell the Arete investment to their established client bases that owned annuities. The majority of investors in Arete used funds from IRAs or other retirement accounts.

The SEC alleges that Snisky described Arete as an “annuity-plus” investment in which, unlike typical annuities, investors could withdraw principal and earned interest with no penalty after 10 years while still enjoying annuity-like guaranteed annual returns of 6 to 7 percent.  Snisky emphasized the safety of the investment, calling himself an institutional trader who could secure government-backed agency bonds at a discount and save middleman fees.  Snisky’s sales pitch was so convincing that even one of his salespeople personally invested retirement funds in Arete.

The SEC alleges that Snisky created and provided all of the written documents that the hired salespeople used as offering materials to solicit investors.  Snisky also showed salespeople fraudulent investor account statements purporting to show earnings from Arete’s investment activity.  Following an initial influx of investors, Snisky organized at least two seminars where he met with investors and salespeople.  He introduced himself as the institutional trader behind Arete’s success, and encouraged investors to spread the word.  Snisky hand-delivered fraudulent account statements to investors attending the seminars to mislead them into believing their investments were performing as promised.

The SEC’s complaint against Snisky seeks a permanent injunction, disgorgement of ill-gotten gains plus prejudgment interest, and a financial penalty.

The SEC’s investigation, which is continuing, has been conducted by John C. Martin, Kerry M. Matticks, and James A. Scoggins of the Denver office.  The SEC’s litigation will be led by Polly A. Atkinson.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the District of Colorado, Internal Revenue Service, Federal Bureau of Investigation, and U.S. Postal Inspection Service.

COURT FINDS BROKERAGE FIRM AND TWO FORMER EXECUTIVES LIABLE FOR FRAUD AND MISAPPROPRIATION

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

Court Finds Brokerage Firm and Two Former Executives Liable for Over $2.74 Million in a Fraudulent Misappropriation Case

The Securities and Exchange Commission announced today that, on April 25, 2013, a federal court in New York found defendants Joshua Constantin and Windham Securities, Inc. jointly and severally liable for over $2.49 million and defendant Brian Solomon liable for over $249,000 in disgorgement, pre-judgment interest, and civil penalties. In addition, the court found relief defendants Constantin Resource Group, Inc. (CRG) and Domestic Applications Corp. (DAC) jointly and severally liable with Constantin and Windham for over $760,000 and $532,000, respectively, of disgorgement and pre-judgment interest.

On July 6, 2011, the SEC filed its complaint. The complaint alleged that Windham, Windham's owner and principal Constantin, and former Windham managing director Solomon fraudulently induced investors to provide more than $1.25 million to Windham for securities investments. The complaint alleged that defendants made false claims to the investors about the intended use of the investors' funds and about Windham's investment expertise and past returns. Instead of purchasing securities for the investors, the defendants misappropriated the investors' funds and then provided false assurances to the investors to cover up their fraud. The SEC's complaint charged Windham, Constantin, and Solomon with violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder. The complaint also named CRG and DAC, entities Constantin owned and/or controlled, as relief defendants. Â

On July 3, 2012, the SEC moved for summary judgment against each of the defendants and relief defendants on all of the SEC's claims. On April 2, 2013, the court issued an opinion granting the SEC's motion in its entirety and finding defendants liable for fraud. Based on the undisputed evidence, the court found that "[t]he litany of misrepresentations that Solomon and Constantin made to their clients is striking;" that Constantin "diverted [investors'] funds to his own purposes;" and that "both Solomon and Constantin provided clients with misleading documents to cover up the fraudulent nature of their investment scheme." The court concluded that permanent injunctions, disgorgement, and civil penalties were warranted against each of the defendants and that the relief defendants would be required to disgorge any assets they received through the defendants' misconduct.

On April 25, 2013, the court issued a supplemental order finding Windham, Constantin, Solomon, CRG, and DAC collectively liable for more than $2.74 million in disgorgement, pre-judgment interest, and civil penalties.

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.