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.
FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., Sept. 13, 2012 – The Securities and Exchange Commission today charged a broker and his company based in Danbury, Conn., with stealing at least $600,000 from customers who he persuaded to withdraw money from their brokerage accounts he managed at other firms and instead invest with him directly.
The SEC alleges that Stephen B. Blankenship lured about a dozen customers – including some retirees and others he met at church – into his scheme by assuring them they could obtain a greater rate of return on their money by transferring it to his firm, Deer Hill Financial Group. Blankenship claimed he was investing their money in established securities such as publicly-traded mutual funds. But in reality he made no investments and merely transferred customer money to his own bank account, and he misused it to pay his mortgage, travel, and grocery bills among other personal expenses. Blankenship also paid some business expenses and made Ponzi-like payments to other customers who requested a return of all or part of their investment.
In a parallel action, the U.S. Attorney's Office for the District of Connecticut today announced criminal charges against Blankenship.
"Blankenship took advantage of fellow churchgoers and senior citizens who relied on their savings for retirement and placed their trust in him," said David P. Bergers, Director of the SEC's Boston Regional Office. "He betrayed that trust by using their money to make personal credit card payments and home improvements."
According to the SEC's complaint filed in the U.S. District Court for the District of Connecticut, most of the investors deceived by Blankenship became his brokerage customers at Santa Monica-based Syndicated Capital and later at Melville, N.Y.-based Vanderbilt Securities. Some had been his customers for as long as two decades. Beginning in at least 2002, Blankenship took advantage of those longstanding relationships and began convincing customers to withdraw money from their brokerage accounts at those firms with promises that he could achieve a greater rate of return for them directly by investing their money through Deer Hill.
The SEC alleges that in order to conceal his scheme, Blankenship often created fake account statements that falsely represented that he had invested their money in a variety of investments. The purported account statements were printed on Deer Hill letterhead and provided to customers. In all instances, the investments described on the account statements did not exist.
The SEC's complaint alleges that Deer Hill and Blankenship violated the antifraud provisions of the federal securities laws and acted as unregistered brokers. The complaint seeks disgorgement of ill-gotten gains plus prejudgment interest, monetary penalties, and the entry of a permanent injunction against Deer Hill and Blankenship, who lives in New Fairfield, Conn.
Based on the same misconduct, the U.S. Attorney's Office for the District of Connecticut charged Blankenship with criminal violations. The Connecticut Department of Banking's Securities Division has obtained, by consent, a revocation of Blankenship's registration and has barred Blankenship and Deer Hill from operating in Connecticut. The SEC thanks the U.S. Attorney's Office for the District of Connecticut, the Connecticut Department of Banking's Securities Division, and the police department in Danbury, Conn., for their assistance in this matter.
The SEC's investigation, which is continuing, has been conducted by Kevin B. Currid, Robert B. Barry, and Michele Perillo in the Boston Regional Office with assistance from Mark Gera and Andrew Caverly of the broker-dealer examination program. Mr. Currid will lead the SEC's litigation.
FROM: SECURITIES AND EXCHANGE COMMISSION
Charges Connecticut-Based Broker for Stealing Investor Funds
The Securities and Exchange Commission announced today that it has charged Stephen B. Blankenship, a resident of New Fairfield, Connecticut, and Deer Hill Financial Group, LLC, a Connecticut limited liability company under Blankenship’s control, with a scheme to defraud investors. The Commission’s Complaint alleges that, from at least 2002 through November 2011, Blankenship misappropriated at least $600,000 from at least 12 brokerage customers by falsely representing that he would invest their funds in securities through defendant Deer Hill.
The SEC alleges that until November 2011, Blankenship was a registered representative of Vanderbilt Securities, LLC, a registered broker-dealer based in Melville, New York. According to the complaint, Blankenship lied to his brokerage customers and in many instances, lured customers to withdraw money from their brokerage accounts with promises that they could obtain a greater rate of return by investing through Deer Hill. The complaint alleges that Blankenship assured his customers that he would invest their money in established securities such as publicly traded mutual funds. When customers requested account statements, Blankenship provided the customers with fictitious statements from Deer Hill that falsely represented that Blankenship had invested their money in a variety of investments.
According to the SEC’s Complaint, Blankenship never invested the customers’ money. Instead, Blankenship used the customers’ money for personal expenses, business expenses and to make Ponzi-like payments to other customers who requested a return of all or part of their investment.
The action was filed in federal court in Connecticut on September 13, 2012, and the Complaint alleges that the defendants violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Section 17(a) of the Securities Act of 1933. The Commission also alleges that the defendants violated Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 and Section 15(a) of the Exchange Act. In its action, the Commission seeks the entry of a permanent injunction against the defendants, disgorgement of ill-gotten gains by the defendants plus pre-judgment interest thereon, and the imposition of civil monetary penalties.
Based on the same misconduct, the U.S. Attorney’s Office for the District of Connecticut charged Blankenship with criminal violations. The Connecticut Department of Banking‘s Securities Division has obtained, by consent, a revocation of Blankenship’s registration and has barred Blankenship and Deer Hill from operating in Connecticut. The SEC thanks the U.S. Attorney’s Office for the District of Connecticut, the Connecticut Department of Banking’s Securities Division, and the police department in Danbury, Conn., for their assistance in this matter. The Commission’s investigation is continuing.
FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
SEC Charges Massachusetts-Based Corporation and Senior Officers in $26 Million Fraudulent Securities Offering
On September 10, 2012, the Securities and Exchange Commission filed an enforcement action in federal court in Boston charging Massachusetts-based Bio Defense Corporation and others for their roles in a fraudulent offering of unregistered Bio Defense securities. The defendants are charged with defrauding investors through various misrepresentations and schemes while raising at least $26 million in investor funds.
In addition to Bio Defense, the Commission’s complaint charges Michael Lu of Lexington, Massachusetts, the founder and former CEO and Chairman of Bio Defense; Jonathan Morrone of Newton, Massachusetts, a former Senior Executive Vice President of Bio Defense; Z. Paul Jurberg of Brookline, Massachusetts, a senior officer of Bio Defense and most recently a Senior Vice President of Sales and Marketing; Anthony Orth of Tustin, California, a former Vice President of Marketing for Bio Defense; and Brett Hamburger of Delray Beach, Florida, a consultant to Bio Defense who raised investor funds for the company. The Commission also named May’s International Corporation, an entity controlled by Michael Lu, as a relief defendant based on its receipt of investor funds.
According to the Commission’s complaint, filed in the United States District Court for the District of Massachusetts, Bio Defense, which purports to develop, manufacture and sell a machine for combating the use of dangerous biological agents through the mails, and its principals began engaging in unregistered offers and sales of securities to investors in the United States by at least 2004 and, after attracting the attention of various domestic state regulators in 2008, began utilizing "boiler room" firms to assist in selling shares of Bio Defense securities to overseas investors primarily in the United Kingdom.
The Commission’s complaint alleges that, while making unregistered offers and sales of securities to US investors from at least 2004 through August 2008, Lu, Morrone, and Jurberg made false claims to investors that Bio Defense was not paying financial compensation to its employees and officers. The complaint further alleges that these individuals gave potential investors the false impression that Bio Defense preserved its cash assets by having employees who worked for no, or very little, pay, suggesting that these employees were working solely or primarily for "sweat equity" shares, which might later become valuable when the company became profitable or underwent an initial public offering of stock. In fact, Bio Defense’s largest expense during those years was the money it paid to Lu, Morrone, and Jurberg and other employees from funds raised from investors; in 2004 alone, Bio Defense paid approximately $1 million in compensation to its officers and employees.
The Commission’s complaint further alleges that, as Bio Defense began raising money overseas in August 2008, the defendants transformed the company into a deceptive and fraudulent device designed to enrich its principals while also paying as much as 75% of investor proceeds as commissions to its overseas boiler room fundraisers. From August 2008 through approximately July 2010, Bio Defense’s most substantial source of cash generation and most significant expense was not manufacturing and selling machines, but instead was its securities promotion and sales activities. Bio Defense and its representatives did not tell investors that 75% of funds received from them would be going straight to boiler room operators.
The Commission alleges that all defendants violated Section 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder; that Bio Defense, Lu, Morrone, Jurberg and Orth violated Sections 5(a) and 5(c) of the Securities Act; and that Lu, Morrone, Jurberg, Hamburger and Orth violated Section 15(a)(1) of the Exchange Act. The Commission also alleges, in the alternative, that Lu and Morrone are liable under Section 20(a) of the Exchange Act as control persons of Bio Defense for Bio Defense’s violations of Securities Act Section 17(a) and Exchange Act Section 10(b) and Rule 10b-5 thereunder. The SEC seeks in its action permanent injunctions, disgorgement plus prejudgment interest, civil penalties, and, against Lu, Morrone, Jurberg and Orth, officer and director bars.
The Commission acknowledges the assistance of the Massachusetts Securities Division, the UK Financial Services Authority and the City of London Police in this matter.
FROM: COMMODITY FUTURES TRADING COMMISSION
CFTC Seeks to Revoke Registrations of Linda Faye Harris and her companies, CDH Forex Investments, LLC and CDH Global Holdings, LLC
Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today filed a notice of intent to revoke the registrations of Linda Faye Harris, CDH Forex Investments, LLC (CDH Forex) and CDH Global Holdings, LLC (CDH Global), all of Flower Mound, Texas. CDH Forex is a registered Commodity Pool Operator and Commodity Trading Advisor; CDH Global is a registered Commodity Trading Advisor; and Harris is registered as an Associated Person and is the sole principal of CDH Forex. Harris was an Associated Person and principal of CDH Global.
The notice alleges that Harris, CDH Forex, and CDH Global are subject to statutory disqualification from CFTC registration based on an order of default judgment and permanent injunction entered by the U.S. District Court for the Northern District of Texas on June 12, 2012 (see CFTC News Release 6286-12 June 21, 2012). The order prohibits defendants from committing further fraud, among other violations. At the hearing held on June 12, 2012, Harris appeared and conceded all allegations in the complaint of violations of the Commodity Exchange Act, but contested only the amount of restitution and civil monetary penalty. The court found none of Harris’ arguments credible and entered the order as submitted by the CFTC. The order contains findings of fact and conclusions of law, which find, in relevant part, 1) that Harris fraudulently solicited at least $2.2 million from customers, out of which total trading losses and misappropriated funds equaled at least $1,361,897, and 2) made material false statements to pool participants. The order also finds that Harris provided false, fictitious, or fraudulent statements to the National Futures Association (NFA), including falsified trading account statements and falsified bank statements, to hide the ongoing fraud from NFA.
CFTC Division of Enforcement staff members responsible for this action are Nathan B. Ploener, Manal M. Sultan, Lenel Hickson, Jr., Stephen J. Obie, and Vincent A. McGonagle.
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