CFTC CHARGES FIRM AND OWNERS WITH MARKETING ILLEGAL, OFF-EXCHANGE FINANCED COMMODITY TRANSACTIONS

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 

CFTC Charges Florida-Based AmeriFirst Management LLC and Its Owners, John P. D’Onofrio, George E. Sarafianos, and Scott D. Piccininni, in Multi-Million Dollar Fraudulent Precious Metals Scheme

CFTC alleges that the Defendants engaged in illegal, off-exchange commodity transactions and deceived retail customers regarding financed precious metals transactions

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that it filed a civil injunctive enforcement action in the U.S. District Court for the Southern District of Florida against AmeriFirst Management LLC (AML) of Fort Lauderdale, Florida, and its owners, John P. D’Onofrio of Fort Lauderdale, George E. Sarafianos of Lighthouse Point, Florida, and Scott D. Piccininni of Fort Lauderdale.  The CFTC Complaint charges the Defendants with operating a precious metals scheme where the Defendants marketed illegal, off-exchange financed commodity transactions and fraudulently misrepresented the nature of those transactions.

According to the Complaint, filed on July 29, 2013, AML held itself out as a precious metals wholesaler and clearing firm, operating through a network of more than 30 precious metals dealers. As alleged, these dealers solicited retail customers to invest in financed precious metals transactions, where a customer gave a percentage deposit of the total value of the metal, typically 20%, and the dealer supposedly made a loan to the customer for the remaining 80%, supposedly sold the customer the total metal amount, and supposedly allocated the total metal amount at a depository to be held for the customer.

The Complaint alleges that AML created customer documents that represented that the dealer had in fact made such a loan and sold and allocated the total metal amount to the customer. However, these documents were false because the dealer never made a loan to the customer, nor did the dealer sell or allocate any metal to the customer, according to the Complaint. Further, the Complaint alleges that although there was no loan and no metal was allocated to the customer, AML charged the customer finance and storage fees.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 expanded the CFTC’s jurisdiction over transactions like these and requires that such transactions be executed on or subject to the rules of a board of trade, exchange, or commodity market, according to the Complaint. This new requirement took effect on July 16, 2011. The Complaint alleges that all of the Defendants’ financed commodity transactions took place after this date and were illegal. The Complaint also alleges that the Defendants defrauded customers in these financed commodity transactions.

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

The CFTC Division of Enforcement staff responsible for this action are David Chu, Mary Beth Spear, Eugene Smith, Patricia Gomersall, Ava Gould, Scott Williamson, Rosemary Hollinger, and Richard Wagner.

CFTC ORDERS MAN AND COMPANIES TO PAY RESTITUTION AND PENALTY IN FRAUDULENT TRANSACTIONS IN PRECIOUS METALS

FROM:  COMMODITY FUTURES TRADING COMMISSION

CFTC Orders William J. Hionas and his Florida Firms, Pan American Metals of Miami and Pan American Metals of Miami Beach, to Pay Approximately $4.7 Million in Restitution and a Monetary Penalty for Fraudulent Off-Exchange Transactions in Precious Metals

Washington DC – The U.S. Commodity Futures Trading Commission (CFTC) today issued an Order filing and settling charges against two Miami, Florida, companies, Pan American Metals of Miami, LLC and Pan American Metals of Miami Beach, Inc. (together, the Pan American Companies), and their owner and principal, William J. Hionas, for engaging in illegal, fraudulent off-exchange financed transactions in precious metals with retail customers.  The Pan American Companies are based in Miami Beach, Florida, and Hionas resides in Sunny Isles, Florida. Neither has ever been registered with the CFTC.

The CFTC Order, filed on July 29, 2013, requires Hionas and the Pan American Companies jointly to pay restitution of approximately $3.2 million to defrauded customers and a $1.5 million civil monetary penalty. The Order also imposes permanent trading and registration bans against Hionas and the Pan American Companies and permanently prohibits them from further violations of federal commodities law, as charged.

The Order finds that, from July 2011 to at least April 2012, the Pan American Companies fraudulently solicited and accepted more than $4.7 million from retail public customers throughout the United States and Canada to engage in illegal off-exchange financed transactions in gold, silver, platinum, and palladium, in which a retail customer purportedly purchases physical commodities and pays just a portion of the purchase price.

Specifically, the Order finds that the Pan American Companies falsely claimed to (1) sell and transfer ownership of physical metals to customers, (2) provide loans to customers to purchase the physical metals, and (3) arrange for storage and store customers’ physical metals in independent depositories. In fact, the Order finds that in their retail financed transactions, the Pan American Companies did not sell or transfer ownership of any physical metals, did not disburse any funds as loans, and did not store physical metals in any depositories for or on behalf of customers.

The Order also finds that the Pan American Companies defrauded customers and potential customers by misrepresenting and failing to disclose material facts relating to (1) their experience and expertise dealing in retail financed transactions, (2) actual trading results other customers had achieved, and (3) the profit potential and risks associated with engaging in off-exchange metals transactions on a financed basis, among other things.

The Order finds that 180 of the 189 Pan American Companies’ customers lost money, with much of the approximate $3.2 million they lost going to pay commissions and fees to the Pan American Companies, which totaled over $1.68 million – equivalent to approximately 35 percent of the more than $4.7 million accepted from customers.

The Order further finds that Pan American Metals of Miami (PAMOM) provided customers a risk disclosure document stating that “[f]inancing precious metal trading is not an appropriate investment for retirement funds”; however, PAMOM solicited at least 46 individuals over 65 years of age, four over 90 years old, and one was solicited while in hospice care.

The CFTC Order states that such financed off-exchange transactions with retail customers have been illegal since July 16, 2011, when certain amendments of the Dodd-Frank Wall Street and Consumer Protection Act of 2010 (Dodd-Frank Act) became effective.  As explained in the Order, financed transactions in commodities with retail customers like those engaged in by the Pan American Companies must be executed on, or subject to, the rules of an exchange approved by the CFTC.  Since the Pan American Companies’ transactions were done off-exchange with retail customers, they were illegal.

Furthermore, the CFTC Order states that when the Pan American Companies engaged in these illegal transactions they were acting for Hunter Wise Commodities, LLC, which the CFTC charged with fraud and other violations in federal court in Florida on December 5, 2012 (see CFTC Press Release 6447-12).

CFTC’s Precious Metals Fraud Advisory

In January 2012, the CFTC issued a Precious Metals Consumer Fraud Advisory to alert customers to precious metals fraud. The Advisory stated that the CFTC had seen an increase in the number of companies offering customers the opportunity to buy or invest in precious metals. The CFTC’s Advisory specifically warns that frequently companies do not purchase any physical metals for the customer, but instead simply keep the customer’s funds. The Advisory further cautions consumers that leveraged commodity transactions are unlawful unless executed on a regulated exchange.

CFTC Division of Enforcement staff members responsible for this case are Robert Howell, Joseph Patrick, Susan Gradman, Scott Williamson, Rosemary Hollinger, and Richard Wagner.

SEC CHARGES INVESTOR RELATIONS EXECUTIVE WITH INSIDER TRADING IN CLIENT STOCKS

FROM:  SECURITIES AND EXCHANGE COMMISSION 
SEC Charges Houston-Based Investor Relations Executive with Insider Trading in Stocks of Clients

The Securities and Exchange Commission today charged the former CEO of a Houston-based investor relations firm with insider trading in the securities of multiple firm clients.

The SEC alleges that Stephen B. Gray obtained confidential information about the companies while the firm assisted them with drafting and publishing press releases to announce quarterly and annual earnings, mergers and acquisitions, and other major events. Gray then traded on the basis of that material, non-public information for profits and avoided losses of more than $313,000 during a 13-month period. Gray disregarded the firm's standard agreements with clients to protect confidential information and use it solely for business purposes, and he also flouted the firm's "statement of policy regarding securities trades" that prohibited trading by firm personnel when in possession of non-public information about clients. Gray was fired last October after the firm learned about the SEC's investigation.

According to the SEC's complaint filed in federal court in Houston, Gray illegally traded in the securities of at least six firm clients. Employees often asked Gray for advice on press releases based on his status as the firm's CEO as well as his experience as a former CEO of a public company. Gray also asked employees about forthcoming material transactions or announcements before they became public, and he sometimes met directly with clients to discuss confidential information with them. Gray also helped maintain the firm's shared computer network drive, which included drafts and final versions of all relevant press releases.

According to the SEC's complaint, Gray opened his only trading account in September 2009 and borrowed funds from his life insurance policy to fund his trading activity. Despite the firm's policies, the overwhelming majority of Gray's trades involved securities of the firm clients, and he did not disclose his trades or his intention to trade to the firm or clients. At first, Gray primarily traded in the common stock of firm clients, sometimes holding the securities for months at a time but on other occasions compiling shares immediately before a major announcement. For example, on May 5, 2011, The Men's Wearhouse issued a press release announcing higher than expected earnings per share for its quarter ending April 30. Its stock price increased 16 percent upon this news. While in possession of material non-public information about Men's Warehouse about the impending announcement, Gray made an electronic calendar appointment for himself on April 29 with the subject: "Buy MW stock ahead of early June earnings release." On April 30, Gray created another appointment with the subject: "Buy MW stock??" On May 3 and 4, he purchased 4,323 shares of Men's Warehouse stock. Gray sold his shares on May 5 after the announcement for an illegal profit of $17,397.

According to the SEC's complaint, later that same year Gray began engaging in more risky and lucrative short-term options trades in which profits were facilitated by his knowledge of inside information. In several instances, Gray purchased very short-term call and put options contracts. For instance, Gray's firm worked with Powell Industries on drafting a press release in late 2011 to announce that its financial statements for the second and third quarters would be restated. Based on this material, non-public information, Gray purchased 15,000 Powell put options between October 18 and November 3. All of these options had the shortest term available. After Powell issued the press release on November 8, its stock price declined by 22 percent. Gray immediately sold his options for a profit of $82,570.

The SEC's complaint charges Gray with violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and seeks a final judgment ordering him to disgorge all of his ill-gotten gains with prejudgment interest and pay financial penalties. The complaint also seeks permanent injunctive relief.

PRELIMINARY INJUNCTION OBTAINED IN BINARY OPTIONS CASE

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
SEC Obtains Preliminary Injunction in Binary Options Case

The U.S. Securities and Exchange Commission announced that on July 30, 2013, the U.S. District Court for the District of Nevada issued an order granting a preliminary injunction and other relief against Banc de Binary Ltd., a Cyprus-based company that operates an online binary options trading platform.

The Commission's complaint, filed on June 5, 2013, alleges that Banc de Binary has been offering and selling binary options to investors across the U.S. without first registering the securities as required under the federal securities laws. The company has broadly solicited U.S customers by advertising through YouTube videos, spam e-mails, and other Internet-based advertising; and Banc de Binary representatives have communicated with investors directly by phone, e-mail, and instant messenger chats. Banc de Binary also has allegedly been acting as a broker when offering and selling these securities, but failed to register with the SEC as a broker as required under U.S. law.

At the SEC’s request, the Court issued an Order preliminarily enjoining Banc de Binary from offering or selling unregistered securities in violation of Section 5 of the Securities Act of 1933 and acting as an unregistered broker-dealer in violation of Section 15(b) of the Securities Exchange Act of 1934. In its Order, the Court concluded that binary options are “securities” subject to regulation by the Commission.

SEC CHARGES FORMER PORTFOLIO MANAGER WITH INSIDER TRADING

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
SEC Charges Former Portfolio Manager At S.A.C. Capital with Insider Trading

On July 25, 2013, the Securities and Exchange Commission charged a former portfolio manager at S.A.C. Capital Advisors with insider trading ahead of major announcements by technology companies.

The SEC alleges that Richard Lee's illegal trading based on nonpublic information he received from sources with connections to insiders at the technology companies enabled the S.A.C. Capital hedge fund that he managed to generate more than $1.5 million in illegal profits. Lee also made trades in his personal account. The insider trading occurred ahead of public announcements about a Microsoft-Yahoo partnership and the acquisition of 3Com Corporation by Hewlett-Packard.

In a separate action, the U.S. Attorney's Office for the Southern District of New York today announced criminal charges against Lee, who lives in Chicago.

According to the SEC's complaint filed in U.S. District Court for the Southern District of New York, Lee received inside information in July 2009 from a sell-side analyst familiar with nonpublic negotiations between Microsoft and Yahoo to enter into an Internet search engine partnership. Lee learned that the negotiations, previously the subject of market rumors, were moving forward and a deal could be finalized in the next two weeks. The analyst told Lee that the confidential information came from a close personal friend who worked at Microsoft. Lee thanked the analyst for the "very specific information" and promptly purchased hundreds of thousands of shares of Yahoo stock in a portfolio that he managed on behalf of S.A.C. Capital. Lee also purchased shares of Yahoo stock in his personal trading account. When the imminent deal was reported in the press almost a week later, Yahoo's stock price rose approximately four percent on the news and S.A.C. Capital and Lee reaped substantial profits.

The SEC further alleges that Lee received highly confidential information about 3Com from a Beijing-based consultant who he knew had close personal ties with executives at the company. When his source tipped him on Nov. 11, 2009, that 3Com was on the verge of being acquired by Hewlett-Packard, Lee quickly purchased several hundred thousand shares of 3Com stock for the S.A.C. Capital hedge fund. On the basis of the nonpublic information, Lee amassed the sizeable 3Com position just minutes before Hewlett-Packard announced it agreed to acquire 3Com for $2.7 billion. The price of 3Com stock jumped more than 30 percent the next day, and the S.A.C. Capital hedge fund reaped substantial illicit profits as a result of Lee's illegal trades.

The SEC's complaint charges Lee with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The complaint seeks a final judgment ordering Lee to pay disgorgement of his ill-gotten gains plus prejudgment interest and financial penalties, and permanently enjoining him from future violations of these provisions of the federal securities laws.

INVESTMENT FRAUDSTER GETS 20 YEARS IN PRISON

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

Minneapolis-Based Fraudster Patrick Joseph Kiley Sentenced to 20 Years in Priso
The Securities and Exchange Commission announced that on July 15, 2013, the Honorable Chief Judge Michael J. Davis of the United States District Court for the District of Minnesota sentenced Patrick J. Kiley to 20 years in prison and ordered him to pay $155 million in restitution.  The sentence was based on Kiley’s conviction on 15 criminal counts including mail and wire fraud, conspiracy to commit mail and wire fraud, and money laundering for his role in a $194 million foreign currency trading scheme that defrauded approximately 1,000 investors.  Kiley was charged on July 19, 2011, and a jury found him guilty on June 12, 2012.

Kiley is one of the defendants in a pending civil injunctive action filed by the Commission on November 23, 2009 in the United States District Court for the District of Minnesota.  The Commission’s action against Kiley arose out of the same facts that are the subject of the criminal case against him.

The Commission’s complaint alleges that from at least July 2006 through at least July 2009, Kiley and co-defendant Trevor G. Cook of Minneapolis, Minnesota, raised at least $190 million (later determined to be $194 million) from 1,000 investors through the unregistered offer and sale of investments in a purported foreign currency trading venture.  According to the Commission’s complaint, Cook and Kiley pooled investors’ funds in bank and trading accounts in the names of entities they controlled.  The Commission’s complaint alleges that the foreign currency trading they conducted resulted in millions of dollars in losses, and they misused approximately one half of the investor funds to make Ponzi-like payments to earlier investors and pay for, among other things, Cook's gambling losses and the purchase of the historic Van Dusen Mansion in Minneapolis.

The Commission’s complaint charges Cook and Kiley with violating Sections 5 and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.  On November 23, 2009, the Court entered a preliminary injunction order against Cook and Kiley and froze all of their assets.  On March 7, 2011, the Commission also filed a civil complaint in the U.S. District Court in Minneapolis against Jason Bo-Alan Beckman and his registered investment advisory firm Oxford Private Client Group, LLC, for their roles in this scheme.  On August 27, 2010, the Court entered an order of permanent injunction against Cook.  The Court also appointed a receiver to marshal and preserve all of the Defendants’ assets