SEC CHARGES BROKER WITH STEALING FROM ACCOUNTS

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION 

SEC Charges California-Based Broker with Stealing Money from Accounts

AUGUST 4, 2014

The Securities and Exchange Commission charged a California-based broker with stealing $4.4 million from two trust brokerage accounts at his firm and diverting it to a pair of friends for uses ranging from gambling to chartering a private jet.

The SEC alleges that John T. Thornes of Redlands, Calif., formerly the sole owner of Thornes & Associates, Inc., diverted funds out of a brokerage account for a trust established for the health and welfare of an 80-year-old dementia patient who has been living at home for several years with 24-hour nurse care. Thornes also siphoned money out of a brokerage account for a trust set up to fund college scholarships for local high school graduates.

According to the SEC's complaint filed in U.S. District Court for the Central District of California, Thornes stole money from the two accounts from November 2010 to April 2013 primarily to benefit two of his friends, Christopher Burnell of Highland, Calif., and Kyle Larick of Redlands, Calif. Thornes has tried to pass off the payouts as loans, however there were no loan documents, no stated interest, and no collateral for the funds given. None of the money was ever repaid.

The SEC alleges that Thornes deceived his own mother with respect to the educational trust. She served as trustee, and he periodically asked her to sign blank checks that he then used in his misappropriation scheme. Thornes never informed his mother about trades he made, and he converted the brokerage account to a margin account even though it was designated as a low or minimal-risk tolerance account. He used the margin debt in his scheme and later sold securities from those accounts to avoid the margin calls. Thornes did the same thing with the brokerage account for the elderly dementia patient.

According to the SEC's complaint, after Thornes liberally transferred money from the brokerage accounts to his friends, they used it to charter a private jet, buy a luxury car, and purchase a vacation home. Burnell also used the funds to gamble at a nearby casino or pay gambling debts. Thornes paid his mother about $84,000 in excess trustee fees.

Thornes has agreed to settle the charges and consented to the entry of a final judgment ordering him to pay disgorgement of $4,366,790, prejudgment interest of $278,540, and a penalty of $4,366,790. Without admitting or denying the SEC's allegations, he agreed to be permanently enjoined from future violations of Section 17(a) of the Securities Act of 1933 as well as Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. Thornes also has agreed to consent to a collateral industry bar and a penny stock bar.

The SEC's complaint also names Thornes' friends Burnell and Larick as well as his mother Doreen Thornes as relief defendants for the purposes of recovering any illicit funds in their possession.

The SEC's investigation was conducted by John Britt of the Los Angeles Regional Office. The litigation will be led by David Van Havermaat. The SEC appreciates the assistance of the Financial Industry Regulatory Authority, Internal Revenue Service, and Secret Service.

CFTC CHARGES COMPANY AND OWNER WITH COMMODITY POOL FRAUD

FROM:  COMMODITY FUTURES TRADING COMMISSION 

CFTC Charges North Carolina Resident Edwin A. Vasquez and His Company Vasquez Global Investments, LLC with Commodity Pool Fraud

Court Grants Restraining Order Freezing Defendants’ Assets and Protecting Books and Records

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced the filing of an enforcement action in the U.S. District Court for the Western District of North Carolina on July 30, 2014, charging Defendants Edwin A. Vasquez of Arden, North Carolina, and Vasquez Global Investments, LLC (VGI), a North Carolina company, with misappropriation, solicitation fraud, and issuing false statements in connection with the operation of an unregistered commodity trading pool.

On August 1, 2014, Federal District Judge Martin Reidinger issued a restraining Order that freezes Vasquez’s and VGI’s assets, protects books and records, and schedules a hearing on August 15, 2014, to consider the CFTC’s request that the court preliminarily enjoin Vasquez and VGI from future violations of the federal commodity laws, as alleged.

According to the CFTC Complaint, beginning in August 2011, Vasquez, acting individually and through VGI, defrauded and deceived at least 19 participants who invested at least $583,491 in a commodity pool commonly known as the VGI pool.

Specifically, the Complaint alleges that Vasquez told prospective pool participants that he was a successful trader and that the VGI pool was a “no risk” investment.  The Complaint further alleges that, of the $583,491 solicited and accepted from pool participants, Vasquez and VGI lost $65,374 trading commodity futures and returned $186,561 to pool participants as purported profits in the manner of a Ponzi scheme. In addition, Vasquez and VGI allegedly misappropriated the remaining $331,556 by using those funds to pay for VGI’s operating costs and for Vasquez’s personal expenses, including travel, restaurants, rent, cash withdrawals, and retail purchases.

Vasquez did not disclose his trading losses and misappropriation and, instead, issued false statements to the pool participants regarding the profitability and value of their shares of the pool, according to the Complaint. Vasquez and VGI are also charged with commingling pool participant funds and with registration violations.

In its continuing litigation against the Defendants, the CFTC seeks a civil monetary penalty, payment of restitution of losses to customers, disgorgement of ill-gotten gains, trading and registration bans, and preliminary and permanent injunctions against further violations of the federal commodities laws, as charged.

The CFTC appreciates the assistance of the North Carolina Department of the Secretary of State, Securities Division.

The CFTC Division of Enforcement staff members responsible for this case are Elizabeth N. Pendleton, Joseph Patrick, Scott Williamson, and Rosemary Hollinger.

Statement on Favorable Jury Verdict Against Investment Adviser

Statement on Favorable Jury Verdict Against Investment Adviser

COURT ORDERS MAN AND HIS COMPANY TO PAY OVER $500,000 FOR OFF-EXCHANGE PRECIOUS METALS TRANSACTIONS

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 

Federal Court Orders Florida Resident Lawrence Scott Spain and His Florida Company, Palm Beach Capital LLC, to Pay More than $520,000 in Restitution for Engaging in Illegal, Off-Exchange Precious Metals Transactions

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that on August 4, 2014, Judge Beth Bloom of the U.S. District Court for the Southern District of Florida entered a Consent Order for Permanent Injunction against Florida resident Lawrence Scott Spain and his company, Palm Beach Capital LLC (PBC) (the Defendants), for engaging in illegal, off-exchange precious metals transactions. The Order requires the Defendants, jointly and severally, to pay restitution of $526,960; imposes permanent trading, solicitation and registration bans against them; and prohibits them from engaging in illegal, off-exchange retail commodity transactions, as charged. Spain’s last known address was in Boca Raton, Florida.

The court’s Order stems from a CFTC Complaint filed on May 13, 2014, that charged the Defendants with engaging in illegal, off-exchange transactions in precious metals with retail customers on a leveraged, margined, or financed basis (see CFTC Press Release and Complaint 6931-14). The Complaint further alleged that Spain, as controlling person for PBC, is liable for PBC’s violations of the Commodity Exchange Act.

The Order provides that Melanie Damian, Esq. is responsible for collecting restitution and making any distributions to PBC’s customers. Ms. Damian was appointed by the U.S. District Court for the Southern District of Florida as Special Monitor, Corporate Manager and Equity Receiver in the CFTC’s enforcement action against, among others, Lloyds Commodities, LLC and certain of its associated entities (referred to collectively as Lloyds Commodities) and Hunter Wise Commodities, LLC and certain of its associated entities (referred to collectively as Hunter Wise) (see CFTC Press Releases 6447-12, December 12, 2012 and 6935-14, May 22, 2014). The Order finds that PBC transacted the illegal precious metals transactions through Lloyds Commodities and Hunter Wise.

The Order further finds that, since at least July 16, 2011 and continuing through at least August 2012, PBC, by and through its employees including Spain, solicited retail customers by telephone and on PBC’s website, to engage in off-exchange leveraged, margined, or financed precious metals (including gold, silver, platinum and palladium) transactions. During that period, according to the Order, approximately 39 of PBC’s customers paid at least $1.35 million to PBC in connection with precious metals transactions. The Order finds that these customers lost at least $1.25 million of their funds to trading losses, commissions, fees, and other charges by PBC and other companies, and that PBC received commissions and fees totaling $526,960 in connection with these precious metals transactions.

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, leveraged, margined, or financed transactions such as those conducted by PBC, are illegal off-exchange transactions unless they result in actual delivery of the commodity involved within 28 days. The Order finds that metals were never actually delivered in connection with the leveraged, margined, or financed precious metals transactions made on behalf of PBC’s customers.

The CFTC cautions victims that restitution orders may not result in the recovery of money lost because the wrongdoers may not have sufficient funds or assets. The CFTC will continue to fight vigorously for the protection of customers and to ensure the wrongdoers are held accountable.

CFTC Division of Enforcement staff members responsible for this action are R. Stephen Painter, Jr., Michael C. McLaughlin, David W. MacGregor, Lenel Hickson, Jr., and Manal M. Sultan.

SEC CHARGES BROKERAGE FIRM, FOUNDER WITH VIOLATING NET CAPITAL REQUIREMENTS SAND FALSIFYING BOOKS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission announced charges against a New York-based brokerage firm and its founder for allegedly violating net capital requirements and falsifying books and records to conceal the capital deficiencies.

The SEC’s Division of Enforcement alleges that Charles “Chuck” Moore and Crucible Capital Group attempted to disguise the firm’s extensive and repeated net capital insufficiency by improperly off-loading its liabilities onto the books of an affiliated firm and improperly treating non-marketable stock as an allowable asset.  Moore went so far as to try to hide Crucible’s true financial condition from SEC examiners by providing them doctored invoices that sought to mask the extent of those liabilities.  But SEC examiners and investigators successfully detected that the documents had been fabricated, and referred the matter to criminal authorities for prosecution.

The U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against Moore for obstructing the SEC’s examination.

“Moore attempted to mislead SEC examiners by giving them documents he intentionally falsified in an effort to hide Crucible’s severe capital insufficiency,” said Andrew Ceresney, director of the SEC’s Division of Enforcement.  “We will continue to work with our law enforcement partners to pursue parties that try to obstruct or delay the SEC’s critical work in overseeing broker-dealers and other regulated entities.”

According to the SEC’s order instituting administrative proceedings against Crucible and Moore, Crucible entered into an expense-sharing agreement with another firm called Angelic Holdings that also was wholly owned by Moore.  Under the agreement, Angelic was obligated to pay Crucible’s expenses, so Moore had Crucible’s vendors bill Angelic for the services they performed for Crucible.  When SEC examiners asked for documents concerning Angelic’s liabilities, Moore arranged to provide the examiners with copies of invoices that had been doctored to eliminate significant past due amounts. 

The SEC’s Division of Enforcement alleges that Moore knew that the expense-sharing agreement was illegitimate because Angelic did not have the resources to pay the debts to the vendors.  And Moore knew that if those liabilities were properly attributed to Crucible, then SEC examiners would learn that Crucible had failed to meet its required minimum net capital over a 10-month period from December 2012 to September 2013

“The net capital rule is a principal tool by which the SEC monitors the financial health of brokerage firms,” said Amelia A. Cottrell, an associate director in the SEC’s New York Regional Office.  “It is therefore crucial that SEC examiners have prompt access to accurate and complete information about a firm’s financial condition.”

The SEC’s Division of Enforcement alleges that Crucible violated the net capital rule: Section 15(c)(3) of the Securities Exchange Act of 1934 and Rule 15c3-1.  Crucible also allegedly violated Section 17(a)(1) of the Exchange Act and Rules 17a-3(a)(11), 17a-4(b)(3), 17a-4(j),17a-5(a), and 17a-11(b)(1) by failing to maintain and keep accurate records of its aggregate indebtedness and net capital, notify the SEC of its net capital deficiency, file accurate Financial and Operational Combined Uniform Single (FOCUS) reports, and provide the examiners with accurate copies of records evidencing its expenses.  Moore is alleged to have aided and abetted and caused each of these violations.  The administrative proceedings will determine what, if any, remedial action or financial penalties are appropriate in the public interest against Crucible and Moore.

The SEC’s examination of Crucible was conducted by Christine Bove, William Ostrow, Yvette Panetta, and Linda Lettieri in the New York office’s broker-dealer inspection program.  The investigation was conducted by Leslie Kazon and John O. Enright, and supervised by Ms. Cottrell.  The Enforcement Division’s litigation will be led by Kevin McGrath and Mr. Enright.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York, the Federal Bureau of Investigation, and the U.S. Postal Inspection Service.

Statement on Jury Verdict in Florida Federal Court Following Trial Against Orchestrator of Pump-and-Dump Scheme

Statement on Jury Verdict in Florida Federal Court Following Trial Against Orchestrator of Pump-and-Dump Scheme