SEC CHARGES "MAN CAMP" OPERATOR FOR ALLEGEDLY DEFRAUDING INVESTORS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Litigation Release No. 23252 / May 6, 2015

Securities and Exchange Commission v. North Dakota Developments, LLC, Robert L. Gavin, and Daniel J. Hogan, et. al., Civil Action No. 4:15-cv-00053-DLH-CSM (D.N.D.)

SEC Halts Bakken Oil and Gas-Related Investment Scheme

The Securities and Exchange Commission today announced charges and an emergency asset freeze against North Dakota Developments, LLC ("NDD") and its two principals for allegedly defrauding investors in a scheme to purportedly build and operate short-term housing facilities or "man camps" for workers in the Bakken oil and gas formation of North Dakota and Montana.

The SEC alleges that NDD and its owners Robert L. Gavin and Daniel J. Hogan have raised over $62 million from hundreds of investors in various states in the U.S. and foreign countries for interests in one of four "man camp" projects. According to the SEC's complaint filed yesterday in U.S. District Court for the District of North Dakota, investors bought "units" in NDD's projects motivated by the Defendants' promises of exceptionally high annual returns, up to 42%, and that NDD would jointly manage all of the units as a fully-developed short-term housing facility with amenities typically found in a hotel. The SEC also alleges that the Defendants offered investors the option of receiving a "guaranteed" annual return of up to 25% of the purchase price of their unit without regard to actual rental income. As further inducement to invest, Defendants also promised investors that the various projects would be operational in a very short time frame, often within months. In reality, the SEC alleges, despite the substantial amount of funds raised by the Defendants since May 2012, at the present time, none of the projects are fully operational and one of the projects offered does not even have governmental approval for construction to begin.

According to the SEC's complaint, Defendants directly or indirectly made material misrepresentations and omissions regarding the use of investor funds, the payment of commissions, and the return on the investment. Among other things, the SEC alleges that NDD's first project was delayed and unprofitable. The SEC alleges that, despite the lack of profits, the Defendants made Ponzi-style payments to certain early investors by paying their "guaranteed" returns using funds provided by later investors. The SEC also alleges that instead of developing the projects as promised, the Defendants have misappropriated over $25 million of investor funds to pay undisclosed commissions to sales agents, make payments to Gavin and Hogan, make investments in unrelated Bakken area projects for Gavin's and Hogan's personal benefit, and to make the Ponzi-like payments.

On May 5, 2015, the Honorable Daniel L. Hovland for the U.S. District Court for the District of North Dakota granted the SEC's request for a temporary restraining order and asset freeze against NDD, Gavin, and Hogan. A court hearing has been scheduled for May 18, 2015, on the SEC's motion for a preliminary injunction.

The Commission's complaint alleges that NDD, Gavin, and Hogan violated Sections 5(a), 5(c), 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; and seeks preliminary and permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties against each of them.

The SEC's investigation has been conducted by Michael Cates, Anne Romero, and J. Lee Robinson of the Denver Regional Office, with supervision by Ian S. Karpel. The SEC appreciates the assistance of the North Dakota Securities Department.

CFTC CHARGES NEVADA-BASED COMPANY WITH MAKING ILLEGAL OFF-EXCHANGE PRECIOUS METALS TRANSACTIONS

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 

April 27, 2015

CFTC Charges Nevada-Based My Global Leverage, LLC and Toney Blondo Eggleston with Engaging in Illegal, Off-Exchange Precious Metals Transactions with Retail Customers

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) announced the filing of a civil injunctive enforcement action in the U.S. District Court for the District of Nevada against Defendants My Global Leverage, LLC (MGL) and its owner and managing member Toney Blondo Eggleston, who resides in Newport Coast, California. The CFTC Complaint charges the Defendants with engaging in illegal, off-exchange transactions in precious metals with retail customers on a leveraged, margined, or financed basis. The Complaint further alleges that Eggleston, as controlling person for MGL, is liable for MGL’s violations of the Commodity Exchange Act (CEA).

According to the Complaint, since at least July 16, 2011 and continuing through at least November 2012, MGL, by and through its employees including Eggleston, solicited retail customers by telephone to engage in leveraged, margined, or financed precious metals transactions. During that period, approximately 12 of MGL’s customers paid approximately $786,000 to MGL in connection with precious metals transactions, and MGL received commissions and fees totaling approximately $257,680 in connection with these precious metals transactions, according to the Complaint.

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

The Complaint further alleges that MGL executed the illegal precious metals transactions through Hunter Wise, LLC (Hunter Wise). The CFTC filed an enforcement action against Hunter Wise, among others, in December 2012, charging the defendants with engaging in illegal, off-exchange precious metals transactions, and charging Hunter Wise with fraud and other violations (see CFTC Press Releases 6447-12 and 6655-13).

On February 19, 2014, the court found that Hunter Wise had no actual metal to deliver to customers and held that Hunter Wise engaged in illegal precious metals transactions and was required to register as a Futures Commission Merchant but did not do so and therefore violated Sections 4(a) and 4d of the CEA (see CFTC v. Hunter Wise Commodities, LLC, et al., 12-81311 (Order on the Parties’ Motions for Summary Judgment)). On April 15, 2014, the U.S. Court of Appeals for the Eleventh Circuit affirmed the court’s issuance of a preliminary injunction and held that the CFTC’s jurisdiction under Section 2(c)(2)(D) of the CEA extends to the precious metals transactions at issue in the case and that no exception to the CFTC’s jurisdiction applied. And, on May 16, 2014, after a bench trial on the remaining claims, including fraud, the District Court entered an Order finding that Hunter Wise fraudulently misrepresented the nature of precious metals transactions that resulted in millions of dollars in customer losses (see CFTC Press Release 6935-14).

In its continuing litigation against MGL and Eggleston, the CFTC seeks disgorgement of ill-gotten gains, civil monetary penalties, permanent registration and trading bans, and a permanent injunction from future violations of the CEA, as charged.

CFTC Division of Enforcement staff members responsible for this action are Glenn Chernigoff, Michelle Bougas, Alison B. Wilson, and Rick Glaser.

CFTC CHARGES TELEPHONE SOLICITOR WITH ENGAGING IN ILLEGAL, OFF-EXCHANGE PRECIOUS METALS TRANSACTIONS

FROM:  U.S. COMMODITY FUTURES 

April 21, 2015

CFTC Charges Florida-Based Sentry Asset Group, LLC and its Owner, John Pakel, with Engaging in Illegal, Off-Exchange Precious Metals Transactions

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that it filed a civil enforcement action in the U.S. District Court for the Southern District of Florida against Defendants Sentry Asset Group, LLC (SAG) of Boca Raton, Florida, and its owner and manager, John Pakel of Del Ray, Florida. The CFTC Complaint charges the Defendants with engaging in illegal, off-exchange transactions in precious metals with retail customers on a leveraged, margined, or financed basis. The Complaint further alleges that as controlling person for SAG, Pakel is liable for SAG’s violations of the Commodity Exchange Act (CEA).

According to the Complaint, since at least March 2012 and continuing through at least July 2013, SAG, by and through its employees including Pakel, solicited retail customers by telephone to engage in leveraged, margined, or financed precious metals transactions. During the period, SAG’s customers paid more than $1.1 million to SAG in connection with precious metal transactions, and SAG received commissions and fees totaling $278,767 in connection with these precious metals transactions. In addition, the Complaint alleges that SAG accepted customer orders and funds and thus acted as a Futures Commission Merchant without registering with the CFTC as such.

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

The Order further finds that SAG and Pakel executed the illegal precious metals transactions through Lloyds Commodities, LLC (Lloyds), Hunter Wise, LLC (Hunter Wise), and AmeriFirst Management LLC (AmeriFirst). The CFTC filed enforcement actions against, among others, Lloyds and Hunter Wise in December 2012 and AmeriFirst in July 2013, charging each with engaging in illegal, off-exchange precious metals transactions, and charging AmeriFirst and Hunter Wise with fraud and other violations (see CFTC Press Releases 6447-12 and 6655-13).

On September 18, 2013, the court entered a consent Order resolving the Commission’s claims against AmeriFirst, finding it liable for illegal off-exchange precious metals transactions and fraud (see CFTC Press Release 6973-14).

On February 5, 2014, in a consent Order resolving the Commission’s claims against Lloyds, the court ordered Lloyds Commodities to pay over $5 million in restitution and penalties (see CFTC Press Release 6850-14).

On February 19, 2014, the court found that Hunter Wise had no actual metal to deliver to customers and held that Hunter Wise engaged in illegal precious metals transactions and was required to register as a Futures Commission Merchant but did not do so and therefore violated Sections 4(a) and 4d of the CEA (see CFTC v. Hunter Wise Commodities, LLC, et al., 12-81311-CIV (Order on the Parties’ Motions for Summary Judgment)). On April 15, 2014, the U.S. Court of Appeals for the Eleventh Circuit affirmed the court’s issuance of a preliminary injunction and held that the Commission’s jurisdiction under Section 2(c)(2)(D) of the CEA extends to the precious metals transactions at issue in the case and that no exception to the Commission’s jurisdiction applied. And, on May 16, 2014, after a bench trial on the remaining claims, including fraud, the court entered an Order finding that Hunter Wise fraudulently misrepresented the nature of precious metals transactions that resulted in millions of dollars in customer losses (see CFTC Press Release 6935-14).

In its continuing litigation against SAG and Pakel, the CFTC seeks disgorgement of ill-gotten gains, civil monetary penalties, permanent registration and trading bans, and a permanent injunction from future violations of the CEA, as charged.

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 Eugenia Vroustouris, Michael Loconte, James H. Holl, III, and Rick Glaser.

CFTC CHARGES MAN, COMPANIES WITH COMMODITY POOL FRAUD,

FROM:  U.S. COMMODITY FUTURES 

April 30, 2015

CFTC Charges North Carolina Resident Barry C. Taylor and His Companies with Commodity Pool Fraud in a Multi-Million Dollar Fraudulent Forex Scheme and with Registration Violations

Federal Court Enters Emergency Order Freezing Defendants’ Assets and Protecting Books and Records

Defendants’ Fraudulent Scheme Allegedly Solicited over $2.4 Million from Approximately 24 Members of the Public

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) filed a civil enforcement Complaint against Barry C. Taylor of Franklin, North Carolina, charging him with operating a multi-million dollar fraudulent scheme through his firms, OTC Investments LLC and Forex Currency Trade Advisors, LLC (collectively, Defendants). On April 22, 2015, Judge Martin Reidinger of the U.S. District Court for the Western District of North Carolina, Asheville Division entered an emergency restraining Order freezing Defendants’ assets and prohibiting the destruction or concealment of their books and records. None of the Defendants has ever been registered with the CFTC, as is required.

The CFTC Complaint, filed under seal on April 21, 2015, alleges that from at least August 1, 2011 through the present, the Defendants engaged in a fraudulent scheme that solicited more than $2.4 million from approximately 24 members of the public in North Carolina and other states within the United States and in Canada to participate in a commodity pool that traded leveraged or margined retail off-exchange foreign currency (forex) contracts.

The Complaint further alleges that Taylor misappropriated pool participant funds for personal and other business uses, and to conceal his fraudulent scheme and misappropriation. Also, as alleged, Taylor issued or caused to be issued false account statements to one or more pool participants to cover up his fraudulent scheme.

Taylor, among other things, allegedly made material misrepresentations and omissions to commodity pool participants that 1) Defendants were engaged in profitable forex trading and 2) failed to disclose that Defendants traded only a portion of pool participant funds and misappropriated the remainder through a combination of personal expenditures and partial distributions of diminishing commodity pool funds to pool participants to lull and deceive them.

The Complaint also charges that the Defendants used pool participant funds to pay purported trading profits and supposedly returned pool participants’ principal in the manner of a Ponzi scheme.

In its continuing litigation, the CFTC seeks a return of ill-gotten gains, restitution, civil monetary penalties, trading and registration bans, and permanent injunctions against further violations of the federal commodities laws, as charged.

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.

The CFTC appreciates the assistance of the U.S. Attorney's Office for the Western District of North Carolina and the Federal Bureau of Investigation.

CFTC Division of Enforcement staff members responsible for this case are JonMarc P. Buffa, Peter M. Haas, Patricia A. Gomersall, Tashieka Taylor, and Paul G. Hayeck.

SEC.gov | Statement at the Inaugural Meeting of the Market Structure Advisory Committee

SEC.gov | Statement at the Inaugural Meeting of the Market Structure Advisory Committee

TWO CHARGED BY SEC FOR INSIDER TRADING CHINESE INTERNET COMPANY

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 23249 / April 29, 2015

Securities and Exchange Commission v. Xiaoyu Xia and Yanting Hu, Civil Action No. 15-CV-3320

SEC Charges Two with Insider Trading On Chinese Internet Company 58.Com Merger News

The Securities and Exchange Commission today announced insider trading charges and an emergency asset freeze based on trading prior to the announcement of a merger between two Chinese e-commerce companies, 58.com and ganji.com. When the merger was reported on April 14, 2015, the share price of 58.com increased by more than a third, and trading volume increased more than twenty-fold.

The SEC alleges that Dr. Xiaoyu Xia and Ms. Yanting Hu, residents of Beijing, China, each purchased out-of-the-money call options in 58.com in the time period between when 58.com, ganji.com, and 58.com's largest shareholder, Tencent Holdings, agreed to the merger and when the merger was first reported on April 14, 2015. The defendants each traded through U.S. brokerage accounts and their purchase of speculative, out-of-the-money call options in 58.com resulted in combined realized and unrealized profits totaling over $2 million. Defendants are both connected to the financial industry in China.

The United States District Court for the Southern District of New York granted the SEC's request for an asset freeze against monies held in Xia and Hu's United States brokerage accounts, and issued an order to show cause why an injunction and other miscellaneous relief should not issue. A hearing has been scheduled for May 6, 2015.

The SEC's complaint charges the defendants with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The SEC seeks permanent injunctions, disgorgement, civil money penalties, and other relief.

The SEC's investigation, which is continuing, has been conducted by L. James Lyman and Jeffrey D. Felder of the Denver Regional Office, with supervision by Ian S. Karpel. The SEC's litigation is led by Dugan Bliss with supervision by Gregory Kasper.