Photo Crdit: U.S. Marshals Service
FROM: U.S. COMMODITY FUTURES TRADING COMMISSION
CFTC Charges Floridian Christopher Smithers with Fraud in Connection with Commodity-Related Activities and Violations of a Federal Court’s Prior Orders
Smithers allegedly defrauded customers in trading commodity futures contracts and in the purchase of gold bullion
Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that it filed a federal civil enforcement action in the U.S. District Court for the Southern District of Florida charging Christopher Smithers of Jupiter, Florida, with fraud in connection with his commodity-related activities in violation of the Commodity Exchange Act (CEA) and CFTC regulations. The CFTC complaint also charges Smithers with violating two prior U.S. District Court orders that, among other things, permanently prohibited Smithers from engaging in any commodity-related activities.
According to the complaint, filed on October 22, 2012, from at least October 2008 to March 2009, Smithers committed fraud by misrepresenting to customers that his commodity futures trading was profitable when it actually resulted in losses of $220,000. From June 22, 2011 through November 2011, Smithers allegedly falsely represented to various futures commission merchants the identity of the person who opened and controlled commodity trading accounts. Smithers made such misrepresentations to circumvent prior U.S. District Court orders that prohibited him from trading commodity futures contracts, according to the complaint.
The complaint also alleges that in 2011 Smithers misappropriated $162,980 of a customer’s funds that were provided to him for the purchase of gold bullion and that he used the funds for personal expenditures. Finally, during 2011, Smithers fraudulently solicited a customer for funds with which to trade commodity futures, according to the complaint.
The complaint alleges that Smithers’ commodity futures trading was in violation of two previous U.S. District Court for the Southern District of Florida orders of permanent injunction entered against him in CFTC v. Matrix Trading Group., Inc., David Weeden, and Christopher Smithers, Civil Action No. 00-8880-CIV-ZLOCH (S.D. Fla. Oct. 3, 2002) and CFTC v. Christopher Smithers, Prosperity Consultants, Inc., and Jack Smithers, Case No. 05-80592-CIV-Hurley (S.D. Fla. Nov. 6, 2006).
The CFTC complaint seeks civil monetary penalties and injunctive relief against Smithers.
CFTC Division of Enforcement staff responsible for this case are Harry E. Wedewer, Dmitriy Vilenskiy, Danielle E. Karst, John Einstman, Paul G. Hayeck, and Joan M. Manley.
FROM: U.S. COMMODITY FUTURES TRADING COMMISSION,
Federal Court Orders Robert A. Christy and His Company, Crabapple Capital Group LLC, to Pay over $2.6 Million in Monetary Sanctions for Foreign Currency Fraud
Court permanently bars defendants from commodities industry
Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that it obtained a federal court order requiring defendants Robert A. Christy of Milton, Ga., and his company, Crabapple Capital Group LLC (Crabapple) of Alpharetta, Ga., to pay over $2.6 million in monetary sanctions for foreign currency (forex) fraud.
Specifically, the order requires the defendants to pay a $1,541,882 civil monetary penalty and $1,099,598 in restitution to settle CFTC charges that they operated a forex commodity pool fraud, misappropriated customer funds, and made false statements to the National Futures Association (NFA). The order also imposes permanent trading and registration bans against the defendants and permanently prohibits them from violating the Commodity Exchange Act and CFTC regulations, as charged.
The order, filed on October 16, 2012, by Judge Richard W. Story of the U.S. District Court for the Northern District of Georgia, stems from a CFTC anti-fraud enforcement action filed against Christy and Crabapple on April 19, 2012 (see CFTC Press Release 6242-12, April 25, 2012).
The order finds that, from at least October 2008 through April 2012, the defendants defrauded 22 individuals who contributed $1,416,000 to an investment pool operated by Crabapple to trade forex. In the course of soliciting investors, according to the order, the defendants’ statements to pool participants regarding the defendants’ forex trading performance were completely false. Christy misrepresented Crabapple’s trading performance history and experience and advertised regular monthly trading profits when, in fact, Crabapple had experienced consistent and significant losses, the order finds.
The order also finds that the defendants misappropriated most of the pool participants’ money. Christy treated Crabapple’s checking account as his personal piggy bank, using the money in the account for a variety of personal, business, and marketing expenses, even though the defendants told pool participants that their contributions would be used to trade forex, according to the order.
The defendants concealed their fraud by preparing and distributing false monthly account statements to pool participants and by making false statements and submitting false accounting records to the NFA in the course of an NFA examination, the order finds.
The CFTC appreciates the assistance of the U.S. Attorney’s Office for the Northern District of Georgia and the NFA.
CFTC Division of Enforcement staff responsible for this case are Jo Mettenburg, Thomas Simek, Stephen Turley, Charles Marvine, Rick Glaser, and Richard Wagner.
FROM: COMMODITY FUTURES TRADING COMMISSION,
CFTC Orders Morgan Stanley Smith Barney LLC to Pay $200,000 for Supervision Violations
Washington, DC - The U.S. Commodity Futures Trading Commission (CFTC) today issued an order filing and settling charges that Morgan Stanley Smith Barney LLC (the respondent), a futures commission merchant (FCM) based in Purchase, N.Y., violated CFTC regulation 166.3 by failing to diligently supervise its employees’ handing of customer accounts.
The CFTC order requires Morgan Stanley Smith Barney to pay a $200,000 civil monetary penalty and prohibits it from violating CFTC regulation 166.3, as charged.
According to the order, the respondent’s "Customer A" provided trust services for its clients. In the course of providing such services to one of its clients, the order finds that Customer A accepted orders to trade commodity futures contracts on behalf of its own third party client, accepted the third party client’s money to place those trades, and affected the trades via a contract market on the third party client’s behalf. These contracts were traded in a proprietary futures account in Customer A’s name carried initially at Citigroup Global Markets Inc. (CGMI), a registered FCM, and later in an account carried by the respondent, the order finds. Through these actions, Customer A acted as an FCM, without being registered as such, in violation of the Commodity Exchange Act (CEA), according to the order.
According to the order, from 2006 to 2008, Customer A conducted five transfers of funds from its proprietary commodity futures trading account to a third party client’s bank account. The fact that funds were moving from a proprietary trading account to a third party bank account should have led the respondent’s employees executing the transactions to question Customer A’s actions and to investigate to determine whether the account was being carried properly, the order finds.
However, the respondent’s employees failed to diligently investigate the suspicious transactions, according to the order.
No later than January 15, 2010, the respondent realized that Customer A’s proprietary futures trading account had been carried improperly since 2006, the order finds. Nonetheless, the respondent continued to allow trading on behalf of the third party client to take place in Customer A’s account in January 2010, March 2010, and May 2010, according to the order. The order finds that the third party client’s funds were ultimately moved from Customer A’s proprietary account to an account in the third party client’s name on or about May 27, 2010.
At the time of the above-described events, the respondent maintained an inadequate system of supervision and internal controls to detect and deter violations of the CEA and CFTC regulations, the order finds. Consequently, the respondent failed to diligently supervise the handling by its partners, officers, employees and agents relating to its business as a CFTC registrant, in violation of regulation 166.3, the order finds.
CFTC Division of Enforcement staff responsible for this case are Jason Mahoney, Timothy J. Mulreany, George Malas, Paul Hayeck, and Joan Manley.
FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
On October 18, 2012, the Securities and Exchange Commission charged Joseph Pacifico, a former President of Carter’s, Inc., the Atlanta-based marketer of children’s clothing, for engaging in financial fraud at Carter’s. The SEC alleges that Pacifico’s misconduct caused Carter’s to materially misstate its net income and expenses in several financial reporting periods between 2004 and 2009.
The SEC’s complaint, filed in the United States District Court for the Northern District of Georgia, alleges that between 2004 and 2009, Carter’s Executive Vice President of Sales, Joseph Elles, who reported to Pacifico, fraudulently manipulated the amount of discounts that Carter’s granted to its largest wholesale customer in order to induce that customer—itself a large national department store—to purchase greater quantities of Carter’s clothing for resale. Elles then concealed his conduct by persuading the customer to defer subtracting the discounts from payments until later periods and creating and signing false documents misrepresenting the timing and amount of those discounts to Carter’s accounting personnel.
After Pacifico discovered Elles’s scheme, the complaint alleges that Pacifico signed a false certification to Carter’s accounting personnel that understated the amount discounts that Carter’s owed to the customer. The complained also alleges that Pacifico signed false internal forms that also misstated that discounts to be paid to the customer related to sales in 2009 when, in fact, the discounts related to prior financial periods. After conducting its own internal investigation, Carter’s was required to issue restated financial results for the affected periods.
The SEC’s complaint alleges that Pacifico violated Section 17(a)(2) of the Securities Act of 1933 ("Securities Act") and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rules 10b-5(b) and 13b2-1 thereunder, and aided and abetted Carter’s violations of Sections 10(b), 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 10b-5(b),12b-20, 13a-1, 13a-11 and 13a-13 thereunder. The SEC is seeking permanent injunctive relief, financial penalties, and an officer and director bar against Pacifico.
FROM: SECURITIES AND EXCAHNGE COMISSION
On October 18, 2012, the United States Securities and Exchange Commission charged Geoffrey H. Lunn, Darlene A. Bishop and Vincent G. Curry for their roles in making false and misleading statements to investors and misappropriating investors’ money in connection with a $5.77 million investment scheme under the name of Dresdner Financial, a fictitious financial services company purportedly based in Chicago, Illinois.
The SEC’s complaint, filed in the U.S. District Court for the District of Colorado, alleged that between February 2010 and February 2011, the defendants raised $5.77 million from at least 70 investors located throughout the United States and several foreign countries. According to the complaint, Lunn solicited marketers and investors to the scheme by telling them that he was the Vice-President of Dresdner and that Dresdner’s principals had connections to Dresdner Bank (formerly one of Germany’s largest banks). As marketers, Bishop and Curry played significant roles in the scheme by soliciting and lulling investors while receiving payments from the investors’ money. The complaint alleged that Lunn, Bishop and Curry told investors that Dresdner offered 100% guaranteed rates of return through a process involving the lease and monetization of bank instruments. For example, the defendants told investors that by investing $44,000 in Dresdner’s .44 Magnum Leveraged Financing Program, they would receive a payment of $2 million within 10-12 banking days. When they were unable to repay investors after the promised 10-12 days, the defendants perpetuated the scheme by repeatedly postponing the payout dates and claiming that the delays were due to holds placed by banks or the government. In reality, all of these statements were false and Dresdner and its investment programs were nothing more than an elaborate hoax.
According to the complaint, Lunn did not invest any of the investors’ funds as promised. Instead, Lunn began making cash withdrawals from the investors’ money after the very first deposit. Over the course of the scheme, Lunn withdrew over $1 million in cash and Western Union transfers which he claims to have given to Dresdner’s creator, a one-eyed man who used the alias "Robert Perello." Lunn also gave at least $848,500 to three Las Vegas call girls, paid over $1.3 million to marketers (including over $650,000 to Bishop and Curry), paid $1 million to a favored investor in a Ponzi-like payment, and using the remaining investor funds to pay for his personal and business expenses.
The SEC’s complaint alleges that Lunn, Bishop and Curry violated the registration provisions of Sections 5(a) and 5(c) of the Securities Act of 1933, the antifraud provisions of Section 17(a) of the Securities Act, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and the broker registration provisions of Section 15(a) of the Exchange Act. The complaint seeks permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest and civil penalties against all three defendants.
Photo Crdit: U.S. Marshals Service
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