COURT ORDERS MAN AND COMPANY TO PAY $2.5 MILLION FOR ILLEGAL, OFF-EXCHANGE PRECIOUS METALS TRANSACTIONS

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 

Federal Court Orders Florida Resident Richard Morello and His Florida Company, Vertical Integration Group LLC, to Pay over $2.5 Million in Monetary Sanctions for Engaging in Illegal, Off-Exchange Precious Metals Transactions

Junior Alexis, Florida Resident and Vertical Integration Group, LLC Employee, ordered to pay over $700,000 in monetary sanctions for his role in the unlawful venture

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that Judge Beth Bloom of the U.S. District Court for the Southern District of Florida entered an Order of Default Judgment against Vertical Integration Group LLC (Vertical) of Lake Worth, Florida, and its Managing Members, Richard V. Morello of Lake Worth, Florida, and Junior Alexis of Boynton Beach, Florida, for engaging in illegal, off-exchange precious metals transactions.

The Order, entered on September 29, 2014, requires Vertical and Morello, jointly and severally, to pay restitution of $893,859 and Alexis, jointly and severally with Morello and Vertical, to pay restitution of $563,131; requires Vertical and Morello, jointly and severally, to pay a civil monetary penalty of $1,663,698, and Alexis to pay a civil monetary penalty of $140,000; imposes permanent trading, solicitation, and registration bans against all of the Defendants; and prohibits them from engaging in illegal, off-exchange retail commodity transactions, as charged.

The Court’s Order stems from a CFTC Complaint filed on January 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 6824-14). The Complaint further charged and the Order found that Morello, as controlling person for Vertical, is liable for Vertical’s violations of the Commodity Exchange Act.

The Order provides that Melanie Damian, Esq. is responsible for collecting restitution and making any distributions to Vertical’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, Hunter Wise Commodities LLC (Hunter Wise) and certain of its associated entities (see CFTC Press Releases 6447-12, December 12, 2012 and 6935-14, May 22, 2014).

The Order further finds that, since at least July 16, 2011 and continuing through at least February 2013, Vertical, by and through its employees, including Morello and Alexis, solicited retail customers to engage in off-exchange leveraged, margined, or financed precious metals (including gold, silver, platinum and palladium) transactions that were executed through Hunter Wise. During that period, according to the Order, approximately 39 of Vertical’s customers paid $1,008,583 to Vertical in connection with these precious metals transactions. The Order finds that these customers lost $893,859 of their funds to trading losses, commissions, fees, and other charges by Vertical and other companies, and that Vertical received commissions and fees totaling $554,566 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 Vertical, 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 Vertical’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 Michelle Bougas, Alan Edelman, Michael Solinsky, and Charles D. Marvine

SEC ANNOUNCES THAT PENNY STOCK PROMOTER TO PAY $700,000 IN FRAUD CASE

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 23107 / October 8, 2014

Securities and Exchange Commission v. Geoffrey J. Eiten and National Financial Communications Corp., Civil Action No. 1:11-CV-12185 (District of Massachusetts, December 12, 2011)

Massachusetts-based Penny Stock Promoter Ordered to Pay Over $700,000 in SEC Fraud Case

The Securities and Exchange Commission announced that on October 7, 2014, the U.S. District Court for the District of Massachusetts entered a final judgment against stock promoter Geoffrey J. Eiten, a Massachusetts resident.  Eiten is a defendant in an action filed by the Commission in December 2011, alleging that Eiten and his company, National Financial Communications, Inc. (“NFC”), made material misrepresentations and omissions in penny stock publications they issued.  Among other things, the judgment orders Eiten to pay a total of $727,029.

The Commission’s complaint, file on December 12, 20122, alleged that Eiten and NFC issued a penny stock promotional publication called the “OTC Special Situations Reports.”  According to the complaint, the defendants promoted penny stocks in this publication on behalf of clients in order to increase the price per share and/or volume of trading in the market for the securities of penny stock companies.  The complaint alleged that Eiten and NFC made misrepresentations in these reports about the penny stock companies they promoted.  The Commission’s complaint alleged that in four reports, Eiten and NFC made material misrepresentations and omissions, concerning, among other things, the companies’ financial condition, future revenue projections, intellectual property rights, and Eiten’s interaction with company management as a basis for his statements.  According to the complaint, Eiten and NFC were hired to issue the above reports and used false information provided by their clients, without checking the accuracy of the information with the companies in question or otherwise ensuring that the statements they were making in the OTC Special Situations Reports were true.

The judgment enjoins Eiten from further violations of the antifraud provisions of the federal securities laws (Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder) and from certain specified activities related to penny stocks, including the promotion of a penny stock or deriving compensation from the promotion of a penny stock.  The judgment also imposed a penny stock bar against Eiten, which permanently bars him from participating in an offering of penny stock, including engaging in activities with a broker, dealer, or issuer for the purpose of issuing, trading, or inducing or attempting to induce the purchase or sale of any penny stock.  The judgment orders Eiten to pay disgorgement of $605,262, representing ill-gotten gains, plus prejudgment interest of $71,767 and a civil penalty of $50,000.

In a previous default judgment against NFC on July 24, 2013, the Court ordered NFC to pay over $1.6 million.

SEC ANNOUNCES JUDGEMENT AGAINST FORMER CEO FOR INVOLVEMENT IN STOCK MANIPULATION SCHEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 23110 / October 10, 2014

Securities and Exchange Commission v. 8000, Inc., Jonathan E. Bryant, Thomas J. Kelly, and Carl N. Duncan, Esq., Civil Action No. 12-civ-7261 (S.D.N.Y., Complaint filed Sept. 27, 2012)

Judgment Against Former CEO Orders Payment of Over $450,000 in Case Involving Scheme to Manipulate Company's Stock

The Securities and Exchange Commission announced today that on October 9, 2014, the U.S. District Court for the Southern District of New York entered a Final Judgment against Thomas J. Kelly of Levittown, Pennsylvania. Kelly was the Chief Executive Officer of 8000, Inc., a now defunct Virginia-based company whose stock was quoted on OTC Pink operated by OTC Markets Group LLC. Kelly and 8000, Inc. were defendants in a civil fraud action filed by the Commission on September 27, 2012. Also charged were an undisclosed principal in 8000, Inc., Jonathan E. Bryant of Nantwich, United Kingdom, and the company's attorney, Carl N. Duncan of Bethesda, Maryland.

The Commission's complaint alleged that the defendants participated in a scheme to manipulate the trading volume and price of 8000 Inc.'s common stock by disseminating false information about the company and simultaneously selling, or facilitating the sale of its securities which were not for sale to the general public. According to the complaint, from November 2009 through October 2010, Kelly and Bryant disseminated financial reports and press releases falsely representing that 8000, Inc. had millions of dollars in capital financing and revenues when, in fact, the company had neither. As 8000, Inc.'s stock price rose based on the false information they were disseminating, Bryant is alleged to have sold 56.8 million "restricted" shares of 8000, Inc. into the market with the assistance of Duncan who provided false legal opinions removing the restrictions, and Kelly to have bought and sold the company's securities in the secondary market. The complaint alleged that the defendants' scheme increased the volume of trading in 8000, Inc. by 93% and the company's stock price from less than $0.01 per share to $0.42 per share between November 2009 and October 2010.

The Final Judgment orders Kelly to disgorge the $415,592 in profits that he realized from trading in 8000, Inc.'s securities and to pay $ 46,697in pre-judgment interest. The Final Judgment follows the Judgment that the court entered against Kelly on June 6, 2013, with Kelly's consent and without him admitting or denying the allegations in the Commission's Complaint. That Judgment permanently enjoins Kelly from violating Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder. It also permanently bars Kelly from acting as an officer or director of any issuer that has a class of securities registered pursuant to Section 12 of the Exchange Act, and permanently bars him from participating in an offering of a penny stock.

CFTC CHAIRMAN MASSAD'S STATEMENT BEFORE GLOBAL MARKETS ADVISORY COMMITTEE OPEN MEETING

FROM:  U.S. COMMODITY FUTURES EXCHANGE COMMISSION  

Opening Statement Chairman Timothy G. Massad before the Global Markets Advisory Committee Open Meeting

October 9, 2014

Thank you, Mark. Commissioner Wetjen and his office, as well as the professional staff have done a tremendous amount of work to support the GMAC and I thank them for that. I also want to thank today’s participants. Your presence and input is very much valued.

Our advisory committees provide a valuable forum for discussion of complex and evolving market issues relevant to our work here at the CFTC. And, it is important for us to listen to a broad variety of viewpoints as we consider these.

The topics of discussion today are both timely and important.

The first session on non-deliverable forwards should be very helpful to us as we consider whether to propose mandatory clearing for NDFs.

As you know, under the law pertaining to swaps clearing, the Commission must consider several factors to determine whether a swap is required to be cleared, which include: whether there is sufficient liquidity to support clearing; whether the necessary rules and infrastructure are in place to support clearing; and what are the effects on the mitigation of systemic risk and on competition.

Now, today’s meeting is not a formal process to consider those factors; but today is an opportunity for us to learn more about the NDF market so that we can consider whether to go forward with a proposed rule. If we decide to propose a rule, there will be an opportunity later for all the public to give their views.

Considering whether to propose a rule for further clearing mandates underscores the importance of working out the cross border issues on clearinghouse regulation and supervision. Europe has not yet recognized our clearinghouses as equivalent. I believe they should because our clearinghouses meet international standards. They believe we should change our regulatory approach to clearinghouses that are located in Europe but are also registered with the U.S. But the existing dual registration regime has worked well for many years. And so I believe this is a situation of, if it ain’t broke, don’t fix it. But we have agreed to look at whether we can further harmonize our rules and regulatory approach. And I am pleased that they have decided to postpone the imposition of higher capital charges on European banks participating in our markets. It was this threat of higher capital charges that was going to fragment the market, not the existence of dual registration, which has existed for years and has actually been the foundation for the growth of the global markets.

Our second topic pertains to bitcoin.  While the development of digital payment systems raises many issues outside our jurisdiction, one area within our responsibility is derivative contracts traded on SEFs or DCMs that are based on bitcoin. Today, we have the opportunity to hear about that.

I think about this area in the following way: Innovation is a vital part of our markets that our regulatory framework is designed to encourage. At the same time, our regulatory framework is intended to prevent manipulation and fraud, and to make sure our markets operate with transparency and integrity. Our responsibilities at the CFTC in this regard are ongoing. Of course, the fact that a contract exists doesn’t mean the CFTC endorses it, as the staff will explain more fully later today. As with all new developments, we must remain vigilant and will continue to evaluate these new contracts over time. And of course, we will coordinate with our colleagues at other regulatory authorities as appropriate. I think it is helpful to keep these points in mind whenever we consider a new innovation in our markets.

Thank you again for being here and contributing your ideas. I look forward to a productive discussion.

CFTC CHARGES FLORIDA FIRM AND OTHERS WITH FOREX POOL FRAUD

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 

October 7, 2014

CFTC Charges Florida-based Forex Monthly Income Fund, LLC and its Principals Jean Chauvel, Renaud Pierre-Charles, and Employee and Agent Robert Tripode with Forex Pool Fraud and Other Violations

Federal Court issues emergency order freezing assets and records

Washington, DC — The U.S. Commodity Futures Trading Commission (CFTC) today announced that on September 30, 2014, Judge William Dimitrouleas of the U.S. District Court for the Southern District of Florida issued under seal an emergency Order freezing and preserving assets under the control of Jean Chauvel, Renaud Pierre-Charles, and Robert Tripode and their company Forex Monthly Income Fund, LLC (FMIF) (collectively, Defendants), a commodity pool operator based in the Miami, Florida area. The Order also prohibits the Defendants from destroying books and records and allows the CFTC immediate access to those records. The court scheduled a hearing for October 10, 2014, on the CFTC’s motion for a preliminary injunction.

Defendants allegedly misappropriated more than $1 million of customer funds

The emergency Order is part of a CFTC civil enforcement action also filed under seal on September 30, 2014. The CFTC Complaint alleges that from as early as January 2011, Defendants fraudulently solicited more than $1.4 million from members of the public to trade foreign currency (forex) in a commodity pool by, among other things, guaranteeing pool participants a monthly return on their investment based on profits purportedly earned from forex trading. Some of the Defendants’ victims were unsophisticated investors, including senior citizens, who sought higher monthly income on their retirement savings, according to the Complaint. The Complaint also alleges that the Defendants never traded or generated any income from trading forex, but rather misappropriated more than $1 million of the pool participants’ funds.

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

CFTC Division of Enforcement staff members responsible for this case are Kim Bruno, Michael Loconte, Daniel Jordan, and Rick Glaser.

Readout of the President's Meeting with Independent Financial Regulators | The White House

Readout of the President's Meeting with Independent Financial Regulators | The White House