CFTC says companies defrauded pool investors

Washington, DC - The U.S. Commodity Futures Trading Commission (CFTC) today announced that it obtained a federal court consent order requiring defendants Brookshire Raw Materials Management, LLC (BRM), of Barrington, Ill., and its principals, John M. Marshall and Stephen Z. Adams, Brookshire Raw Materials Group, Inc. (BRMG) and Brookshire and Company, Ltd. (BCL), all of Toronto, Canada, to pay more than $15.8 million in disgorgement and a civil monetary penalty for defrauding commodity pool investors.

The consent order, entered on March 9, 2011, by Judge Amy St. Eve of the U.S. District Court for the Northern District of Illinois, requires the defendants jointly and severally to pay $6,347,354.05 in disgorgement and a $9,521,031.08 civil monetary penalty.

The consent order stems from a complaint filed by the CFTC on February 19, 2009, that charged the defendants with misappropriating more than $4.6 million of customer funds in a Ponzi scheme and destroying records, among other things. BRM, a CFTC-registered commodity pool operator (CPO) and commodity trading advisor (CTA), its principals, Marshall and Adams, and Canadian companies BRMG and BCL, were charged with fraud, misappropriation and failure to maintain books and records in connection with operating a multi-million dollar commodity pool (see CFTC Press Release 5616-09, February 20, 2009).

An earlier consent order for permanent injunction, entered by the court on February 23, 2010, resolved liability. The court found that, from at least January 1, 2006, through December 30, 2008, the defendants solicited and accepted funds from approximately 13 pool participants for the purported purpose of trading commodity futures in Brookshire Raw Materials Group Trust, a commodity pool operated by BRM. Instead, the defendants withdrew more than $4 million in pool participant funds and used the funds to pay expenses unrelated to the pool’s operation, according to the order. The order also finds that to conceal their unauthorized withdrawals, the defendants created and sent misleading account statements to pool participants. Additionally, defendants were unable to produce in a timely fashion statutorily required records, according to the order. The order permanently bans the defendants from engaging in any commodity-related activity and from registering with the CFTC in any capacity.

In a Separate Action, the CFTC Revokes BRM’s Registrations as a CPO and CTA

In a separate action filed on March 16, 2011, based on the facts of the federal district court case, the CFTC simultaneously filed and settled a statutory disqualification action against BRM, revoking its registrations as a commodity pool operator and commodity trading advisor.

In August 2010, Marshall and Adams were indicted on federal criminal charges of wire fraud in connection with the operation of BRM (USA v. Marshall and Adams, Criminal No.1:10-cr-0663 (N.D. Ill.)). Marshall and Adams pled guilty to one count of the indictment in December 2010 and January 2011, respectively. The charge for wire fraud carries a maximum sentence of 20 years imprisonment, as well as a maximum fine of $250,000, or twice the gross gain or loss resulting from that offense, whichever is greater. Marshall and Adams are currently awaiting sentencing.

The CFTC thanks the Ontario Securities Commission and the U.S. Attorney’s Office for the Northern District of Illinois for their assistance.

The CFTC Division of Enforcement staff members responsible for this case are Brigitte Weyls, Joy McCormack, John Wilson, Elizabeth Streit, Scott Williamson, Rosemary Hollinger and Richard Wagner.

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