The following is from the CFTC...
The U.S. Commodity Futures Trading Commission (CFTC) today announced that it obtained a federal court Order against Defendants National Equity Holdings, Inc. (National Equity) and its Principal, Robert J. Cannone, both of Orange County, California, requiring them to pay restitution to defrauded customers in accordance with restitution set in a related criminal action at $1,059,096 (U.S. v. Cannone, SACR 11-263). The Consent Order of Permanent Injunction also imposes civil monetary penalties of $2.8 million on National Equity and $800,000 on Cannone. The Order also imposes permanent trading and registration bans against the Defendants and prohibits them from violating the anti-fraud provisions of the Commodity Exchange Act (CEA), as charged.
The Order, entered on April 11, 2013, by the Honorable James Selna of the U.S. District Court for the Central District of California, stems from a CFTC Complaint filed on November 8, 2011, charging National Equity, Cannone, Francis Franco, and Thomas B. Breen with fraudulent solicitation, misappropriation, and registration violations (see CFTC Press Release 6142-11).
The Order finds that between June 2009 to April 2010, Cannone, by and through National Equity, fraudulently solicited and accepted over $1.4 million to trade commodity futures contracts through a pool. In their solicitations, Cannone, by and through National Equity, (1) falsely claimed to have a successful and experienced trader (Franco) for the pool, (2) misrepresented the likelihood of profits and the risks associated with trading commodity futures, (3) failed to disclose that they were not properly registered with the CFTC to operate a pool, and (4) failed to disclose their intended uses of pool participant funds.
The Order further finds that Cannone and National Equity traded only a portion of the pool participant funds in proprietary accounts and sustained overall and significant losses. Cannone misappropriated the majority of the pool participant funds to make so-called returns to participants in monthly payments that Cannone, through National Equity, claimed were the profitable proceeds of their trading, the Order finds. Cannone also misappropriated pool participant funds for personal use, according to the Order.
Cannone and National Equity concealed their fraud and trading losses from the pool participants by issuing false account statements reflecting profits, the Order finds. A year after commencing their fraudulent scheme, their trading losses and misappropriation had depleted pool participant funds, but at meetings with several pool participants, the Defendants made promises and sometimes gave written guarantees to return the funds invested, according to the Order.
The Order also finds that National Equity failed to register with the CFTC as a Commodity Pool Operator and Cannone failed to register as an Associated Person of National Equity, as required.
The CFTC’s litigation continues against the remaining Defendant Breen. On July 12, 2012, the court entered a permanent injunction Order against Defendant Franco, barring him from further violations of the CEA, as charged, and from engaging in certain commodity-related activities, including trading for others and registration; however, the litigation continues to determine the appropriate amount of a civil monetary penalty to be imposed and the whether a personal trading ban should be imposed on Franco.
In related criminal actions, Cannone, as well as Breen and Franco, pled guilty to criminal violations of the CEA, as amended. Cannone was sentenced to 27 months in federal prison and ordered to pay the $1,059,096 million in restitution jointly with Breen and Franco.
The CFTC thanks the Federal Bureau of Investigation (Orange County Office) and the U.S. Attorney’s Office for the Central District of California (Santa Ana Office) for their assistance.
CFTC Division of Enforcement staff members responsible for this case are Michelle S. Bougas, Heather Johnson, James H. Holl, III, Gretchen L. Lowe, and Vincent McGonagle.