Regulatory actions taken this week:
Federal Court in North Carolina orders Toby D. Hunter, Prestige Capital Advisors, and D2W Capital Management to pay over $11.7 million for fraud and other violations in commodity pool and managed foreign currency schemes
The Commodity Futures Trading Commission (CFTC) announced that it obtained federal court orders requiring defendants Toby D. Hunter, Prestige Capital Advisors, LLC (Prestige), and D2W Capital Management, LLC (D2W), all of Charlotte, N., together N.C.to pay more than $4.3 million in restitution to defrauded pool and managed account clients and imposing civil monetary penalties of approximately $7.5 million. The court’s grant of default judgment against Prestige and D2W and a consent order of permanent injunction against Hunter stems from a CFTC enforcement action filed Sept. 6, 2011, charging defendants with fraudulent solicitation, misappropriation, and regulation violations.The orders also impose permanent trading and registration bans against the defendants and prohibit them from violating the anti-fraud and other provisions of the Commodity Exchange Act (CEA) and CFTC regulations, as charged.
Judge Max O. Cogburn, Jr. of the U.S. District Court for the Western District of North Carolina entered an order of default judgment and permanent injunction against defendants Prestige and D2W on Jan. 25, 2013, imposing civil monetary penalties of approximately $6.9 million on Prestige and $280,000 on D2W. The court entered a subsequent order on Feb. 22, 2013, requiring Prestige to pay restitution of over $4.1 million and D2W to pay restitution of $85,250.
The court found that Prestige fraudulently solicited and accepted more than $4.7 million from multiple pool participants for investment in one or more commodity pools that traded among other things, commodities and futures contracts. The court specifically found that in soliciting pool participants, Prestige posted false trading returns on a website called BarclayHedge, where fund managers could post unverified historical returns for prospective clients to view, sent false trading results to at least one Prestige pool participant, and issued false account statements. Furthermore, according to the orders, approximately $2.3 million of pool participant funds was misappropriated by Prestige, and D2W, a managed forex account service, sent false account statements to t least one client.
Subsequently, on June 13, 2013, Judge Cogburn entered a consent order of permanent injunction settling charges stemming from the same violations of the CEA and CFTC Regulations against Hunter. Hunter will have to pay approximately $85,000 in restitution to D2W’s clients, $40,000 in restitution to Prestige pool participants, and also imposes a $280,000 civil monetary penalty.
Hunter was indicted by the U.S. Attorney’s office for the Western District of North Carolina (Charlotte office) for criminal activity related to the Prestige matter.
CFTC orders ABN AMRO Clearing Chicago LLC to pay $1 million to settle charges of segregated and secured fund deficiencies, a minimum net capital violation, books and records violation, and supervision failures
The CFTC issued an order on June 18, 2013, filing and settling charges against ABN AMRO Clearing Chicago LLC (ABN AMRO) of Chicago, Ill., for failing to segregate or secure sufficient customer funds; failing to meet the minimum net capital requirements, failure to maintain accurate books and records, and failure to supervise its employees.
According to the CFTC order, during the period March 19, 2009, through January 2012, ABN AMRO reported three instances of under-segregated customer funds and one instance of under-secured customer. Each of these violations was the result of clerical errors and/or a lack of adequate policies and procedures related to customer movement of funds.
The order also states that during a CME Group routine audit of ABN AMRO’s books and records as they were on the close of business on May 31, 2011, the CME Group found that ABN AMRO had improperly used a customer’s withdrawn warehouse receipts as collateral for margining purposes. Without these warehouse receipts, the customer’s accounts were under-margined on several occasions, and ABN AMRO had to reduce its adjusted net capital by an amount equal to the margin deficits. Once these reductions were calculated, it was determined that ABN AMRO failed to meet the minimum net capital requirements for a single month-end.
Also, the CFTC’s division of swap dealer and intermediary oversight examination staff conducted a limited review of ABN AMRO beginning Jan. 27, 2012. According to the order, at that time, ABN AMRO was unable to produce a complete and accurate margin report listing for a very limited number of certain types of accounts (e.g., omnibus accounts that offset margin requirements for certain spread transactions). The order found that ABN AMRO was in violation of several rules when it failed to keep accurate books and records sufficient to determine the margin status of each customer.
The order finds that each of these violations was a result of ABN AMRO’s insufficient controls, reflecting a lack of supervisory controls over commodity interest accounts and/or other activities of its partners, employees, and agents relating to its business as a Commission..
Based on these violations of the CEA and CFTC Regulations, the order imposes a $1 million civil monetary penalty, a cease and desist order, and requires ABN AMRO to retain an independent consultant to review and evaluate the effectiveness of its existing internal controls and policies and procedures and adopt any recommendations for improvement made by the consultant.
Federal court in Puerto Rico orders Angel F. Collazo, ACJ Capital, Inc., and Solid View Capital LLC to pay over $1.5 million to settle forex fraud charges in CFTC enforcement action
The CFTC announced that it obtained a federal court consent order requiring defendants Angel F. Collazo, formerly of Salinas, Puerto Rico, and his companies, ACJ Capital, Inc. (ACJ) and Solid View Capital LLC (Solid View), both of San Juan, Puerto Rico, jointly and severally to pay $843,444 in restitution and to pay a $750,000 civil monetary penalty for fraudulently soliciting customers to participate in an off-exchange leveraged foreign currency (forex) pool, misappropriating pool participant funds, and issuing false statements to conceal trading losses and misappropriation.
The CFTC also obtained a second federal court consent order, requiring defendants Fernando Clemente, of Weston, Fla, and his company, Felgi Investments Corp. (Felgi) of Caguas, Puerto Rico, to pay $30,000 in restitution, to disgorge $120,933 in pool participant funds to which they were not legitimately entitled, and to pay a $120,000 civil monetary penalty.
The Orders also impose permanent trading and registration bans against all defendants and prohibit them from violating the anti-fraud provisions of the CEA, as charged.
The orders, entered by Judge Jose A. Fuste of the U.S. District Court for the District of Puerto Rico on Feb. 13, 2013 and June 10, 2013, respectively, stem from a CFTC complaint originally filed in February.. In July 2012, the CFTC complaint was amended to include defendants Clemente and Felgi. Clemente and Felgi were also named as relief defendants for receiving funds from ACJ, Solid View, and Collazo to which they were not legitimately entitled.
The Feb. 13, 2013 order finds that Collazo and his companies fraudulently solicited commodity pool participants by falsely claiming profitable returns, while minimizing and failing to fully disclose the risks of trading leveraged forex. The order also finds that Collazo, ACJ, and Solid View misappropriated pool funds to make payments to pool participants and for personal uses, failed to disclose their intended uses of pool participant funds, misrepresented the profitability of pool trading accounts, and distributed statements to ACJ and Solid View pool participants that contained false account values, including showing consistent trading profits.
The June 10, 2013 order finds that Clemente and Felgi, misappropriated $30,000 in customer funds that were to have been provided by Felgi to Solid View for personal uses and failed to disclose their intended uses of pool participant funds. The order also finds that Clemente and Felgi retained $120,933 in purported trading profits to which they were not entitled.
CFTC charges North Carolina resident James A. Shepherd and James A. Shepherd, Inc. with commodity pool fraud
Defendants charged with fraudulently soliciting approximately $10 million from approximately 176 investors and misappropriating and commingling at least $4.45 million of the pool’s funds
The CFTC announced the filing of a civil enforcement complaint against James A. Shepherd (Shepherd) and James A. Shepherd Inc., a registered commodity pool operator, charging them with fraudulently soliciting, accepting, and pooling approximately $10 million from approximately 176 individuals to invest in a commodity pool called the Shepherd Major Play Option Fund LP(Pool) for the purpose of trading options on futures contracts. Shepherd allegedly misappropriated at least $4.45 million of the pool’s funds.
According to the CFTC’s complaint, Shepherd fraudulently told pool participants and prospective pool participants that their funds would be invested in on-exchange options on commodity futures and that the pool’s assets would not be commingled with the assets of any other entity. Rather than trade funds as represented, defendants allegedly misappropriated a large portion of pool funds and commingled those funds with funds unrelated to the pool. Beginning in 2006, Shepherd allegedly transferred a large portion of pool funds to: (i) Shepherd’s own bank account, for his own personal use and to repay other business obligations unrelated to the pool; (ii) futures and options trading accounts maintained in Shepherd’s own name, which suffered significant trading losses; and (iii) a bank account in the name of a separate hedge fund operated by Shepherd, which he used to pay redemptions to those hedge fund investors.
The complaint further alleges that defendants concealed the fraud by distributing to pool participants periodic statements and annual certified financial statements that falsely represented the net asset value of the pool. Defendants further concealed the fraud by forging bank statements and bank confirmations and making false statements to the Pool’s outside auditor and the NFA during the course of their respective audits, according to the complaint.
In its continuing litigation, the CFTC seeks restitution, disgorgement of ill-gotten gains, civil monetary penalties, trading and registration bans, and permanent injunctions against further violations of the CEA as charged.
To see past regulatory actions, go to The Blotter