The Blotter: Corzine, O'Brien, MF Global finally charged by CFTC

Also: Florida firm hit with $5.8 million in fines for commodity pool fraud

With respect to the company defendants, in addition to the misuse of customer funds described above, the complaint charges that MF Global (i) unlawfully failed to notify the CFTC immediately when it knew or should have known of the deficiencies in its customer accounts; (ii) filed false reports with the CFTC that failed to show the deficits in the customer accounts; and (iii) used customer funds for impermissible investments in securities that were not considered readily marketable or highly liquid in violation of CFTC regulation; and that Holdings controlled the operations of MF Global and is therefore liable as a principal for MF Global’s violations of the Commodity Exchange Act and CFTC regulations.

 If approved by the U.S. District Court and the U.S. Bankruptcy Court, the proposed settlement of all charges against MF Global will require 100% restitution of all remaining commodity customer claims.  The proposed order also includes the imposition of a $100 million penalty, which can be paid to the extent MF Global has not fully exhausted all available funds and assets paying customers and then other creditors entitled to priority under bankruptcy law.

 The CFTC also seeks full restitution and penalties against Holdings, Corzine, and O’Brien, in addition to trading and registration bans and injunctions against Corzine and O’Brien.

 Colorado

 Federal Court in Colorado Orders Michael Gale to Pay More than $1.2 Million to Settle Fraud Charges in CFTC Enforcement Action

The CFTC obtained a federal court order against defendant Michael Gale of Littleton, Col., individually and doing business as Capital Management Group, requiring him to pay $479,402.35 in restitution to defrauded customers.  The consent order of permanent injunction, entered on June 25, 2013, by Senior U.S. District Judge John L. Kane of the District of Colorado, also imposes a $750,000 civil monetary penalty.  The order imposes permanent trading and registration bans against Gale and prohibits him from violating the anti-fraud provisions of the Commodity Exchange Act (CEA), as charged.

 The order stems from a CFTC complaint filed July 25, 2012, that charged Gale with fraudulently operating a commodity futures pool, making false statements and providing false tax records to prospective and actual pool participants, misappropriation of pool funds, commingling of pool funds, and failing to register with the CFTC as a commodity pool operator.

The order finds that Gale solicited and accepted approximately $900,000 from at least nine participants to invest in his commodity pool.  Gale lied about his trading record and the pool’s profitability and value, and rather than trade the pool participants’ funds, Gale deposited only a fraction of the funds into an account for trading, and used much of the pool participant money to pay his business and personal expenses, the order finds.  In order to perpetuate the fraud, Gale continued to represent that investments in his pool were profitable and distributed false account performance documentation and false tax records to actual and prospective pool participants, according to the order.  In fact, the order finds, Gale knew the representations were false because he knew his trading was not profitable and that he had misappropriated significant portions of the pool’s money.

 Florida

Federal Court orders Alpha Trade Group S.A. and its employees and agents to pay combined restitution and penalties of $5.779 million for defrauding pool participants

On June 3, 2013, Judge Gregory A. Presnell of the U.S. District Court for the Middle District of Florida entered an amended order entering final judgment (order) against defendants Alpha Trade Group, S.A. (ATG),  Jose Cecilio Martinez Beltran (Martinez), Welinton Bautista Castillo (Bautista), Yehodiz Padua Valentin (Padua), Maria Alvarez Gutierrez (Gutierrez), andMaria Asela Rodriguez (Rodriguez), all of Orlando, Fla., for their involvement in a fraudulent off-exchange foreign currency (forex) and commodity futures scheme involving two pools, Orsa Investment Group, L.L.C. and Online Marketing Solutions.  The order finds that certain defendants solicited customers, accepted their funds into the two pools and then failed to return more than $1,461,000, primarily from residents in Florida, California, and Puerto Rico.  Moreover, the order finds that all of the defendants misappropriated customer funds.

 The order requires ATG, Martinez, and Bautista to pay, jointly and severally, $1,461,500 in restitution, and each to pay a $980,000 civil monetary penalty. The order requires Padua, Gutierrez and Rodriguez to pay restitution in the amounts of $10,383, $82,750, and $49,079.37, respectively, as well as civil monetary penalties in the amounts of $840,000, $248,250, and $147,238.11, respectively.  The order also imposes permanent trading and registration bans against all of these defendants, and prohibits them from violating the CEA, as charged.

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