CFTC obtains default judgment and permanent injunction against Michael J. Leighton for defrauding commodity pool participants
Court orders Leighton to Pay over $2.3 Million in sanctions and restitution and permanently bars him from the commodities industry
The U.S. Commodity Futures Trading Commission (CFTC) announced that Judge Philip S. Gutierrez of the U.S. District Court for the Central District of California entered an order of default judgment and permanent injunction against Michael J. Leighton of Torrance, Ca. The order, entered on July 8, 2013, stems from a CFTC enforcement action filed on May 8, 2012 charging Leighton with solicitation fraud and issuing false statements in connection with the operation of a commodity trading pool.
The order requires Leighton to pay $1,650,230 in restitution to defrauded pool participants and a $700,000 civil monetary penalty. It also permanently enjoins Leighton from violating the anti-fraud provisions of the Commodity Exchange Act (CEA) and commission regulations, as charged, and permanently bans Leighton from trading or engaging in activity requiring registration with the CFTC.
The order finds that Leighton defrauded and deceived at least 48 pool participants who invested at least $1.65 million in a commodity pool he operated from at least July 2008 to March 2012. The order also finds that Leighton willfully or recklessly misrepresented to pool participants and prospective participants that he was a successful trader and that his pool was profitable. It further finds that Leighton lost over $1.3 million of pool participant funds through trading. Leighton did not disclose those loses and, instead, issued false written statements to pool participants misrepresenting the profitability and value of their respective shares of the Leighton pool. The order further finds that Leighton falsely represented that the National Futures Association (NFA) and CME Group, Inc. were conducting an audit or review of the pool that prevented him from making any distributions or cash withdrawals to pool participants. The order additionally finds that, in fact, no such audits or reviews occurred and that Leighton also created and distributed a fabricated document that purported to be an audit report issued by the NFA.
In a related criminal action filed on May 9, 2012, the U.S. Attorney’s Office for the Central District of California charged Leighton with one count of commodities. Leighton entered a guilty plea in the related criminal action on July 11, 2012, and was sentenced to 60 months imprisonment on March 4, 2013.
CFTC charges RFF GP, KGW Capital Management, and Kevin G. White with commodity pool fraud
The CFTC announced that the U.S. District Court for the Eastern District of Texas entered an emergency order freezing and preserving the remaining pool participants’ assets under the control of defendants RFF GP, LLC (RFF GP), KGW Capital Management, LLC (KGW Capital), and Kevin G. White, and Relief Defendants Revelation Forex Fund, LP, Meridian Propane LP, and W Corporate Real Estate, LP (d/b/a KGW Real Estate), all of Plano, Texas. The order also prohibits defendants and relief defendants from destroying books and records, grants the CFTC immediate access to those records, and appoints a temporary receiver to protect pool participants’ funds.
The Order arises out of a civil enforcement complaint filed by the CFTC on July 9, 2013, charging RFF GP, KGW Capital, and White with fraudulently soliciting at least $5.8 million from at least 20 actual and prospective pool participants to participate in an off-exchange foreign currency commodity pool and misappropriating at least $1.7 million of pool participants’ funds.
According to the CFTC’s complaint, the defendants lured the public to invest by fraudulently telling prospective pool participants that their trading had been profitable, specifically touting compound annual growth rates as high as 37.08% and a total return on investment of 385.84% from 2009 to April 30, 2013. Further, defendants allegedly told prospective pool participants that White had a 25-year successful career as a Wall Street broker. The complaint alleges that, in fact, defendants had been losing money since beginning trading, which had not commenced until September 2011. The complaint alleges further that the defendants failed to disclose the fact that they had been losing money, that they had been misappropriating pool participants’ funds, that White had been fired from his employment as a broker after a seven-year career in the securities industry, and that White had been both censured and barred by the New York Stock Exchange.
CFTC seeks to revoke the registrations of Joshua Wallace and System Capital
The CFTC filed a notice of intent (Notice) to revoke the registrations of Joshua Wallace and System Capital, LLC (System Capital). System Capital, based in Oregon, is a registered commodity trading advisor. Wallace is an Oregon resident registered as an associated person of System Capital and is System Capital’s founder, sole owner, principal, and president.
The CFTC Notice alleges that Wallace and System Capital are subject to statutory disqualification from CFTC registration based on an order for entry of default judgment, permanent injunction and ancillary equitable relief entered by the U.S. District Court for the Southern District of New York on March 14, 2013. The order prohibits Wallace and System Capital from committing further fraud, among other violations as charged, and includes findings that Wallace and System Capital misrepresented to prospective and actual clients that Wallace and System Capital had a successful history of trading futures contracts and that System Capital had assets under management of at least $29 million; and that as a result of these fraudulent solicitations, they successfully solicited at least 17 clients and managed approximately $3.5 million of client funds. The order also found that Wallace, on behalf of System Capital and himself, knowingly provided false information and documents to the NFA. Among other sanctions, the order permanently enjoined Wallace and System Capital from further violations of the anti-fraud provisions of the CEA, as charged, and ordered each of them to pay a $420,000 civil monetary penalty.
In addition, the Notice alleges that Wallace and System Capital are subject to disqualification from CFTC registration based on Wallace’s conviction for criminal commodities fraud in connection with these same activities, as entered by the U.S. District Court for the Southern District of New York on Nov. 27, 2012. On May 15, 2013, the District Court sentenced Wallace to 27 months in prison.
Federal Court orders Laurence Dodge, principal of Madison Dean, Inc., to pay nearly $400,000 to settle forex fraud charges
The CFTC obtained a federal court consent order of permanent injunction against Laurence Dodge of Fresh Meadows, N.Y. a principal of Madison Dean, Inc. of Wantagh, N.Y., requiring Dodge jointly to pay nearly $250,000 in restitution to customers and a $150,000 civil monetary penalty. The order also imposes permanent trading and registration bans against Dodge and prohibits him from violating the anti-fraud provisions of the CEA.
The order, entered on June 20, 2013, by Judge Joseph F. Bianco of the U.S. District Court for the Eastern District of New York, stems from a CFTC complaint filed on May 8, 2012, charging Dodge, Madison Dean, and another Madison Dean principal, George Athanasatos, also of Wantagh, with fraudulently soliciting approximately 19 persons to invest approximately $415,000 in managed trading accounts to trade off-exchange foreign currency contracts on a leverage or margined basis.
The order finds that Dodge misrepresented and omitted material facts about the history of Madison Dean, the nature of Madison Dean’s clients, the background and qualifications of Madison Dean’s employees, and the performance record of Madison Dean for the purpose of creating a false impression that Madison Dean was a well-established and successful company. The order further finds that after being in operation for a little over one year – during which time customers lost approximately $250,000 and Madison Dean collected approximately $112,000 in commissions and fees – Madison Dean shut down its operation with no notice to its customers and no way for those customers to contact the company or anyone associated with it.
Previously, on March 8, 2012, the court entered a consent order of permanent injunction against Madison Dean and Athanasatos, which required them jointly to pay nearly $250,000 in restitution to defrauded customers and imposed a $1 million civil monetary penalty on Madison Dean and a penalty of $210,000 on Athanasatos. The order also imposes permanent trading and registration bans against them and prohibits them from violating the anti-fraud provisions of the CEA as charged.