The CFTC charges that, from at least October 2009 through at least July 2011, defendants fraudulently solicited $369,326 from 18 individuals or entities for participation in a pooled investment vehicle managed by Borrowing Station, through Charles, that traded forex. According to the CFTC, defendants solicited pool participants directly and through a website. In their solicitations, defendants promised substantial investment returns such as 25% per year or 10% per month, and falsely claimed that pool participant funds were guaranteed against trading losses. According to the CFTC, defendants deposited only a portion of pool participant funds into trading accounts and lost a majority of those funds unsuccessfully trading forex.
The order also finds that defendants issued checks to pool participants that represented purported “monthly returns” or “return on investment.” However, any purported profits that defendants paid to pool participants came from the principal of other pool participants in the manner of a Ponzi scheme. In addition, the CFTC charges that Charles misappropriated pool participant funds to pay for personal expenses and to fund Borrowing Station’s operations and failed to register as a commodity pool operator and associated person.
Velocity Futures to pay a $300,000 penalty to settle charges that it failed to comply with its minimum financial requirements
The CFTC settled charges against Velocity Futures, LLC, a registered FCM, headquartered in Houston, Texas, for failing to comply with the minimum financial requirements for FCMs.
According to the CFTC, Velocity failed to meet its minimum adjusted net capital requirement because it failed to properly account for certain events relating to two arbitration awards issued by the National Futures Association (NFA) on June 16, 2011, against Velocity and its CEO, and Velocity’s subsequent settlement of those awards for $2 million. Pursuant to that settlement, Velocity agreed to pay a $1 million lump payment, and Velocity’s CEO agreed to pay the remaining $1 million over 24 months. According to the CFTC, Velocity paid and properly accounted for the original $1 million lump sum payment. However, Velocity also paid the remaining installments on behalf of its CEO pursuant to the CEO’s indemnification claims. According to the CFTC, it was reasonable and probable, under generally accepted accounting principles, that the $1 million in deferred payments owed by Velocity’s CEO was, in fact, a liability of Velocity and should have been recorded as such on Velocity’s financial statements.
The CFTC further finds that Velocity received an $800,000 cash infusion from its parent company that it improperly classified as a subordinated loan. Under CFTC Rules, proceeds from a subordinated loan may be included in a company’s assets in calculating adjusted net capital. Velocity’s classification of this cash infusion was improper, because it was not made pursuant to a valid subordinated loan agreement that was approved by NFA, as required by CFTC Rules. Consequently, the cash infusion should have been treated as a non-subordinated loan and should not have been counted towards Velocity’s adjusted net capital requirements
According to the CFTC, once Velocity properly accounted for these events, it failed to meet its minimum adjusted net capital requirement for 264 days, from June 16, 2011 to March 6, 2012.