Recent enforcement actions:
Federal court orders Alex Ekdeshman and Paramount Management to pay over $2.4 million for fraudulent foreign currency scheme
The U.S. Commodity Futures Trading Commission (CFTC) obtained a federal court consent order against Alex Ekdeshman of Holmdel, N.J., and Paramount Management, LLC, requiring them to pay $1,146,000 in restitution to their defrauded customers and a $1,337,000 civil monetary penalty. This 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 was entered on Sept.9, 2013, by U.S. District Judge Colleen McMahon of the Southern District of New York and stems from a CFTC complaint filed against the defendants on June 26, 2013 that charged Ekdeshman, individually and as the agent of Paramount, with solicitation fraud and misappropriating “the vast majority” of customer funds for business expenses. Specifically, the complaint charged the defendants with operating a fraudulent scheme that solicited more than $1.3 million from approximately 110 retail customers to engage in leveraged or margined foreign currency transactions with unregistered off-shore counterparties. The defendants allegedly advised customers that forex trading accounts would be opened in the customer’s name and would be traded by the defendants on behalf of the customer.
Furthermore, the defendants, through a telemarketing sales force and a “performance record” linked to their website, touted Paramount’s successful trading record as having yielded an average monthly return of 4.6% over a 20-month period, based on the performance of Paramount’s proprietary trading software system, according to the CFTC.
However, the court’s order finds that, contrary to the claims made during the solicitations, the defendants did not manage or trade any customer account, and thus Paramount’s customers neither made actual purchases of any forex nor received delivery of forex. The order also finds that the defendants misappropriated all customer funds for Ekdeshman’s personal benefit and failed to disclose to actual or prospective customers that they were misappropriating customer funds. To conceal their fraud, the order finds that, during all phases of the scheme, the defendants issued false account statements to their customers, as no individual customer accounts were ever created and no profits were ever generated.
CFTC orders Isaac Grossman and London Metals Market to pay over $121,000
The CFTC issued an order filing and simultaneously settling charges against Isaac Grossman, a resident of Parkland, Fla., and his company, London Metals Market LLC,of Deerfield Beach, Fla., for engaging in illegal, off-exchange precious metals transactions.
The CFTC order requires Grossman and London Metals to pay $121,665.75 in restitution to their customers. In addition, the order imposes permanent registration and trading bans on Grossman and London Metals.
As explained in the order, financed transactions in commodities with retail customers, like those engaged in by London Metals, must be executed on or subject to the rules of an exchange approved by the CFTC. The CFTC found that, from September 2012 through February 2013, London Metals solicited retail customers to buy and sell precious metals on a financed basis.
According to the CFTC, Grossman directly solicited customers and supervised London Metals’ other telemarketers. In making their solicitations, Grossman and the other London Metals telemarketers represented that customers could purchase a desired quantity of precious metals with a 25% deposit, and borrow the remaining 75%, as well as pay a finance charge on the loan, a service charge, a commission, and a mark-up on the spot price of the metal.
If the customer agreed to the transaction, the customer sent the deposit, commission, and mark-up to London Metals, and the funds were ultimately transferred to Hunter Wise Commodities, LLC to be executed. In return, Hunter Wise paid London Metals a portion of the customer commissions and fees, with London Metals ultimately receiving $121,665.75 in commissions and fees for the retail financed precious metals transactions executed through Hunter Wise.
However, neither London Metals nor Hunter Wise bought, sold, loaned, stored, or transferred any physical metals for these transactions, and neither actually delivered any precious metals to any customer, according to the CFTC. Since London Metals’ transactions were executed off exchange, they were illegal.
The CFTC sued London Metals’ clearing firm, Hunter Wise, in federal court in Florida on Dec. 5, 2012. The CFTC charged Hunter Wise with engaging in illegal, off-exchange precious metals transactions, as well as fraud and other violations. On Feb. 25, 2013, the court granted a preliminary injunction against Hunter Wise, froze the firm’s assets, and appointed a corporate monitor to assume control over those assets.
CFTC fines Macquarie Futures USA $150,000 for secured funds lapse
The CFTC issued an order filing and simultaneously settling charges against Macquarie Futures USA LLC, a New York-based registered futures commission merchant (FCM), for failing to maintain adequate funds in secured accounts. The CFTC requires Macquarie to pay a $150,000 civil monetary penalty and to cease and desist from violating CFTC Regulation 30.7.
The CFTC found that on Oct. 15, 2012, ICE Clear Europe converted its existing OTC swaps and options to U.S. exchange-listed futures and options to be listed for trading on ICE Futures U.S. Energy Division and ICE Futures Europe (ICE conversion). Assets held by ICE Clear Europe corresponding to assets under secured funds were to be re-designated as segregated funds. Notice was given to all concerned firms, including Macquarie, with instructions and support provided by ICE Clear Europe, according to the CFTC.
In anticipation of this conversion, on Oct. 15, 2012, Macquarie transferred certain secured assets to its segregated accounts, and kept certain positive balances in its secured accounts. However, later on Oct. 15, consistent with the notice given to Macquarie, ICE Clear Europe re-designated approximately $45 million of Macquarie’s secured funds to segregated funds, making the funds segregated assets rather than secured assets. Because all of the secured assets pertaining to the ICE conversion were moved to the segregated account(s), but the entire secured client liability pertaining to the conversion was not timely moved on Macquarie’s books to segregated account(s), a secured deficiency occurred.
The CEA and CFTC regulations contain provisions to protect the funds of customers trading on both U.S. and foreign exchanges. In relation to customers trading on foreign exchanges, an FCM must account for and maintain money, securities, and property in an amount at least sufficient to cover or satisfy all of its current obligations to foreign futures and options customers in a separate “secured account.” The funds in a secured account are referred to as secured funds.
On Oct. 16, 2012, Macquarie discovered that it was undersecured in the amount of $36.6 million, based on calculations made from balances as of the close of business on Oct. 15. After learning of the deficiency, Macquarie immediately provided notice to the CFTC, the National Futures Association, and various exchanges, in accordance with its regulatory obligations. Macquarie also transferred approximately $45 million from its segregated account to its secured account, curing the deficiency.
During the relevant time, Macquarie maintained sufficient funds to satisfy its secured deficiency; however, funds required to be held in secured accounts are distinct from funds required to be held in segregated accounts. According to the CFTC, Macquarie immediately undertook measures to avoid a similar deficiency from occurring in the future.
SEC halts prime bank investment scheme
The Securities and Exchange Commission (SEC) announced charges and an emergency asset freeze against a Miami-based attorney and other perpetrators of a prime bank investment scheme that promised exorbitant returns from a purported international trading program.
Prime bank schemes lure investors to participate in a sham international investing opportunity with phony promises of exclusivity and enormous profits. The SEC alleges that attorney Bernard H. Butts, Jr. has acted as an escrow agent to enable Fotios Geivelis, Jr. and his purported financial services firm Worldwide Funding III Limited to defraud approximately 45 investors out of more than $3.5 million they invested in a trading program that doesn’t actually exist. Geivelis, who lives in Tampa and uses the alias “Frank Anastasio” with investors, touted returns of 6.6 million Euros (approximately $8.7 million converted to U.S. dollars) for investors within 15 to 45 business days on an initial investment of $60,000 to $90,000 in U.S. dollars. Geivelis and Butts assured investors that their funds would remain with Butts in an escrow account until Worldwide Funding acquired the bank instruments necessary to generate the promised returns. Butts instead has been doling out investor funds almost as soon as they’re received to enrich himself, sales agents, and Geivelis, who has been spending the money on such personal expenses as travel and gambling.
The SEC’s complaint, filed under seal on August 29 in federal court in Miami, also charged three sales agents who Geivelis and Butts paid to sell interests in the scheme: Douglas J. Anisky of Delray Beach, Fla., James Baggs of Lake Forest, Calif., and Sidney Banner of Delray Beach, Fla., and his company Express Commercial Capital. The court granted the SEC’s request for an asset freeze on Aug. 30, and the case was unsealed late Friday, Sept. 6.
“Geivelis attempted to add a twist of legitimacy to a classic prime bank scheme by using a long-time attorney as an escrow agent to give investors the false impression that their money was secure,” say Julie K. Lutz, acting co-director of the SEC’s Denver regional office. “Meanwhile, Geivelis and Butts have misused investor funds and made lulling statements to investors that portray the sham trading program as successful and payments to investors as imminent.”
According to the SEC’s complaint, investors were lured through the Internet, telephone, and personal contact with promises of extraordinary profits. Investors were told their $60,000 to $90,000 investment would pay for bank charges to lease a standby letter of credit (SBLC) in the amount of 10 million Euros from a banking group in Europe. The SBLCs were to be used to acquire loans, and the funds from the loan were to be placed in a securities trading program. Investors were promised that after their initial profit of at least 6.6 million Euro within 15 to 45 business days, the securities trading program would generate a weekly return of approximately 14% for 40 to 42 weeks.
The SEC alleges that investors were falsely promised that their money was being deposited into Butts’ attorney trust account, and Butts would not release the funds until he received proof from the receiving bank that a $10 million Euro SBLC had been deposited into the securities trading program to generate profits for investors. Contrary to these representations by Butts, Geivelis, and the sales agents, no SBLC acquisitions ever occurred, no loans were obtained, and no promised returns were earned in a trading program or paid to investors. Investors were not told that instead of using the funds to obtain SBLCs, Butts and Geivelis each took approximately 45% and paid approximately 10% to the sales agents.
The SEC’s complaint charges all defendants with violations of the antifraud and securities registration provisions of the federal securities laws. The complaint also charges Butts, Geivelis, Anisky, Banner, Express Commercial Capital, and Baggs with violations of the broker-dealer registration provisions of the federal securities laws. The SEC seeks disgorgement of ill-gotten gains, financial penalties, and permanent injunctions. The SEC’s complaint names several relief defendants: Butts’ law firm, his wife Margaret A. Hering, and Butts Holding Corporation as well as two other companies with ties to Geivelis (Global Worldwide Funding Ventures) and Anisky (PW Consulting Group). The complaint names relief defendants for the purposes of recovering any ill-gotten assets from the fraud that may be in their possession.
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