The Blotter: Nevada firms charged with precious metals fraud

Also, three FCMs fined for secured fund lapses

This week's regulatory actions: 

NEVADA

CFTC charges Lions Wealth, 20/20 Precious Metals, and Bharat Adatia in fraudulent precious metals scheme 

The U.S. Commodity Futures Trading Commission (CFTC) filed an injunctive enforcement action in the U.S. District Court for the District of Nevada against three Nevada corporations: Lions Wealth Holdings, Inc. and Lions Wealth Services, Inc., both doing business as Lions Wealth Capital, and 20/20 Precious Metals, Inc., and their principal Bharat Adatia of San Juan Capistrano, Cal. The CFTC charges that the three companies and Adatia took in more than $2.4 million in customer funds between July 2011 and February 2013, while fraudulently marketing illegal, off-exchange trading of precious metals on a leveraged, margined or financed basis.  

According to the CFTC, the defendants falsely claimed to sell gold, silver, platinum, and palladium to retail customers in retail commodity transactions. The complaint further alleges that the defendants offered to arrange for loans to customers to purchase physical metals and the storage and transfer of customers’ physical metals to an independent depository. The complaint further alleges that these statements were false, in that the defendants did not sell or transfer ownership of any physical metals, did not disburse funds as loans, and did not cause any metals to be stored in any depositories for or on behalf of Lions Wealth and 20/20 Metals customers. Rather, the complaint states that defendants forwarded customer funds to a third-party, Hunter Wise Commodities, LLC and its various subsidiaries and related entities, which also did not purchase or hold metals in the customers’ names. The CFTC alleges that defendants nevertheless charged customers storage fees and other charges on metals that did not exist and interest on loans that were never made. 

According to the CFTC, Lions Wealth and 20/20 Metals collectively took in $2,474,207 in customer funds between July 16, 2011 and Feb. 22, 2013.  During that same time, at least 44 Lions Wealth retail customers collectively incurred at least $1,807,712 in trading losses, commissions, interest charges and other fees, and at least 30 20/20 Metals retail customers collectively incurred at least $570,266 in trading losses, commissions, interest charges and other fees, according to the complaint. 

The CFTC sued Hunter Wise in the U.S. District Court for the Southern District of Florida on Dec.5, 2012, charging it with engaging in illegal, off-exchange precious metals transactions, as well as fraud and other violations. On Feb. 25, 2013, the U.S. District Court issued a preliminary injunction against Hunter Wise, froze the firm’s assets, and appointed a corporate monitor to assume control over those assets.  The CFTC also brought actions against other purported precious metals dealers that solicited and introduced customer accounts to Hunter Wise..

ILLINOIS

ADMIS fined $425,000 for commingling customer funds with funds in non-customer accounts 

The CFTC issued an order filing and simultaneously settling charges against ADM Investor Services, Inc. (ADMIS), for unlawfully commingling customer funds with funds held in its non-customer accounts. ADMIS must pay a civil monetary penalty of $425,000, cease and desist from violating the CEA and CFTC rules and to implement improved procedures, to the extent that it has not already done so, to ensure the proper classification of such accounts. 

FCMs are required to segregate funds held on behalf of customers and are not permitted to commingle customer funds with the funds of any other person.  The CFTC states ADMIS treated the accounts of multiple of its affiliates as customer accounts, notwithstanding that ADMIS’s parent corporation, Archer Daniels Midland Company (ADM), had ownership interests in the affiliates ranging from 16% to 100%, and voting interests in each of the affiliates (by virtue of ADM’s authority to appoint representatives to the affiliates’ governing boards or equivalent governing bodies).  

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