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Opalesque Futures Intelligence

Regulators: A big spate of lawsuits and other actions against foreign exchange trading firms.

Thursday, February 24, 2011

Numerous Charges Against Forex Firms

In past few weeks the Commodity Futures Trading Commission took action against a significant number of operators in the foreign currency market. This is a continuing trend. In recent years the regulator investigated and often brought charges against forex businesses and repeatedly warned that there has been a sharp rise in scams in this area.

The 2010 Dodd-Frank Act gave the CFTC additional powers to regulate foreign exchange dealers. On the basis of new rules that require forex dealers to protect investors, in late January the agency started 13 lawsuits against 14 entities, accusing them of operating without being registered with the CFTC and illegally soliciting money from the public for forex investments.

In separate actions, the regulator got court orders freezing the assets and records of several forex managers, brought new fraud charges and obtained a restitution order in an ongoing case.

Some of the accusations are about relatively small sums of money. Thus two residents of North Carolina and their company, PMC Strategy LLC, were charged with fraudulently soliciting $669,000 for foreign exchange trading accounts. They allegedly lost about $300,000, concealed the losses, used $151,000 to pay customers phantom returns and took some $129,000 for their personal use.

But other forex cases involve many millions of dollars.

Sky Diving and Divine Stewardship

A group of people from Ohio and North Carolina are accused of a $35 million Ponzi scheme. Among the charges are the misuse of customer funds to start side businesses and finance maid services, cars, real estate and lavish trips such as a sky diving holiday.

The CFTC says the defendants solicited money from at least 240 individuals to invest in off-exchange forex through the Black Diamond trading platform, which, however, did not exist. They issued monthly statements showing large but fictitious profits and used some of the funds to pay the supposed profits to customers.

A court froze the assets of this group- Keith Simmons, Deanna Salazar, Bryan Coats, Jonathan Davey and various companies they controlled, including Black Diamond Capital Solutions LLC, Safe Harbor Ventures Inc., Safe Harbor Wealth Investments Inc., and Divine Stewardship LLC.

The US. Attorney's Office for the Western District of North Carolina has brought criminal charges against some of the individuals. Mr. Simmons was convicted of securities fraud, wire fraud and money laundering and Ms. Salazar pleaded guilty to fraud conspiracy and tax evasion.

Septuagenarian Accused

In another case 70-year-old Larry Benny Groover of Texas was charged with fraudulently raising $1.4 million to trade forex. He was never registered with the CFTC and had served time in prison after being convicted of securities fraud in 1991.

The complaint says he traded with a portion of the capital, lost most of this and issued false account statements to at least one customer, showing profits though he had lost nearly all of that customer's money. In addition, he allegedly misappropriated more than $750,000 from at least 22 customers.

The misappropriated money was spent on personal expenses such as medical care, groceries, dining, cable television, auto repairs, gasoline and insurance, as well as to purchase software and trade publications and make payments to Mr. Groover and his wife.

Separately, Anthony Eugene Linton of Arizona faces charges of fraud and misappropriation of customer money in a Ponzi scheme involving off-exchange forex trading. He allegedly raised at least $650,000, telling people that they would make 100% a year on their investments and there were no risks in trading foreign currency through his Private Trading Pool.

Also, in January a federal judge ordered the defendants to pay more than $4 million in restitution and penalties in a case the CFTC filed more than a year ago against Beau Diamond and Diamond Ventures LLC of Florida for operating a forex scam. This scheme took in $37 million from 200 customers.

This article was published in Opalesque Futures Intelligence.
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