Sun, Apr 22, 2018
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Opalesque Futures Intelligence

Regulators & Courts: Futures-related fraud cases continue to pile up.

Tuesday, February 24, 2009

REGULATORS & COURTS

Futures Ponzi Schemes Continue to Emerge

It looks like there is an epidemic of futures-related scams, with new ones coming to light every week. But the large number of incidents may be a result of regulators becoming more aggressive in investigating and taking action.

Since the last issue of OFI two weeks ago, the US Commodity Futures Trading Commission announced the following enforcement actions:

A federal court froze the assets of an Illinois Commodity Pool Operator run from Toronto, Canada. CFTC charged that Brookshire Raw Materials Management LLC and its Canadian managers – John M. Marshall and Stephen Z. Adams – took more than $4.6 million in a Ponzi Scheme from September 2006 to December 2008. They were supposed to invest client proceeds in a portfolio of commodity futures and forward contracts designed to replicate the investment methodology of corresponding indexes developed by another Brookshire firm. According to the CFTC, in December 2008 Messrs. Marshall and Adams closed their offices, destroyed company data stored on computer servers and failed to acknowledge redemption requests. The Ontario Securities Commission worked with the CFTC on the case. Regulators are seeking further penalties.

CFTC charged Hawaii-based Marvin Cooper and Billion Coupons Inc. with defrauding deaf people in a $4.4 million foreign currency scheme. Mr. Cooper allegedly attracted customers with promises of 15% to 25% monthly returns from foreign exchange trading. He lured 125 deaf Americans and Japanese, using his own deafness to relate to them. The CFTC says he spent more than $1.4 million of client money for such items as flying lessons and a $1 million home and used $1.6 million to pay out fake profits as well as commissions. A court froze his and the firm's assets and appointed a temporary receiver.

CFTC sought to freeze the assets of Mark Trimble of Edmond, Oklahoma, and his company, Phidippides Capital Management LLC, for deceiving some 60 investors in the Phidippides hedge fund. Mr. Trimble allegedly operated the $34 million fund from 2005 on and since at least October 2007 issued false account statements to cover up multi-million trading losses while paying redeemers from other investors' money. In addition, he is charged with taking over $1 million in management fees based on false reports of profits.

Stephen Obie, acting director of the CFTC enforcement division, says “The CFTC continues to zealously prosecute these lecherous schemes, so that as many assets can be preserved as possible as we fulfill our vital mission to protect customers from fraud and abuse.”

Frank Anthony DeSantis III of Florida was sentenced to 108 months in prison and over $2 million in tax penalties for wire fraud and conspiracy to defraud the Internal Revenue Service while operating and having a stake in several commodity investment and telemarketing schemes in Southern Florida. He misrepresented material facts to potential customers in order to convince them to invest in foreign currency options and deliberately failed to tell customers that more than 95% of customers lost money and that he was previously barred by the CFTC from acting as a commodities broker.

CFTC ordered a former employee of the Bank of America to pay a $360,000 penalty for false trading reports he submitted to the bank, in addition to a restitution of the $12 million loss he caused. Michael Moster, currently of New York, was a proprietary trader for the Bank of America in January 2004, when he falsely reported that he purchased 4,000 Treasury futures contracts. This concealed the risk associated with large unauthorized positions in Treasury bonds that he had established, by making it appear as if the long futures position hedged the Treasury bond risk. By the following week, the fictitious trades inflated the value of his trading book by over $12 million. The sale of the unauthorized Treasury bond position caused a loss of $12.2 million. In the criminal case against him, he is required to compensate the bank for the loss.

On a separate matter, the CFTC seeks public comment on a proposal to change the requirements for Acknowledgment Letters. These are letters that a futures commission merchant or derivatives clearing organization must obtain from any depositor holding segregated customer funds or funds of foreign futures or foreign options customers. The proposal can be obtained from the website, www.cftc.gov and those interested can submit their comments via email to secretary@cftc.gov. All comments are to be posted on the website.



 
This article was published in Opalesque Futures Intelligence.
Opalesque Futures Intelligence
Opalesque Futures Intelligence
Opalesque Futures Intelligence
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing


  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Investing - Sequoia takes Facebook stake as shares slide in data controversy, $1.4b hedge fund sees intact fundamentals for Facebook, Jim Cramer reveals some 'suggested hedge fund trades' amid the Trump tariffs[more]

    Sequoia takes Facebook stake as shares slide in data controversy From Bloomberg.com: The $4.2 billion Sequoia Fund bought a small position in Facebook Inc. as the stock slid late in the first quarter, investment manager Ruane, Cunniff & Goldfarb told clients. "The recent controversy enab

  2. Activist Investors - Blue Sky-owned Wild Breads faces uncertain future[more]

    From AFR.com: A Blue Sky private equity investment in artisan-style baker Wild Breads enjoyed multiple valuation upgrades despite losing millions and breaching its lending covenants, accounts lodged with the regulator last week show. Wild Breads lost $2.4 million in 2017, but Blue Sky ascribed a hig

  3. Opalesque Exclusive: Barnegat to close hedge fund to outside investors on weak opportunities[more]

    Komfie Manalo, Opalesque Asia: Bob Treue's Barnegat Fund Management said it is closing its $666m fixed income relative value hedge fund to outside investors. "The negative side to gains in Fixed Income Arbitrage is that unless we find new opportunit

  4. Investing - Hedge fund makes a big bet on malls, British hedge fund manager Odey short UK government bonds on QE bet[more]

    Hedge fund makes a big bet on malls From Barrons.com: The dominant narrative on American shopping malls is that they're dead. Crushed by Amazon.com, many brick-and-mortar retail stores are destined for bankruptcy. And where is the most retail, clustered all together? Malls. From a

  5. Performance - Hedge funds suffer first back-to-back loss in two years, Netflix performance burns hedge fund short sellers, Macro hedge fund up 14.5% in first quarter sees dollar falling, Renaissance Technologies rebounds across hedge funds in March[more]

    Hedge funds suffer first back-to-back loss in two years From Bloomberg.com: Hedge Fund returns sank for a second straight month in March, the first back-to-back loss since the first two months of 2016, as trade wars, tech-sector woes and a Fed rate hike dragged down the S&P 500 from its