DALLAS-BASED COMMODITY POOL FRAUDSTER PERMANENTLY BANNED FROM COMMODITIES TRADING

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 

Federal Court in Texas Orders Dallas-based Steven Lyn Scott to Pay $766,625.30 in Restitution and a $700,000 Penalty to Settle Charges of Solicitation Fraud, Misappropriation, and Registration Violations in Connection with a Forex Commodity Pool Scheme

The Court earlier entered a Consent Order against Scott, permanently banning him from the commodities industry

Washington, DC - The U.S. Commodity Futures Trading Commission (CFTC) today announced that the U.S. District Court for the Northern District of Texas issued a supplemental Consent Order of Permanent Injunction requiring Defendant Steven Lyn Scott (a/k/a Stevon Lyn Scott) of Dallas, Texas, to pay a $700,000 civil monetary penalty (CMP) and restitution of $766,625.30, plus post-judgment interest on both the CMP and restitution obligation. An earlier Consent Order of the Court, entered on May 5, 2014, imposes a permanent trading and registration ban against Scott and prohibits him from violating provisions of the Commodity Exchange Act (CEA) and CFTC regulations, as charged. Scott has never been registered with the CFTC in any capacity.

The Court’s Orders stem from a CFTC enforcement action charging Scott with solicitation fraud, misappropriation of customer funds, and registration violations in connection with operating a fraudulent commodity pool scheme (see CFTC Press Release 6885-14, March 20, 2014).

The Court finds that, from at least January 5, 2009 and through at least March 30, 2011, Scott fraudulently solicited at least $1,146,000 from 43 pool participants to participate in pooled investment vehicles to trade in off-exchange agreements, contracts, or transactions in foreign currency (forex) on a leveraged or margined basis.  Scott, directly and by word of mouth, solicited pool participants located in Texas and solicited at least some pool participants by email.  Pool participants included Scott’s friends, family members, and other members of the general public.

Specifically, according to the May 5, 2014 Order, Scott solicited pool participants to participate in pooled investment vehicles in the name of an entity he owned and controlled, Stewardship Financial Exchange, Inc.  In his solicitations, Scott guaranteed monthly returns between two percent and five percent to pool participants who entered into six-month contracts, purportedly generating such returns by pooling participants’ funds and trading in off-exchange forex transactions on a leveraged or margined basis.

However, the Order finds that instead of trading pool participants’ funds, Scott misappropriated a portion of pool participants’ funds by depositing their funds into his personal and corporate bank accounts and then using the funds for personal expenses.  Scott also misappropriated pool participant funds by trading them in his personal trading accounts and by using them to pay purported interest and principal to pool participants in the manner of a Ponzi scheme.

In soliciting actual and prospective customers, the Order finds, Scott omitted material facts, including but not limited to the fact that (1) pool participant funds were misappropriated; (2) the pools did not have any trading accounts in their names; (3) Scott was paying purported interest and principal with his own funds and with the funds of other pool participants in the manner of a Ponzi scheme; and (4) Scott was acting as a Commodity Pool Operator without being registered as such, as required by the CEA and CFTC Regulations.  Scott’s omissions were material and operated as a fraud or deceit upon pool participants.

The CFTC cautions pool participants that restitution orders may not result in the recovery of money lost because the wrongdoers may not have sufficient funds or assets. The CFTC will continue to fight vigorously for the protection of customers and to ensure the wrongdoers are held accountable.

The CFTC thanks the Office of the U.S. Attorney for the Northern District of Texas for its assistance in this matter.

CFTC Division of Enforcement staff members responsible for this case are Jason Mahoney, George Malas, Michael Amakor, Timothy J. Mulreany, and Paul Hayeck.

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CFTC’s Foreign Currency (Forex) Fraud and Commodity Pool Fraud Advisories

The CFTC has issued several customer protection Fraud Advisories that provide the warning signs of fraud, including the Foreign Currency Trading (Forex) Fraud Advisory, which states that the CFTC has witnessed a sharp rise in Forex trading scams in recent years and helps customers identify this potential fraud.

The CFTC has also issued a Commodity Pool Fraud Advisory, which warns customers about a type of fraud that involves individuals and firms, often unregistered, offering investments in commodity pools.

CALIFORNIA COMPANY AND PRINCIPAL CHARGED WITH COMMODITY POOL FRAUD AND MISAPPROPRIATION

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 
CFTC Charges Direct Investment Products, Inc. and Its Principal, Alexander Glytenko, with Commodity Pool Fraud and Misappropriation

Washington, DC - The U.S. Commodity Futures Trading Commission (CFTC) filed a civil enforcement action charging Carlsbad, California-based Direct Investment Products, Inc. (DIP) and its principal, Alexander Glytenko, with fraudulently soliciting approximately $3.9 million from approximately 761 individuals residing in Russia and various former republics of the former Soviet Union to trade futures, among other products, through a commodity pool known as DIP Capital Partners (the Pool) and misappropriating at least $464,000 of the pool participant funds.

The CFTC Complaint alleges that, from approximately 2005 until approximately 2010, the Defendants, either directly or through their agents, knowingly misrepresented the Pool’s performance history to both prospective and actual participants by a) presenting profitable performance figures for various of the Pool’s funds for years in which they knew the Pool did not exist, b) presenting hypothetical trading performance without labeling it as such, and c) presenting at least two years of profitable performance results for one of the Pool’s funds when, in fact, that fund had experienced losses during those years.

Specifically, the CFTC Complaint alleges, among other things, that, in the course of soliciting prospective participants for the Pool, the Defendants fraudulently claimed that the Pool made annual profits from 2003 through 2008 ranging from 12.60% to 47.20%, and that two of the Pool’s individual funds made annual profits from 2004 through 2008 ranging from 12.01% to 41.12% and 10.16% to 49.79%, respectively. The Complaint also alleges that the Defendants made similarly fraudulent profit claims in statements provided to actual participants, with some showing historical profits going back as far as 2002.

In fact, according to the Complaint, the Pool did not even exist until 2005, the profit figures claimed by the Defendants were not reflective of actual trading, but were based on the hypothetical performance of Defendant’s proprietary trading strategy, and certified financial statements of one of the Pool’s funds showed actual losses in 2007 and 2008.

The Complaint further alleges that in 2009, at a time when the Defendants had imposed a freeze on the withdrawal of participants’ funds as a result of substantial losses incurred by the Pool, Glytenko used participants’ funds to make a loan of $464,000 from DIP to himself. This loan has never been repaid, according to the Complaint.

DIP has been registered with the CFTC as a Commodity Trading Advisor (CTA) and as a Commodity Pool Operator (CPO) since April 2007. Glytenko has been registered as an Associated Person (AP) of DIP since April 2007.

In its continuing litigation, the CFTC seeks civil monetary penalties, restitution, disgorgement of ill-gotten gains, trading and registration bans, and a permanent injunction against further violations of the federal commodities laws, as charged.

CFTC Division of Enforcement staff members responsible for this case are Alan I. Edelman, James H. Holl, III, Michelle Bougas, Dmitriy Vilenskiy, and Gretchen L. Lowe.

DEFENDANTS ORDERED TO PAY MILLIONS FOR OPERATING COMMODITY POOL PONZI SCHEME

FROM: U.S. COMMODITY FUTURES TRADING COMMISSION

Federal Court in Florida Orders Defendants Philip Milton and Trade, LLC, and Four Relief Defendants to Pay Millions in Restitution, Disgorgement, and Civil Monetary Penalties for Operating a $28.4 Million Ponzi Scheme

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that Judge Daniel Hurley of the U.S. District Court for the Southern District of Florida entered supplemental consent Orders against Defendants Philip Milton of Palm Beach Gardens, Florida, and Trade, LLC, based in Palm Spring Gardens, Florida, requiring Milton to pay restitution of more than $10.8 million and a $7.6 civil monetary penalty and Trade, LLC, to pay restitution of over $11.4 million and a $28.4 million civil monetary penalty for operating a multi-million dollar Ponzi commodity pool scheme.

The court also required Relief Defendants BD, LLC, CMJ Capital, LLC, Center Richmond, LLC, and TWTT, LLC, all Florida corporations, to disgorge $545,200, $2,826,981.37, $1,253,862.62, and $100,000, respectively.

The CFTC filed a Complaint against Defendants Philip Milton, William Center, Gregory Center, and Trade, LLC on June 22, 2010, in the U.S. District Court for the Southern District of Florida. The Complaint charged the Defendants with fraudulently soliciting approximately $28.4 million from at least 2,000 customers to participate in a commodity pool to trade futures and securities and with misappropriating at least $9.6 million of pool funds for their personal use and to continue the scam. The complaint also named the four Relief Defendants, all corporations owned by the individual defendants, for receiving funds as a result of the defendants’ misappropriation to which they have no legitimate entitlement.

On, April 15, 2011, the court entered a consent Order of permanent injunction against Milton and entered a similar consent order against Trade, LLC and the Relief Defendants on September 6, 2011. These consent Orders found the consenting parties liable for the fraud and misappropriation, as charged in the CFTC’s complaint, and ordered them to pay restitution, disgorgement, and civil monetary penalties in amounts to be determined at a later day. The CFTC’s litigation continues against Defendants William Center and Gregory Center.

The CFTC appreciates the assistance of the U.S. Securities and Exchange Commission and the Florida Office of Financial Regulation.

CFTC Division of Enforcement staff members responsible for this case are Jason Mahoney, Timothy J. Mulreany, George Malas, and Joan Manley.

CFTC CHARGES CALIFORNIA RESIDENT IN ALLEGED COMMODITY POOL FRAUD SCHEME

FROM: U.S. COMMODITY FUTURES TRADING COMMISSION

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced the filing of a complaint in the U.S. District Court for the Northern District of California, charging defendant Jeffrey Gustaveson of Carlsbad, Calif., with fraud, misappropriation, and issuing false statements in an approximate $2.5 million commodity pool scheme.

According to the CFTC complaint, filed on August 29, 2012, from at least January 2010 through approximately July 2010, Gustaveson accepted at least $2,495,000 million from at least four individuals to invest in a commodity futures pool. However, rather than trade pool participants’ funds as promised, Gustaveson allegedly only used approximately $400,000 of the funds to trade commodity futures, which resulted in a net loss. Gustaveson kept the remaining funds in a checking account from which he used at least $400,000 of pool funds to pay his personal expenses, including hotels, restaurants, and online gambling, according to the complaint.

Furthermore, to conceal his fraud, Gustaveson allegedly distributed false trading account statements to pool participants that misrepresented the value of the pool, reported false profits, and failed to disclose Gustaveson’s misappropriation of pool participants’ funds. When his fraud was exposed, Gustaveson allegedly repaid a portion of pool participants’ funds, but, despite repeated requests to do so, Gustaveson allegedly has not returned $415,000 of pool participants’ money. According to the CFTC complaint, Gustaveson admitted in a California state court proceeding that he had misappropriated investor money and falsified financial statements in connection with the acts described in the CFTC complaint.

In its continuing litigation, the CFTC seeks restitution to defrauded customers, a return of ill-gotten gains, civil monetary penalties, trading and registration bans, and permanent injunctions against further violations of federal commodities laws, as charged.

CFTC Division of Enforcement staff members responsible for this case are Lindsey Evans, Mary Beth Spear, Diane Romaniuk, Ava M. Gould, Scott R. Williamson, Rosemary Hollinger, and Richard B. Wagner.