COMMODITY POOL FRAUDSTER GETS $10 MILLION IN SANCTIONS

FROM:  COMMODITY FUTURES TRADING COMMISSION 
Federal Court in Nebraska Imposes More than $10 Million in Sanctions against Michael B. Kratville, Jonathan W. Arrington, Elite Management Holdings Corp., and MJM Enterprises LLC for Commodity Pool Fraud

Washington, DC - The U.S. Commodity Futures Trading Commission (CFTC) today announced that Chief Judge Laurie Smith Camp of the U.S. District Court for the District of Nebraska entered a summary judgment Order against Defendant Michael B. Kratville, a licensed attorney, and a default judgment Order against Defendants Jonathan W. Arrington, Elite Management Holdings Corp. (Elite), and MJM Enterprises LLC (MJM), all of Omaha, Nebraska, in a CFTC enforcement action charging the Defendants with commodity pool fraud in violation of the Commodity Exchange Act (CEA) and CFTC Regulations (see CFTC Press Release 6045-11, May 26, 2011).

The court’s Orders impose $4,368,368.71 in restitution and require that Kratville, Arrington, Elite, and MJM pay a total of $5,729,142.87 in civil monetary penalties. The Orders further impose permanent trading and registration bans on Kratville, Arrington, Elite, and MJM and prohibit them from violating the anti-fraud and disclosure provisions of the CEA and CFTC Regulations, as charged.

More than $700,000 of Pool Participant Funds Were Misappropriated for Country Club Memberships and Travel to Europe

Specifically, the default judgment Order finds that, from at least August 2005 until at least July 2008, Arrington, Elite, and MJM, through a variety of commodity pools, defrauded at least 130 pool participants of more than $4.7 million, of which they misappropriated more than $700,000 to, among other things, pay for country club memberships and travel to Europe. In soliciting for their pools that purported to trade in commodity futures contracts and off-exchange foreign currency contracts, Arrington, Elite, and MJM made fraudulent statements that their proprietary trading program consistently earned gains of up to six percent monthly and never risked more than 10 percent of principal at any one time. According to the summary judgment Order, Kratville made similar fraudulent statements. Both the default judgment and summary judgment Orders also find that Kratville, Arrington, Elite, and MJM fraudulently boasted to investors that they had received many multi-million dollar offers to buy their system.

In addition, the summary judgment Order finds that Kratville, personally and through his involvement with Elite and MJM, defrauded pool participants through fraudulent solicitations, false statements, efforts to hide investor losses, and his involvement with Elite and MJM. The court found that Kratville had “an intent to keep the scheme in place as long as possible and avoid detection as long possible.” For example, the court cited Kratville’s own email that stated, “Someone will find out we have been acting illegally too. If this thing blows up, I will lose by bar license . . . My other fear is . . . [the] state and feds finding out what we were doing.”

The court’s Orders also noted that when the Nebraska Department of Banking and Finance (NDBF) inquired about the operations of the pools, Kratville and Elite lied about the identity of the pools’ traders. Also, when the NDBF ordered the pools operated by Elite to be immediately shut down, Arrington and Kratville formed a new corporation, MJM, to continue their fraudulent scheme, told the NDBF that Elite was closed, and failed to disclose that a new operation similar to the Elite had begun, according to the Orders.

The court also found that because Kratville and Arrington controlled Elite and MJM and actively participated in Elite’s and MJM’s unlawful conduct, they were liable for all of Elite’s and MJM’s violations. Kratville, Arrington, Elite, and MJM were also liable for failing to register with the CFTC, as required.

A Related Criminal Action

In a related criminal action, on April 16, 2013, a federal grand jury in the District of Nebraska indicted Kratville, Arrington, and Defendant Michael J. Welke, with whom the CFTC previously settled (see CFTC Press Release 6516-13, February 13, 2013) on 14 counts arising from this fraud.

The CFTC thanks the NDBF for its assistance.

FLORIDA COURTS ORDERS OVER $ 8 MILLION IN SANCTIONS IN COMMODITY POOL FRAUD CASE

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 
Federal Court in Florida Orders More than $8 Million in Sanctions against Defendants Philip Leon and Paul Rangel for Commodity Pool Fraud and Misappropriation

In a Parallel Criminal Action, Leon Pleaded Guilty to Mail and Wire Fraud

Washington, DC — The U.S. Commodity Futures Trading Commission (CFTC) obtained federal court Orders requiring Defendants Philip Leon, of Altamonte Springs, Florida, to pay a $4 million civil monetary penalty and $1,598,343 in disgorgement and Paul Rangel, of Apopka, Florida, to pay a $1.7 million civil monetary penalty and $819,781 in disgorgement to settle CFTC charges related to a fraudulent commodity pool scheme. The consent Orders of permanent injunction, both entered on December 17, 2013 by Judge Gregory A. Presnell of the U.S. District Court for the Middle District of Florida, also impose permanent trading and registration bans against Leon and Rangel and prohibit them from violating provisions of the Commodity Exchange Act and a CFTC Regulation, as charged.

The Orders stem from a CFTC Complaint filed on July 16, 2012 against Leon and Rangel, as well as Defendants John G. Wilkins and their company Altamont Global Partners LLC (see CFTC Press Release 6315-12).

The Orders find that, from approximately March 2009 to at least June 22, 2012, Leon and Rangel operated a fraudulent scheme that solicited at least $18 million from approximately 241 commodity pool participants to trade, among other things, commodity futures contracts, options on futures, and off-exchange foreign currency contracts. The Orders further find that Leon and Rangel misappropriated a combined total of more than $2.4 million of pool participants’ funds and issued false statements to pool participants regarding the profitability and value of their accounts. Specifically, Leon misappropriated nearly $1.6 million and Rangel nearly $819,000 of pool participants’ funds as “loans” and “advances” from the commodity pools, designed to disguise their misappropriation, the Orders find.

In a related criminal action, on November 6, 2013, Leon pleaded guilty to one count of conspiracy to commit mail fraud and wire fraud (see United States v. Leon, No. 13-cr-249 (M.D. Fla. Oct. 2, 2013)). Leon has not yet been sentenced.

The CFTC’s litigation continues against Altamont Global Partners and Wilkins.

The CFTC thanks the National Futures Association for its assistance.

CFTC Division of Enforcement staff members responsible for this case are Rachel Hayes, Peter Riggs, Stephen Turley, Charles Marvine, Rick Glaser, and Richard Wagner.

CFTC CHARGES COLORADO MAN WITH COMMODITY POOL FRAUD

FROM: U.S. COMMODITY FUTURES TRADING COMMISSION
CFTC Charges Colorado Resident Michael Bruce Gale with Commodity Pool Fraud
Gale also charged with misappropriation, commingling investor funds, false statements, and failure to register
Federal court issues emergency order freezing Gale’s assets and protecting books and records

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that it filed a civil anti-fraud enforcement action against Michael Bruce Gale (Gale) of Littleton, Colo., individually and doing business as Capital Management Group (CMG). The CFTC complaint charges Gale with defrauding investors in connection with operating a commodity pool to trade commodity futures contracts, making false statements to pool participants, misappropriating pool funds, commingling investor funds with pool funds, and failing to register as a commodity pool operator with the CFTC.

The complaint alleges that from at least the summer of 2007 through the present, Gale, individually and doing business as CMG, fraudulently solicited and accepted at least $742,606 from at least three individuals to trade commodity futures on the pool’s behalf.

The CFTC’s complaint was filed under seal on July 25, 2012, in the U.S. District Court for the District of Colorado, and subsequently Senior U.S. District Judge John L. Kane entered an emergency order freezing Gale’s assets and prohibiting the destruction or alteration of books and records.

According to the complaint, while soliciting and accepting funds, Gale allegedly misrepresented his past trading success and the pool’s profitability and value. For example, Gale allegedly represented to prospective and actual pool participants that 1) participants earned an approximate 100 percent return on their investments over the prior five years, 2) that Gale made profits over $2.4 million trading commodity futures for himself and others each year between 2006 and 2008, and 3) that the pool’s value exceeded $3.5 million. In reality, according to the complaint, Gale traded commodity futures contracts in two accounts into which he deposited less than $300,000 and lost over $62,000 trading between approximately June 3, 2009, and September 15, 2011. In addition, the complaint charges Gale with misappropriating a significant portion of pool participants’ funds between at least February 9, 2008 and the present rather than trade those funds in the pool as promised.

To conceal and perpetuate the fraud, Gale allegedly provided false tax records to prospective and actual participants, issued at least one fictitious trading account statement, reported false profits to participants, and failed to disclose trading losses and his misappropriation of pool participants’ funds.

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

The CFTC appreciates the assistance of the Department of Justice for the District of Colorado and the Federal Bureau of Investigation.

CFTC Division of Enforcement staff members responsible for this case are Allison Passman, Mary Elizabeth Spear, Ava Gould, Scott Williamson, Rosemary Hollinger, and Richard Wagner.