FLORIDA COUPLE, COMPANY ORDERED TO PAY $5.76 MILLION FOR FOREX FRAUD

FROM:  COMMODITY FUTURES TRADING COMMISSION 
Federal Court Orders St. Augustine, Florida Couple and Their Company to Pay $5.76 Million for Defrauding Customers in Foreign Currency Scheme

Queen Shoals Consultants, Gary D. Martin, and Brenda K. Martin Charged in March 2011 CFTC Anti-Fraud Action

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) obtained federal court supplemental consent Order requiring Defendants Gary D. Martin and Brenda K. Martin of St. Augustine, Florida, and their company, Queen Shoals Consultants, LLC (QSC) of Charlotte, North Carolina, to jointly pay a total of $5.76 million in civil monetary penalties for defrauding customers through a retail foreign currency (forex) trading scheme (see CFTC Press Release and Complaint 6004-11, March 17, 2011). None of the Defendants has ever been registered with the CFTC.

Specifically, the supplemental Order, entered on May 14, 2013, by Chief Judge Robert Conrad, Jr., of the U.S. District Court for the Western District of North Carolina, requires QSC and Gary Martin to pay a civil monetary penalty (CMP) of $4,320,000 and Brenda Martin to pay a $1,440,000 CMP. The Defendants’ CMP obligation and post-judgment interest shall be joint and several, according to the supplemental Order.

In 2011, the Court Entered a Consent Order of Permanent Injunction

Earlier, on August 1, 2011, Judge Conrad entered a consent Order of permanent injunction against the Defendants (see CFTC Press Release and Order 6090-11), finding that the Defendants defrauded customers in the forex scheme. The Order requires that the Defendants make full restitution “to all persons who gave funds, either directly or indirectly, to Defendants as a result of the course of the illegal conduct” charged in the CFTC Complaint. The Order also required the Defendants to pay a CMP to be determined at a later date.

According to the Order, a website created by the Martins “lured customers by claiming QSC and the Martins had a ‘vast background in financial services’ with over 20 years of experience in financial services and a staff of experts ready to assist customers.” In reality, however, the Defendants had no expertise or experience in trading forex, and all of the representations concerning trading, guaranteed profits, and profitable accounts were false. Furthermore, Gary Martin admitted under oath that the Defendants never engaged in any forex trading or investing on behalf of customers and that there were no forex accounts, according to the Order.

The CFTC’s Complaint charged, among other things, that the Martins, unknown to customers, turned over all customer funds to Sidney S. Hanson of Charlotte, North Carolina, an undisclosed third party, in return for a referral fee of up to five percent of each customer’s initial and subsequent investment. Hanson allegedly paid the Martins at least $1.44 million in such undisclosed referral fees. On August 4, 2009, the CFTC charged Hanson and other Defendants with operating a Ponzi scheme involving more than $22 million in connection with off-exchange forex trading (see CFTC Press Releases 5689-09, August 7, 2009, and 6133-11, November 1, 2011). Hanson pleaded guilty to securities fraud and mail fraud in the criminal matter (United States v. Sidney Stanton Hanson, Case No. 09-CR-09CR139-RJC (U.S. District Court for the Western District of North Carolina)) for acts arising out of his operation of the Queen Shoals Group, among other entities. Hanson was sentenced on April 1, 2011, to 22 years in prison and ordered to pay $33 million in restitution to victims of the Ponzi scheme.

The CFTC appreciates the assistance of the State of North Carolina Department of the Secretary of State, Securities Division.

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

OWNER TRADING COMPANY PLEADS GUILTY TO DEFRAUDING INVESTORS OF OVER $30 MILLION

FROM:  SECURITIES AND EXCHANGE COMMISSION 
Former Owner of a Massachusetts-Based Trading Company Pleads Guilty to Multi-Million Dollar Fraud Scheme

The Securities and Exchange Commission announced today that on March 7, 2014, the former owner of Massachusetts-based Boston Trading and Research, LLC (BTR), pled guilty to charges stemming from his role in an investment scheme that defrauded more than 1,000 investors out of more than $30 million.

Craig A. Karlis, 53, of Hopkinton, MA, pled guilty before U.S. District Court Senior Judge Mark L. Wolf, to nine counts of wire fraud and two counts of filing false tax documents.  His sentencing is currently scheduled for June 2, 2014 at 3:00 p.m.  His business partner, Ahmet Devrim Akyil, 41, formerly of Hingham, MA, was charged with 10 counts of wire fraud.  According to a March 7, 2014 press release issued by the United States Attorney’s Office for the District of Massachusetts (USAO), Akyil left the United States for Turkey in 2009 and remains a fugitive.  The USAO unsealed an indictment charging Karlis and Akyil with criminal violations on October 28, 2010.

Also on October 28, 2010, the Commission filed a civil injunctive action in federal district court in Massachusetts against BTR, and its principals Ahmet Devrim Akyil and Craig Karlis for fraudulently raising millions of dollars from investors in a purported foreign currency (Forex) trading venture. Among other things, the Commission alleges that the defendants misappropriated some investor funds and lost the vast majority of remaining investor funds through Forex trading activity after promising investors that most of their funds were protected from such trading losses.

According to the Complaint, BTR collapsed in September 2008 due to significant losses accrued as a result of concealed trading far past the stop loss limits promised to investors. Ultimately, BTR distributed the remaining funds, which accounted for only approximately 10% of account balances, to its investors.

The Commission’s complaint, which is pending, alleges that BTR, Akyil, and Karlis violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, and Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.  The Commission seeks the entry of a permanent injunction, disgorgement of ill-gotten gains plus pre-judgment interest, and the imposition of civil monetary penalties against BTR, Akyil, and Karlis.

OWNER AND COMPANY ORDERED TO PART WITH $9.3 MILLION IN CFTC ANTI-FRAUD CASE

FROM:  COMMODITY FUTURES TRADING COMMISSION
Federal Court in Texas Orders Robert Mihailovich, Sr. and Growth Capital Management LLC to Pay over $9.3 Million in CFTC Anti-fraud Action
Washington, DC - The U.S. Commodity Futures Trading Commission (CFTC) today announced that it obtained an order of permanent injunction against defendants Robert Mihailovich, Sr. (Mihailovich, Sr.) of Rockwall, Texas, and Growth Capital Management LLC (GCM) requiring Mihailovich, Sr. and GCM to make restitution to defrauded customers, disgorge ill-gotten gains, and pay a civil monetary penalty together, totaling over $9.3 million for fraudulently soliciting over $30 million from customers to trade commodity futures contracts and foreign currency (forex). The order also imposes permanent trading and registration bans against the defendants.

The court’s order, entered on June 26, 2012, arises out of a CFTC complaint filed on July 27, 2010, against Mihailovich, Sr., GCM, and Robert Mihailovich, Jr. (Mihailovich, Jr.), Mihailovich, Sr.’s son. As alleged in the complaint, Mihailovich, Sr. was convicted and incarcerated on federal wire fraud charges, served 27 months, and while on a three-year supervised release, fraudulently solicited and accepted more than $30 million from approximately 93 customers to open managed trading accounts. The complaint also alleged that Mihailovich, Jr., at the time of GCM’s initial registration, failed to disclose Mihailovich, Sr.’s involvement with GCM, and failed to disclose in CFTC registration filings that his father was a controlling principal of GCM.

Previously, the federal court had entered an order of default judgment against GCM on March 15, 2011. The federal court later also entered an order of default judgment against Mihailovich, Sr. on November 22, 2011, as a sanction for discovery violations.

The federal court’s June 26, 2012, order finds that during discovery Mihailovich, Sr. engaged in a pattern of willfulness and bad faith. Mihailovich, Sr. failed to attend a number of court-ordered hearings, repeatedly failed to abide by court orders, failed to communicate with plaintiff CFTC, failed to appear or respond to his scheduled deposition, and failed to respond to written discovery requests, according to the order.

The June 26, 2012 order imposes sanctions against Mihailovich, Sr. and GCM arising out of the prior default judgments against them. The order requires Mihailovich, Sr. and GCM jointly and severally to pay $3,475,112 in restitution, to disgorge $389,006 in ill-gotten gains, and to pay a civil monetary penalty of $5,440,000. The order also permanently prohibits the defendants from violating the Commodity Exchange Act and CFTC regulations, as charged, and from engaging in certain commodity-related activities, including personal trading and applying for registration or claiming exemption from registration with the CFTC.

The CFTC previously obtained a consent order against Mihailovich, Jr., that imposed a $40,000 civil monetary penalty and banned him from seeking registration with the CFTC for 10 years and from engaging in certain commodity-related activities, including trading, for 5 years.  The CFTC thanks the U.S. Attorney’s Office for the Northern District of Texas, the Securities and Exchange Commission’s Fort Worth Regional Office, and the National Futures Association for their assistance.