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.

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.