COURT IMPOSES $35 MILLION IN SANCTIONS AGAINST DEFENDANTS FOR ROLES IN PRECIOUS METALS FRAUD SCHEME

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 

Federal Court in Florida Imposes over $35 Million in Sanctions against Florida Company AmeriFirst Management LLC and its Principals, John P. D’Onofrio, George E. Sarafianos, and Scott D. Piccininni, for Fraudulent Precious Metals Scheme

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) obtained a federal court Supplemental Consent Order requiring Defendants John P. D’Onofrio of Fort Lauderdale, Florida, George E. Sarafianos of Lighthouse Point, Florida, Scott D. Piccininni of Fort Lauderdale, Florida, and their Florida company AmeriFirst Management LLC jointly and severally to pay more than $25 million in restitution and a $10 million civil monetary penalty in connection with operating a fraudulent precious metals scheme (see CFTC Press Release and Complaint 6655-13, July 30, 2013).

The Supplemental Order was entered on July 24, 2014, by Judge William P. Dimitrouleas of the U.S. District Court for the Southern District of Florida. Previously, on September 18, 2013, Judge Dimitrouleas entered a Consent Order of permanent injunction against the Defendants, finding them liable for illegal, off-exchange precious metals transactions and fraud, as charged in the CFTC’s Complaint. The Consent Order also imposes permanent trading and registration bans against the Defendants and requires them to pay restitution and a civil monetary penalty, as provided in a Supplemental Order.

According to the Consent Order, Defendants operated an illegal, off-exchange precious metals scheme and made numerous fraudulent misrepresentations, false reports, and statements in connection with the scheme.

Furthermore, the Consent Order, which incorporates the Complaint, finds that AmeriFirst was a purported precious metals clearing and financing firm for precious metals dealers and that AmeriFirst used a network of dealers to solicit retail customers to invest in financed, precious metals transactions.  Defendants created documents related to such transactions, such as trade confirmations and account statements, with misrepresentations designed to mislead customers, including (1) the customer bought, and the dealer sold, precious metals, (2) the dealer held the precious metals on behalf of the customer, and (3) the customer received, and the dealer made, a loan so that the customer could purchase precious metal on finance.  These representations were false, the Consent Order finds, as the dealer did not sell metal to the customer, did not store metal for the customer, and did not provide a loan to the customer.  Likewise, AmeriFirst did not sell metal to the customer; did not store metal for the customer; and did not provide a loan to the customer.

The Defendants’ scheme lasted from at least November 2011 through February 2013, when Defendants voluntarily closed the business in the wake of another Florida federal court’s entry of a preliminary injunction against Hunter Wise, another metals dealer that had been sued by the CFTC (see CFTC Press Release 6522-13, February 27, 2013).  In May 2014, the CFTC subsequently prevailed in a jury trial against Hunter Wise and obtained a judgment for more than $108 million in sanctions (see Press Release 6935-14, May 22, 2014).

The CFTC cautions victims 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.

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

COURT ORDERS OWNERS, COMPANIES TO PAY $108 MILLION RELATED TO PRECIOUS METALS FRAUD SCHEME

FROM:  COMMODITY FUTURES TRADING COMMISSION 

CFTC Wins Fraud Trial against Hunter Wise Related Precious Metals Firms and Their Owners

Federal court orders Fred Jager, Harold E. Martin, Jr. and the Hunter Wise Companies to Pay over $108 Million in Restitution and Penalties

Court Calls Fraudulent Conduct “repeated, callous and blatant”

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that on May 16, 2014, a federal court in Florida entered an Order finding in the CFTC’s favor following a trial against four Hunter Wise related companies and their owners on charges that they had fraudulently misrepresented the nature of precious metals transactions that resulted in millions of dollars in customer losses.

Hunter Wise Commodities, LLC, Hunter Wise Services, LLC, Hunter Wise Credit, LLC, and Hunter Wise Trading, LLC and the individuals running the companies, Fred Jager and Harold Edward Martin, Jr., have been ordered to pay, jointly and severally, $52.6 million in restitution to the defrauded customers, and to pay a civil monetary penalty, jointly and severally, of $55.4 million, the maximum provided by law.

“This result makes clear that the CFTC will aggressively act to protect customers from fraud. Customers are entitled to know the truth of how their hard-earned money is being used. Here, customers thought Defendants were purchasing precious metals on their behalf and they were not,” said Gretchen L. Lowe, Acting Director of the CFTC’s Division of Enforcement. “This is also another excellent example of how the CFTC is using its new enforcement authority under Dodd-Frank to go after fraudsters.”

The CFTC charged Hunter Wise, Martin, Jager, and others in December 2012 (see CFTC Press Release 6447-12, December 5, 2012). The Court entered a Preliminary Injunction against all of the Defendants on February 22, 2013 (see CFTC Press Release 6522-13, February 27, 2013). Defendants appealed that ruling, arguing that the CFTC lacked jurisdiction over the conduct at issue, and lost when the United States Court of Appeals for the Eleventh Circuit affirmed the lower’s court’s issuance of the preliminary injunction (see CFTC v. Hunter Wise Commodities, LLC, Case No. 13-10993, April 15, 2014).

In his 58-page Opinion and Order (see under Related Links), Judge Donald M. Middlebrooks of the U.S. District Court, Southern District of Florida, found that Jager and Martin knowingly defrauded more than 3,200 retail customers for more than 16 months, between July 2011 and February 2013.  The Court found that Jager and Martin’s fraudulent conduct was “repeated, callous and blatant.”

According to the Order, Hunter Wise orchestrated a multi-level marketing scheme in which so-called retail dealers served a sales function for Hunter Wise, soliciting customer accounts. The dealers advertised and claimed that they sold physical metals, including gold, silver, platinum, palladium, and copper, to retail customers on a financed basis, and forwarded customer funds to Hunter Wise, whose identity was not disclosed to the customers.

As explained in the Order, using marketing materials and training provided to them by Jager, Martin and other Hunter Wise employees, the dealers claimed to arrange loans for the purchase of physical metals, and advised customers that their physical metals would be stored in a secure depository. The Order finds that customers were then charged “exorbitant interest” on the purported loans and storage fees for the metal they thought they had purchased. In fact, the Order finds that neither Hunter Wise nor any of the dealers purchased any physical metals, arranged actual loans for their customers to purchase physical metals, or stored physical metals for any customers participating in their retail commodity transactions – in other words, there was “no metal at the end of the rainbow.” According to the Order, over 90 percent of the retail customers lost money.

The Court found that Jager and Martin knew that they were defrauding customers and violating the law. “[Jager and Martin] purposefully decided to risk criminal and civil liability by continuing Hunter Wise’s fraudulent and illegal operations. … The house cannot win when, in violation of the law, the game is rigged.”

The Court further found Martin and Jager’s proferred excuses for their conduct “implausible,” “disingenuous” and “highly unreasonable.” For example, the Court noted that Hunter Wise’s attorneys had advised them to change their business or shut down, so that Jager and Martin were keenly aware of the choices available to them and the possible criminal consequences of continuing to operate, to the extent that Martin wrote in an email to Jager, “With any luck we will have adjoining cells.”

In considering the appropriate penalties, the Court noted that the fraudulent scheme was “egregious and recurrent” and “calculated to deceive retail customers.” The Court held that the likelihood of future violations was “strong” given that Jager and Martin did not acknowledge any wrongdoing. Further, the “systematic and pervasive nature” of the fraud necessitated full restitution for all customers who lost money between July 16, 2011 and February 25, 2013.

In a separate Order, the District Court entered default judgments against C.D. Hopkins Financial Group, LLC, Hard Asset Lending Group, LLC, and their principal, Chadewick Hopkins (CD Hopkins Defendants), and Blackstone Metals Group, LLC and its principal Baris Keser (Blackstone Defendants). CD Hopkins Defendants were ordered to pay $1,158,278.78 in restitution and $3,474,000 in civil penalties. Blackstone Defendants were ordered to pay $617,818.93 in restitution and $1,853,000 in civil penalties.

The CFTC Division of Enforcement staff members responsible for this action are Carlin Metzger, Joseph Konizeski, Heather Johnson, Nancy Hooper, Jeff LeRiche, Peter Riggs, Jennifer Chapin, Thaddeus Glotfelty, Stephen Turley, Brigitte Weyls, Scott Williamson, Rosemary Hollinger, and Richard Wagner.

The CFTC thanks the Florida Office of Financial Regulation, the Florida Department of Agriculture and Consumer Services, and the United Kingdom Financial Conduct Authority for their assistance in this matter.

Recent CFTC Precious Metals Enforcement Actions

The CFTC has taken action against numerous precious metals telemarketing firms that unlawfully solicited precious metals orders from retail customers to be executed through Hunter Wise, including:

• London Metals LLC (CFTC Press Release 6680-13);

• Matthew Hall d/b/a Pacific Exchange Group (CFTC Press Release 6681-13);

• Lloyds Commodities LLC (CFTC Press Release 6850-14);

• Newbridge Metals, LLC (CFTC Press Release 6705-13);

• Joseph Glenn Commodities, LLC (CFTC Press Release 6542-13);

• Newbridge Alliance, Inc. & U.S. Capital Trust, LLC (CFTC Press Release 6903-14);

• Pan American Metals of Miami (CFTC Press Release 6653-13);

• Secured Precious Metals (CFTC Press Release 6503-13);

• Barclay Metals (CFTC Press Release 6503-13);

• Vertical Integration Group (CFTC Press Release 6824-14);

• Lions Wealth (CFTC Press Release 6729-13);

• Yorkshire Group (CFTC Press Release 6713-13);

• PGS Capital Wealth Management and Rockwell Asset Management (CFTC Press Release 6909-14);

• Empire Sterling Metals Corp. and I.P.M. Investments, Inc. (CFTC Press Release 6912-14); and,

• Palm Beach Capital LLC (CFTC Press Release 6931-14).

TWO MEN, COMPANIES ORDERED TO PAY OVER $3.3 MILLION RESTITUTION FOR ROLES IN ILLEGAL PRECIOUS METALS TRANSACTIONS

FROM:   COMMODITY FUTURES TRADING COMMISSION  
Federal Court Orders Two Florida Men and Their Companies to Pay More than $3.3 Million in Restitution and Penalties to Settle Charges Stemming from Role in Illegal, Off-Exchange Precious Metals Transactions

The CFTC Sued John King and Newbridge Alliance, Inc., and David A. Moore and United States Capital Trust, LLC, in Scheme Orchestrated by Hunter Wise Commodities, LLC

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that on February 26, 2014, Judge Donald M. Middlebrooks of the U.S. District Court for the Southern District of Florida in Miami entered permanent injunction Orders against Florida residents John King and his company Newbridge Alliance, Inc. (Newbridge), and David A. Moore and his company United States Capital Trust, LLC (USCT), who the CFTC sued for their role in a multi-million dollar precious metals scheme orchestrated by Hunter Wise Commodities, LLC and related companies (Hunter Wise) (see related press release 6447-12 and Complaint.)

The Orders require King and Newbridge jointly to pay $750,515 in restitution to their customers and a $1.5 million civil monetary penalty, and Moore and USCT jointly to pay $380,664 in restitution and a $750,000 civil monetary penalty, respectively. The Orders also impose permanent solicitation, trading and registration bans against King, Newbridge, Moore, and USCT, and prohibit them from further violations of the Commodity Exchange Act (CEA) and CFTC regulations, as charged.

The Orders specify that the restitution payments are to be made to Melanie Damian, a court-appointed Special Monitor and Corporate Manager, in the name “Hunter Wise Settlement/Restitution Fund.” The Orders also impose permanent solicitation, trading and registration bans against King, Newbridge, Moore, and USCT, and prohibit them from further violations of the Commodity Exchange Act (CEA) and CFTC regulations, as charged.

The Orders find that from at least July 16, 2011 until February 25, 2013, Newbridge and USCT operated under the ownership and control of King and Moore respectively. Both Newbridge and USCT solicited retail customers to buy physical metals, such as gold, silver, platinum, palladium and copper, and then executed those transactions through Lloyds Commodities and Hunter Wise (see related press releases 6850-14 and 6522-13 and Orders).

According to the Orders, both Newbridge and USCT represented that customers could purchase physical metals for a small down payment (usually 25 percent) and finance the remainder of the purchase with a loan. Newbridge and USCT represented that physical metals were stored in “independent banks” or “federally regulated depositories.” In fact, these representations were false because neither Newbridge nor USCT possessed or had title to any physical metals. Additionally, according to the Orders, both Newbridge and USCT failed to disclose that the overwhelming majority of their customers lost money in connection with these transactions. As a result, Newbridge received over $750,000 in commissions and fees from retail customers, and USCT received over $380,000 in commissions and fees from retail customers, and the Orders require payment of those funds as restitution to customers.

Further, the Orders find that the transactions offered and entered into by Newbridge and USCT were not executed on a board of trade and were therefore illegal.

The CFTC’s litigation continues against Hunter Wise and its principals. The court issued an Order on February 19, 2014, finding that Hunter Wise had no actual metal to deliver to customers, and the Court held a trial on all remaining issues between February 26 and March 4, 2014. No ruling has been entered as of the date of this press release.

The CFTC appreciates the assistance of the Florida Office of Financial Regulation.

The CFTC Division of Enforcement staff members responsible for this case are Carlin Metzger, Heather Johnson, Brigitte Weyls, Jeff Le Riche, Peter Riggs, Thaddeus Glotfelty, Joseph Konizeski, Scott Williamson, Rosemary Hollinger, and Richard B. Wagner.