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.

COURT ORDERS MAN TO PAY NFA $1.5 MILLION FOR MISREPRESENTATIONS AND SOLICITATION FRAUD

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 
November 27, 2013

Federal Court in California Orders James D. Crombie to Pay over $1.5 Million for Misrepresentations to the National Futures Association and for Solicitation Fraud

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) obtained a federal court Order against defendant James D. Crombie of Virginia, requiring him to pay $789,540.47 in restitution to defrauded customers and a civil monetary penalty of $750,000. Crombie’s fraudulent scheme involved making false statements and providing false documents to the National Futures Association (NFA) and fraudulently soliciting funds for his former company, Paron Capital Management, LLC (Paron). The Order also imposes permanent trading and registration bans against Crombie and prohibits him from violating the Commodity Exchange Act, as charged.

The Order, entered on November 21, 2013 by the Honorable Claudia Wilken of the U.S. District Court for the Northern District of California, stems from a CFTC Complaint filed against Crombie and Paron on September 15, 2011 (see CFTC Press Release 6112-11). On September 5, 2012, the court entered a consent Order of permanent injunction against Crombie’s former company, Paron; that Order imposed no monetary penalties against Paron and noted its cooperation with the CFTC’s investigation.

The November 21, 2013 Order against Crombie incorporated the findings of fact and conclusions of law set forth in the court’s July 26, 2013 partial grant of the CFTC’s motion for summary judgment against Crombie, in which the court found that Crombie willfully provided false documents to the NFA and lied to the NFA during the course of a subsequent investigation of Paron. The court also found on summary judgment that Crombie caused Paron to use fraudulent promotional materials in order to solicit clients to trade commodity futures.

The CFTC appreciates the cooperation and assistance of the NFA in this matter.

The CFTC Division of Enforcement staff members responsible for this case are Jonathan Robell, Danielle Karst, John Einstman, Dmitriy Vilenskiy, Joan Manley, and Paul Hayeck.