July 29th – The U.S. Commodity Futures Trading Commission (CFTC) announced today the that it filed an enforcement action against Robin States d/b/a Infinity Online Investors Group (Infinity) and his common-law wife, Bernadette Bowden, charging them with fraudulent solicitation and misappropriation of commodity pool participant funds and with false statements.
States’s brother, Paul States, is also named in the CFTC complaint as a relief defendant based on his alleged receipt of approximately $230,000 (CAN) of pool participant funds.
The CFTC enforcement action, filed in the U.S. District Court, Southern District of Florida on July 14, 2008, alleges that from approximately October 2004, through approximately September 2005, Robin States, living and operating out of Nova Scotia, Canada, fraudulently solicited, accepted, and pooled approximately $650,000 (U.S.) from at least 900 members of the general public in the United States and throughout the world to participate in a commodity pool which purported to trade in a commodity futures, options, precious metals, and foreign currency-based investment program.
In his solicitations, Robin States purportedly used aliases including “Gregory Hampton,” to hide his identity, and fraudulently guaranteed daily profits, misrepresented the management and operations of Infinity in order to create an impression of legitimacy. States also allegedly failed to adequately disclose the risks of trading commodity futures and options. States utilized a website, www.infiinty-oig.com, and telephone calls to solicit pool participants. That same website permitted pool participants to track their investments which consistently reflected the accrual of daily profits.
In actuality, as alleged in the CFTC complaint, States never engaged in any trading, but rather, ran a “Ponzi scheme,” paying “profits” to existing pool participants with money obtained from newly-solicited participants. At the same time, States and his common-law wife, Bowden, misappropriated more than $600,000 (CAN) of the pool’s assets to use for personal expenses, including gambling.
The complaint also alleges that States operated as a commodity pool operator (CPO) without being registered as such and failed to provide pool participants with required disclosures, documents, and account statements in accordance with the Commission’s regulations.
The CFTC gratefully acknowledges the assistance of the Nova Scotia Securities Commission, the British Columbia Securities Commission, the Quebec Autorité des Marchés Financiers, the Ontario Securities Commission, the Alberta Securities Commission, the Royal Canadian Mounted Police, and the Autorité des Marchés Financiers of France in investigating this matter.
The following CFTC Division of Enforcement staff members are responsible for this case: Alan I. Edelman, James H. Holl, III, Kara Mucha, Michelle Bougas, Gretchen L. Lowe and Vincent McGonagle.
On July 23, 2008, NFA released a statement to their Forex Dealer Members (“FDMs”) advising that pursuant to CFTC Reauthorization 2008, the adjusted net capital will be increased to $20 million. The current adjusted net capital requirement for FDMs is $5 million. The increase will be phased in through $5 million increments. The first increase will take place October 31, 2008, which is an extension of the original CFTC deadline of September 19, 2008. After the first phase-in period, FDMs will be required to maintain at least $10 million in adjusted net capital. The second increase will take place on January 17, 2009, which will bring the requirement to $15 million. The last and final capital phase-in will be on May 16, 2009 setting forth a new requirement of $20 million
The notice also provides that NFA also plans to modify the current provisions of Section 12b. Currently, Section 12b states that FDMs who offer greater than 100:1 leverage are required to maintain double the current adjusted net capital. Instead, NFA has proposed to modify this section to require these firms to maintain an additional $10 million or 150% of the adjusted net capital bringing the total capital to $30 million.