Shipkevich Bitcoin and ICO Attorney
Felix Shipkevich July 2, 2011

The CFTC announced that it has charged Shawon McClung and his firm Flint-McClung Capital LLC (FMC) with misrepresentation, fraud, and misappropriation for running an off-exchange, over the counter (“OTC”) foreign currency (“forex”) Ponzi scheme. The Colorado-based McClung allegedly defrauded investors of upwards of $1.9 million since March 2010. A Federal judge has frozen his assets and prohibited the destruction of books and records.

Beginning in March 2010, McClung and FMC allegedly began to solicit participants by making extravagant claims about forex trading profits. They told prospective investors that they could expect a 50% return on 30 days of trading, or a steady 15% return each month for 6 months, while downplaying the potential risks involved in forex trading. The defendants also falsely claimed that FMC had millions in a proprietary account, and that participant funds would be held in a segregated fund, insulated from loss. McClung and FMC’s solicitation strategy brought in over $2.4 million in investor funds.

According to the CFTC, little, if any of that money has ever been used to trade forex. No forex trading account related to the defendants has ever been found. Instead, over half a million was used to make Ponzi payments to early participants to simulate actual trading profits. The rest was misappropriated by McClung for personal use for purchases including furniture and cars. Rather than trade forex, the CFTC argues that McClung used the fund’s like a personal bank account, making ATM withdrawals and debit card purchases for himself and his family.

When participants asked to withdraw funds, McClung allegedly made a series of excuses explaining why funds could not be accessed. He told one investor that he was switching accounts, another that there was some legal issue tying up fund, but assured them all that payments would be made and funds returned before ceasing to reply to communications.

In addition, FMC and McClung never registered as a Commodity Pool Operator and Associated Person, respectively, with the CFTC. The Commission is seeking restitution, disgorgement of ill-gotten gains, civil monetary penalties, and trading and registration bans.

Read more about this CFTC enforcement action.
Creative Commons License photo credit: The.Comedian