The CFTC announced that it has won a court order to freeze the assets of Douglas Elsworth Wilson and his three companies, Elsworth Berg Capital Management LLC, Elsworth Berg Inc., and Elsworth Berg FX LLC. Wilson and the three California-based firms have been charged with fraudulent solicitation and misappropriation of $4.4 million in customer funds to trade commodity futures and foreign exchange (“forex”). The order also prohibits the destruction of books and records.
According to the CFTC complaint, beginning on 2006 the defendants began soliciting funds from the public to invest in commodity futures and forex. They promised customers that regardless of trading results their principal investment would be protected at the end of five years via a “Collateral Reserve” structure. This “principal secured” system made innovative use of life insurance settlement transactions, whereby investors purchase life insurance policies and receive the payout upon the original policyholder’s demise. Clients were encouraged to invest 30% of their funds in the Collateral Reserve fund, and put the rest into commodity futures and forex accounts. The 30% would purportedly cover any trading loses. In this manner, the defendants raised $4.4 million from over 60 customers.
The CFTC claims that the funds put in futures and forex trading sustained staggering losses, sometimes as high as 95%, but investors were allegedly assured that the Collateral Reserve would replace their principle. However, there were only ever five policies in the Collateral Reserve, decreasing chances that the policies would become available at the right time. Furthermore, the defendants stopped paying the premiums necessary to keep the policies valid, allowing all but one policy to lapse. Though the eventual payout on the policy was only $1 million, much less than was owed, Wilson did not notify investors that their funds were unsecured.
Furthermore, Wilson and the defendants misappropriated approximately $72,000 in customer funds. This money, to be transferred from one pool to another, was used for purposes other than trading, according to the brief.
The CFTC is seeking defrauded customers, civil monetary penalties, and permanent trading and registration bans.