Shipkevich Bitcoin and ICO Attorney
Felix Shipkevich May 3, 2018
April CFTC Enforcement Actions

April CFTC Enforcement Actions: Commodities Fraud, Retail Forex, and Binary Options

The month of April saw the most enforcement actions by the CFTC for the year 2018. Some of these were the typical commodity pool schemes, precious metals schemes, spoofing, and fraud in Retail Forex; yet other enforcement actions involved new technologies such as Binary Options fraud relying on phony web pages, social media accounts, and mobile apps to lure its victims. The CFTC public affairs has stated that,

“It is common for these fraudsters to create professional looking websites that resemble legitimate trading platforms. On these fraudulent sites, investors can quickly and easily open accounts, fund the accounts with their credit cards, place trades, and manage gains and losses.”

Erica Elliott Richardson, CFTC Director of Public Affairs followed up by saying,”Binary options can be helpful hedging tools for some traders, but there are only a few entities that can legitimately do business with individual investors in the U.S.,” as no offshore companies are currently registered to trade binary options in the U.S. Binary options are legally traded in the U.S on regulated exchanges, and not all are fraud. Exchanges registered with the CFTC and other regulators must follow rules put in place to prevent fraud or mismanagement and bring some accountability and mitigate risk to investors.

The Commission started the year exercising its regulatory jurisdiction over virtual currency, however most of the enforcement actions taken against cryptocurrency fraud where “old tricks in new disguise” such as pump-and-dump or Ponzi schemes. Only one of April enforcement actions involved virtual currency. Below is the list of all enforcement actions taken by the CFTC.

 

April 9 – CFTC Orders Floor Broker Anuj C. Singhal to Pay $150,000 Penalty for Spoofing in Wheat Futures Market

Anuj C. Singhal was a repeat offender of “Spoofing” the Chicago Mercantile Exchange (CME) wheat futures market. His penalty then was a $60,000 fine and suspended membership privileges, along with a three-month trading suspension from accessing any CME Group electronic trading or clearing platform, as well as revoked access to any CME Group trading floor. The CFTC Enforcement actions seek $150,000 in restitution.

The CFTC Order finds that Singhal frequently engaged in this spoofing activity by first entering larger limit orders on one side of the CME wheat futures market, and at times, several larger orders in succession.  The Order finds that Singhal then entered a smaller, aggressive order (a market order) on the opposite side of the market, which was usually filled instantaneously or within a fraction of a second.  In most instances, the Order finds, after the smaller order was entered and executed Singhal continued to modify his larger orders further away from the market, each modification generally within seconds of the last, but in all such instances those larger orders were cancelled without any part of the order being filled.  The Order finds that Singhal repeated this trading pattern numerous times during the Relevant Period.”

Order: Anuj C. Singhal

 

April 12 – CFTC Charges Kevin Whylie and Matthew Zecchini and Their Company, Algointeractive Inc, with Commodity Pool Fraud, Misappropriation, and Registration Violations

The defendants solicited over $300,000 from the public for a pooled investment for futures trading, but ultimately misappropriated the funds for personal expenses. The CFTC enforcement actions seek to refund their victims, civil monetary penalties, and bans from trading. As it’s often the case, the fraudsters were never registered with the CFTC as traders.

“The CFTC Complaint charges that, from approximately April 2016 through the present, Defendants engaged in a fraudulent scheme to solicit at least $300,000 from members of the public to participate in a pooled investment vehicle for futures trading, misappropriated and commingled commodity pool participants’ funds, issued false account statements to pool participants to conceal their trading losses and misappropriation, engaged in false advertising, and failed to register with the CFTC, as required.”

Algointeractive Inc et al.

 

April 12 – CFTC Orders Cory Williams and His Company, Williams Advisory Group, LLC, to Pay $19.4 Million for Commodity Pool Fraud

Williams solicited over 13 million from his Arizona community. He never registered with the CFTC as  acommodity pool operator yet traded significant volumes of futures contracts and lost over $8.3 million of their money, but texted the participants fabricated reports of profits. CFTC enforcement actions permanently banned from trading and prohibit him from registering. The U.S Attorney in Arizona charged Williams with a criminal judgement with one count of transaction money laundering.

The Order finds that, from at from at least April 2014 through December 2016, Williams fraudulently solicited and accepted more than $13 million from 40 individuals to trade E-Mini S&P 500 futures contracts, among other things, in a pooled fund.  According to the Order, Williams used participants’ funds to trade significant volumes of futures contracts in his personal trading accounts and lost more than $8.3 million of participants’ funds, all while falsely representing to participants that he was profitably trading on their behalf. 

The Order also finds that Williams used the remaining funds from participants to pay his personal expenses and to return approximately $3.4 million to certain participants as withdrawals of principal or as purported trading “profits” in furtherance of the Defendants’ fraudulent scheme.”

Order: Cory Williams

 

April 12 – CFTC Charges The Kane Capital Investment Group, LLC and Amrit Chahal of Virginia with Operating a Commodity Pool Ponzi Scheme 

Defendants engaged in commodity futures fraud, commodity pool fraud, and misappropriation of participants funds. Chahal never registered with the CFTC as a Commodity Pool Operator, and lost most of the $1.2 million of investors’ funds. He made Ponzi scheme payments to some participants, and hid true reports from participants. The rest of the funds were used for personal expenses. Virginia’s U.S Attorney pressed criminal charges. CFTC enforcement actions seek restitution to defrauded costumers, monetary penalties, and permanent bans.

According to the Complaint, from at least January 1, 2015, through December 31, 2017, Defendants fraudulently solicited more than $1,200,000 from approximately 50 members of the public (pool participants) for the Kane Capital commodity pool, which traded E-mini Nasdaq 100, E-mini S&P 500, Cboe Volatility Index, and NYMEX West Texas Intermediate Light Sweet Crude Oil futures contracts, among others.  

The Complaint alleges that Defendants’ trading was on balance unprofitable, causing deep losses that Defendants attempted to conceal by making material misrepresentations and omissions to pool participants.  As alleged in the Complaint, Defendants touted annual averaged trading profits of between 28% and 34%, and sometimes higher, despite knowing at the time that Kane Capital made no profits and was suffering losses.  The Complaint also alleges that Chahal used a .pdf editing tool to doctor trading account statements for the purpose of concealing losses and attracting additional pool participants.”

The Kane Capital Investment Group, LLC and Amrit Jaswant Singh Chahal

 

April 13 – Order Against Registered Trader Jerry Stauffer for Forex Pool Scheme

Stauffer was charged by the CFTC for Commodity Pool fraud, operating a fraudulent off-exchange Forex pool scheme. The enforcement actions banned him from soliciting and trading funds and from personal trading on markets regulated by the CFTC. The Michigan U.S Attorney pressed criminal charges and sentenced him to 10 years in prison and ordered to pay $845,679 or restitution to the public.

The Consent Order finds that Stauffer, individually and while acting as a commodity pool operator, fraudulently solicited, issued false statements and misappropriated pool participant funds in connection with the operation of a commodity pool from June 2010 to February 2015.  According to the Consent Order, Stauffer guaranteed pool participants’ principal investment against risk of loss and further guaranteed profits on those investments.  To perpetuate the fraud, Stauffer issued false account statements to pool participants that represented purported profits. According to the Consent Order, Stauffer also misappropriated pool participant funds by using them for purposes other than trading, and he improperly operated the commodity pool in his own name.”

Order: Jerry Stauffer

 

April 18 – CFTC Charges Multiple Individuals and Companies with Operating a Fraudulent Scheme Involving Binary Options and a Virtual Currency Known as ATM Coin

Blake Harrison Kantor, aka Bill Gordon, Nathan Mullins, and companies Blue Bit Analytics, Ltd., Mercury Cove Inc., Blue Wolf Sales consultants, and G. Thomas Client Services operated a fraudulent binary options scheme. They illegally acted as Futures Commission Merchants never registered with the CFTC, solicited and received costumer funds, and traded in illegal off-exchange binary options. Public funds were misappropriated for personal use. To cover up their tracks, they urged costumers to invest their money in a new Cryptocurrency known as ATM Coin. CFTC enforcement actions seek restitution to defrauded costumers, monetary penalties, and permanent bans.

The Complaint alleges that since at least April 2014 and continuing to the present, the Defendants have solicited potential customers through emails, phone calls, and a website to purchase illegal off-exchange binary options.  According to the Complaint, Defendants falsely claimed customers’ accounts would generate significant profits based upon Kantor’s purported past profitable trading.  Also according to the Complaint, Defendants misappropriated a substantial amount of the customer funds for the Defendants’ own personal use.

Defendants sought to cover up their misappropriation by inviting customers to transfer their binary options account balances into a virtual currency known as ATM Coin.  According to the Complaint, some customers agreed to transfer their funds into ATM Coin, and at least one customer sent additional money to Defendants to purchase additional ATM Coin.  Defendants then allegedly misrepresented to customers that their ATM Coin holdings were worth substantial sums of money.

As alleged, Kantor used a computer program to generate manipulated data to cheat hundreds of investors out of their hard-earned savings,” stated U.S. Attorney Donoghue.  “To cover-up his fraudulent scheme, Kantor then lied to the FBI and ordered the alteration of documents that would assist agents in identifying his victims.”

Order: Blue Bit Banc

 

April 25- CFTC Charges Michael Salerno and his Entities with Solicitation Fraud and Misappropriation in Connection with Retail Forex Transactions

Salerno and his companies Black Diamond Forex LP, BDF Trading LP, Advanta FX, Black Diamond Investment Group, and Advanta Capital markets Ltd. Recruited 150 participants to become Forex tradres, solicited $310,000 of their funds, then misappropriated funds for purposes other than Forex trading. The CFTC enforcement actions seek to refund the victims, monetary penalties, and permanent bans.

The CFTC’s Complaint alleges that beginning in at least January 2017 and continuing through at least March 2018, Salerno and his companies fraudulently solicited individuals to become forex traders by making false statements on online websites such as LinkedIn and Indeed.com and their own websites, in violation of the Commodity Exchange Act.  As alleged, the Defendants required prospective traders to pay a “risk deposit” or “risk capital deposit” of varying amounts, usually ranging from $1,200 to $1,900, with a promise that Defendants would match these risk deposits with some multiple of company funds in proprietary trading accounts, and then share a portion of the profits from trading with the traders and to pay bonuses tied to certain performance milestones.  Defendants’ job postings and solicitations enticed at least 150 prospective traders to deposit at least $310,000 in risk deposits, the Complaint alleges.”

Order: Michael J. Salerno, et al.

 

April 30 – CFTC Charges Charles H. McAllister with Engaging in a Fraudulent Precious Metals Scheme

McAllister and his company, BullionDirect, Inc., defrauded over $16 million from public funds with contracts of sale of precious metals, such as gold, silver and platinum. The funds were distributed in a Ponzi scheme fashion and used to cover business expenses. The CFTC enforcement actions seek to refund defrauded investors, monetary penalties, and permanent bans.

Specifically, according to the Complaint, McAllister and BDI fraudulently solicited and induced customers, through BDI’s website, to send money to BDI for the purported purchase of gold, silver, palladium, and platinum from or through BDI.  Customers purportedly could take immediate delivery of or store the precious metals with BDI.  However, as alleged, McAllister and BDI failed to procure all the metal they were obligated to purchase for customers.  Instead, McAllister and BDI misappropriated millions of dollars from thousands of customers in the fraudulent scheme to pay back other customers (in Ponzi scheme fashion), cover BDI business expenses, and invest in other businesses. As further alleged, McAllister and BDI made material misrepresentations and omissions to customers in the course of their fraudulent precious metals scheme, and they issued false account statements to customers.”

Complaint: Charles H. McAllister

 

April 30 – CFTC Orders Glencore Agriculture B.V. and Glencore Ltd. to Pay a $2 Million Penalty for Exceeding Cotton Futures Position Limits, Transacting Illegal EFPs, and Submitting Inaccurate Form 304s

Glencore violated CFTC limits for futures cottons contracts on the Intercontinental Exchange during 2013 and 2014, failed to meet control requirements, and omitted these violations on Form 304 reported to the CFTC. The CFTC enforcement actions seek $2 million in monetary penalty a cease and desist order from violating CFTC regulations.

The CEA and CFTC Regulations permit noncompetitive trading, such as EFPs, only if such transactions are conducted in accordance with rules of an exchange, such as the Intercontinental Exchange (ICE), that are approved by the CFTC.  At all times relevant to this Order, ICE rules permitted the transaction of EFPs between independently controlled accounts. However, the CFTC Order finds that Glencore B.V.’s and Glencore Ltd.’s cotton futures trading accounts were both ultimately controlled by Glencore’s Head of Cotton.  As a result they were not independently controlled.  Nevertheless, between January 2013 and November 2015, Glencore B.V. and Glencore Ltd. executed twenty-four EFPs opposite one another’s accounts, according to the CFTC Order.

The Order further states that CFTC Regulations require cotton merchants and dealers holding or controlling reportable futures positions to file a monthly Statement of Cash Positions in Cotton (Form 304), as of the close of business on the last Friday of the month.  On the Form 304, entities report the composition of their fixed price cash position in cotton and cotton products, including the quantity of open fixed price purchase and fixed price sale commitments.  The CFTC Order finds that Glencore B.V. filed two erroneous Form 304 reports with the CFTC—one on May 31, 2013 and a second on May 30, 2014—that overstated the quantities of its fixed price cotton cash positions.”

Order: Glencore Agriculture B.V. and Glencore Ltd.

 

April 30 – Ryan Madigan, Randell A. Vest, and Colorado Company R2 Capital Group, LLC Charged $3.5 Million for Forex Fraud

Randall A. Vest and his company Bulletproof Vest, Inc., are charged with enforcement actions entered in August 2014, along with Madigan Enterprises, Inc. and Tomazin, for commodity futures and off-exchange retail Forex Fraud.  Since 2009 until 2014 the defendants solicited over $2.4 Million from investment pool participants under their operation. The funds were misappropriated for personal expenses.

The CFTC Complaint alleged that from at least December 2009 through November 2014, Defendants, through R2 Capital, fraudulently solicited more than $2.4 million from at least four pool participants for an investment pool operated by Defendants.  According to the Complaint, the pool traded forex and, later, E-mini S&P 500, and E-mini Dow futures contracts, among others.

According to the Complaint, Madigan and the other Defendants misappropriated more than $1.2 million of pool funds by routinely diverting substantial sums from the R2 Capital and pool bank accounts to themselves and their holding companies until all but a few hundred dollars remained.  Defendants allegedly spent these misappropriated funds on themselves, including paying the individual Defendants’ own personal expenses.

The Complaint also charged the Defendants with illegally commingling and misappropriating funds received from pool participants by transferring funds into the individual Defendants’ personal bank accounts, among other things.”

Default Judgment: Randell A. Vest & Bulletproof Vest