Penalty and prison time for commodity pool fraud

The CFTC has announced that Joseph A. Dawson and his company Dawson Trading, LLC (DT) have both been ordered to pay $2.1 million in civil monetary penalty. A federal judge found that Dawson had committed solicitation fraud and misappropriated investor funds while acting as an unregistered associated person (“AP”) to the DT commodity pool. DT, an unregistered commodity pool operator (“CPO”), has been found liable for Dawson’s fraudulent actions.

Between February 2005 and December 2009, Dawson solicited funds for DT for the purpose of trading “stocks, commodities, bonds, and real estate” from family members and old friends. He provided each with a note guaranteeing a certain rate of return (slightly different for each participant) plus a bonus. The note contained no specifics as to his commodity pool managerial fees or other costs, and does not make any provisions for unprofitable trading.

Dawson traded some of these and other funds (transferred from the LEAP fund in 2004) with a registered futures commission merchant (“FCM”), and lost almost a million dollars on the account. Despite these losses, he sent participants emails and account statements stating that their accounts were profitable. Dawson also misappropriated $2.1 million for personal costs, including mortgage payments and the installation of an in-ground pool.

In addition to the CFTC penalty and trading and registration bans, Dawson was sentenced to 54 months in prison and ordered to pay $3.3 million in restitution in March 2011.

Read more about this CFTC enforcement action.
Creative Commons License photo credit: Zarko Drincic

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