Unregistered CPO charged with fraud

The CFTC has filed a complaint against Robert J. Cannone, Thomas B. Breen, Francis Franco, and the unregistered Commodity Pool Operator (“CPO”) National Equity Holdings for running a fraudulent $1.4 million commodity futures pool.

According to the Commission, between May 2009 and  May 2010 Cannone, Breen, and Franco solicited the public to trade commodity futures contracts through CPO National Equity Holdings. The defendants claimed that Franco was a successful and experienced futures trader, and significantly downplayed the risks associated with commodity futures trading. Furthermore, they failed to mention that National Equity Holdings was not properly registered with the CFTC. In this manner, the defendants solicited and accepted over $1.4 million from 20 or more individuals.

However, once in possession of investor funds, the defendants allegedly only ever traded a small portion of those funds in proprietary accounts. The money that was invested in the CPO sustained significant losses, approximately $582,631. Cannone, Breen, and Franco also misappropriated a portion of participants’ funds for personal use. However, the majority of investor funds were used to perpetuate the scheme in the form of Ponzi payments, paid out as “returns” on initial investments. These false returns were accompanied by forged account statements showing profitable trading.

Eventually, the defendants told clients that all their funds were lost in trading, and subsequently promised to return all investor funds. However, according to the CFTC, none of the pool participants have received their principal back. The CFTC is seeking the return of ill-gotten gains, restitution to defrauded customers, civil monetary penalties, and permanent injunctions against further violations of the federal commodities laws.

Read more about this CFTC enforcement action.
Creative Commons License photo credit: Unhindered by Talent

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