Foreign currency trading scams have always occurred in the investment markets, but, recently, enhanced scrutiny of the financial services industries has resulted in a dramatic increase of enforcement activity in the area of commodities fraud. Just as the Madoff fiasco has led the SEC to announce prosecution of operators of Ponzi schemes, the Commodity Futures Trading Commission, or CFTC, has ramped up prosecutions for commodities fraud.
This past week the CFTC announced that two Florida companies — Capital Blue Management, LLC and DD International Holdings LLC — together with three of their principals committed fraud against over 100 investors. According to the complaint, the investors were told that their funds would be pooled into a commodity pool known as CBM FX Fund LP. Instead of pooling the funds, the defendants used some of the funds for their personal use, buying expensive cars, enjoying junkets on chartered private jets and spending $40,000 on a two-night spending spree at a strip club. The remaining money was not pooled, as promised. Rather, some of it was used to buy off-exchange currencies and on-exchange futures.
The fund also falsified account statements sent to their clients, which statements showed seven percent returns for 12 straight months. During that time, the pool was actually losing substantial cash. In all, of the $17 million the funds raised, $7 million was lost to investments and misappropriations and several other million dollars remain unaccounted for.
The CFTC suit was filed under seal on March 23, 2009 in the U. S. District Court for the Middle District of Florida. The Court entered an Order freezing the defendants’ assets and preserving the books and records of the funds.
Foreign currency scams are common. Usually, but not always, these scams are launched by individuals or small companies that offer to pool investor funds, but often don’t have the requisite experience or licenses required to operate commodity pools. These scams operate right under the noses of the commodities brokers or broker dealers who often have a financial incentive to turning a blind eye to the trading going on in the promoter’s accounts.
Page Perry is an Atlanta-based law firm with over 125 years collective experience representing clients in securities-related matters. Page Perry represents investors in securities and commodities-related litigation and arbitration. Page Perry also represents investment advisors, issuers of private securities, and others involved in the securities and financial services industry. For further information, please contact www.pageperry.com.