The regulator is alleging that a couple in California took in at least $1.73 million, but disbursed only approximately $172,000, while making up performance statements and account documents.
CFTC officials report that they have filed a civil enforcement action charging Robert Leland Johnson IV and Marisa Elena Johnson, both of Chino, Calif., with “commodity futures fraud; off-exchange, leveraged or margined retail foreign currency (forex) fraud; [and] commodity pool fraud.”
In addition, the CFTC charges what it calls their “purported hedge fund,” Capitol Equity FX, with “engaging in activities prohibited for a commodity pool operator, including commingling customer funds with [the Johnsons’] personal funds.”
The Johnsons “fraudulently solicited at least $1,735,750 from members of the public,” according to the commission’s complaint, which was filed on April 19, 2017, in the U.S. District Court for the central district of California, eastern division.
The CFTC accuses the Johnsons of misappropriating “all of pool participants’ funds by paying their own personal expenses, by depositing pool participants’ funds into their personal bank accounts, and by trading pool participants’ funds in their personal trading accounts,” as well as diverting a “portion of pool participants’ funds to earlier-in-time customers in the manner of a ‘Ponzi’ scheme.”
The Alleged Scheme
Specifically, the CFTC alleges that, from at least May 2012 through May 2015, the Johnsons fraudulently induced members of the public to participate in a pooled fund that traded commodity futures and forex contracts; that they “knowingly made material misrepresentations and omissions concerning their trading abilities, strategies, and profits for the purpose of enticing pool participants to transfer funds” to them; and that they “allegedly also created and provided pool participants with fabricated performance statements and account documents designed to mislead pool participants.”
Those “fraudulent documents falsely reflected significant trading profits, concealed losses, and overstated account balances by millions of dollars,” the commission says.
Of the $1.73 million collected by the Johnsons, often from “friends and acquaintances residing in California,” only approximately $172,000 was returned to pool participants as part of the Ponzi scheme, the CFTC says.
Capitol Equity FX, the Johnsons’ ostensible hedge fund, has “never been a United States financial institution, registered broker or dealer, insurance company, [or] financial holding entities,” the CFTC says, noting that, on Oct. 15, 2015, Capitol Equity filed for Chapter 7 bankruptcy protection. The bankruptcy case was closed, “without discharge,” on September 2, 2016.
“Capitol Equity has never been registered with the Commission in any capacity,” the CFTC points out.
The commission is seeking “full restitution to defrauded pool participants, disgorgement of ill-gotten gains, civil monetary penalties, permanent registration and trading bans, and a permanent injunction against future violations of federal commodities laws, as charged.”
The CFTC has issued a commodity-pool fraud advisory that warns the public about unscrupulous operators and salespeople making “false claims of high profits and low risk.”
Selected highlights of the advisory follow:
A Fraudulent Pitch
According to the commission, a possible fraudulent sales pitch will lead you to believe “you can profit from current news already known to the public,” claim to know “unique market trends or … have a record of highly profitable trading,” ask you for “personal information such as your full name, phone number, email or home address,” lead you to believe that “other savvy investors have already invested,” create a “false sense of urgency by claiming limited supply,” entice you with the “prospect of wealth and … something you want, but can’t have,” and will, of course, request cash immediately.
Precautions for Investors
Potential investors, the CFTC says, should follow these precautions:
- Ask for copies of the account statements that registered trading firms provide to the pool operator.
- Ask to see the commodity pool’s risk disclosure documents and performance history.
- Ask about all fees and commissions charged by the commodity pool operator.
- Ask how the financial professional is qualified to provide you with this service.
- And ask how the product meets your financial needs.
FTF News was unable to contact the Johnsons for comment.
To see the commission’s entire list of fraud advisories go to: http://bit.ly/2pi4xSK
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