Commodities/Precious Metals Fraud - Has your Broker Been Sued?

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CFTC SUES 14 FOREIGN CURRENCY FIRMS IN NATIONWIDE SWEEP

Action represents first use of new authority under the 2008 Farm Bill and Dodd-Frank Act to regulate foreign exchange dealers.

Washington, DC - The U.S. Commodity Futures Trading Commission (CFTC) recently announced that it simultaneously filed 13 enforcement actions in Federal District Courts in Chicago, the District of Columbia, Kansas City and New York, alleging that 14 entities are illegally soliciting members of the public to engage in foreign currency (forex) transactions and that they are operating without being registered with the CFTC.

Today's actions are the first taken by the CFTC to enforce new forex regulations that became effective in October 2010. These new regulations require entities that wish to participate in the forex market to register with the CFTC and abide by regulations intended to protect the public. These regulations require that forex dealers take steps to protect investors, including maintaining capital and records, which will reduce risk and increase transparency.

The following companies were sued by the CFTC as part of this sweep:

EuroForex Development LLC, a Delaware LLC;

FIG Solutions Limited, Inc., a Delaware corporation;

ForInvest, a Delaware corporation;

FXOpen Investments Inc., a Delaware LLC;

FXPRICE, a Delaware LLC;

GIGFX, L.L.C., a Delaware company;

InovaTrade, Inc., a company with purported offices in Florida;

I nstaTrade Corporation d/b/a InstaForex, a British Virgin Islands company;

InvesttechFX Technologies, Inc., a Canadian corporation located in Toronto;

J&K Futures, Inc., a company with purported offices in California and New York;

Kingdom Forex Trading and Futures, Ltd., a Nevada company;

Prime Forex, LLC, a Delaware LLC;

Wall Street Brokers, LLC, a Delaware LLC; and

ZtradeFX LLC, a Connecticut LLC.

In the forex market, entities known as Retail Foreign Exchange Dealers (RFED) or Futures Commission Merchants (FCM) may buy foreign currency contracts from or sell foreign currency contracts to individual investors. Under the Commodity Exchange Act (CEA) and CFTC Regulations, an entity acting as an RFED or FCM must register with the Commission and abide by rules and regulations designed for investor protection, including those relating to minimum capital requirements, recordkeeping and compliance. Further, with a few exceptions, such an entity also must be registered with the Commission if it solicits or accepts orders from US investors in connection with forex transactions conducted at an RFED or FCM.

In all but two of the complaints, the CFTC alleges that a defendant acted as an RFED; that is, it offered to take or took the opposite side of a customer's forex transaction without being registered. In the remaining two complaints, ZtradeFX LLC and FXPRICE, the CFTC alleges that the defendant solicited customers to place forex trades at an RFED without being registered as an Introducing Broker. In every complaint, the CFTC alleges that the defendant solicited or accepted orders from US investors to enter into forex transactions in violation of the Act. The CFTC has moved for preliminary injunctions preventing these defendants from operating unless and until they comply with the CEA and Commission Regulations. The CFTC's complaints also seek civil monetary penalties, trading and registration bans, disgorgement and rescission.

The CFTC strongly urges the public to check whether a company is registered before investing funds. If a company is not registered, an investor should be wary of providing funds to that company.

A company's registration status can be found at: http://www.nfa.futures.org/basicnet/welcome.aspx

January 25, 2011

Florida Federal Court Orders Sarasota Resident Beau Diamond and his Company, Diamond Ventures LLC, to Pay More than $4 Million in Restitution and Civil Monetary Penalties in Connection with Multi-Million Dollar Forex Fraud

Diamond was sentenced to more than 15 years imprisonment in a criminal proceeding for the same fraudulent scheme.

Washington, DC - The U.S. Commodity Futures Trading Commission (CFTC) today announced that it obtained more than $4 million in restitution and civil monetary penalties in a federal judgment order against defendants Beau Diamond and his company, Diamond Ventures LLC (DVL), both of Sarasota, Florida.

U.S. District Court Judge Elizabeth A. Kovachevich entered the order requiring the defendants to pay $1,071,035 in restitution to defrauded investors and a civil penalty of $3,213,105 for operating a foreign currency (forex) scam from April 2006 to September 2009.

The order stems from a CFTC complaint filed on September 3, 2009, charging the defendants with misappropriation and fraud in operating a $37 million forex Ponzi scheme that defrauded at least 200 customers (see CFTC v. Beau Diamond, et al., No. 09 CV 1811 [M.D. Fl. 2009] and CFTC Press Release 5711-09, September 4, 2009). The complaint charged the defendants with falsely guaranteeing investors the return of their principal plus monthly returns ranging from 2.75 percent to 5 percent, purportedly paid from defendants' successful forex trading. In reality, the defendants lost $13.3 million trading investors' funds, according to the CFTC. To conceal and perpetuate their fraud, the defendants allegedly provided investors with false account statements showing that their accounts were increasing as promised although the accounts actually were losing money. The CFTC also alleged that the defendants misappropriated at least $850,000 of customer funds and used the money for luxury purchases and gambling.

On December 22, 2010, Diamond was sentenced in a criminal proceeding to 186 months (more than 15 years) imprisonment and 36 months of supervised release. Diamond was ordered to pay more than $23 million in restitution to defrauded investors in the federal criminal prosecution based on substantially the same facts as alleged in the CFTC's civil enforcement action. A jury found Diamond guilty on all 18 charges of the federal indictment on July 12, 2010, after an eight-day trial.

Washington, DC - The U.S. Commodity Futures Trading Commission (CFTC) announced that it obtained an emergency federal court order freezing the assets of defendant Anthony Eugene Linton of Tucson, Ariz., dba The Private Trading Pool. The court's order also prohibits the destruction of books and records and grants the CFTC immediate access to such documents.

The order stems from a CFTC enforcement action filed on January 11, 2011, in the U.S. District Court for the District of Arizona, charging Linton with fraud and misappropriation of customer funds in connection with a Ponzi scheme involving off-exchange foreign currency (forex) trading.

Specifically, the CFTC complaint alleges that, from at least October 2007 to the present, Linton fraudulently solicited and accepted at least $650,000 from at least 19 customers for the purpose of trading off-exchange forex contracts. The complaint charges that Linton falsely represented to customers that they would receive a 100 percent annual return on their investments in The Private Trading Pool (PTP) and that the software trading system he developed allowed customers to "profit every time" from his forex trades.

Linton further allegedly misrepresented that there were "no risks whatsoever" associated with trading forex through PTP, that customer funds were accessible "within 24 hours" of a requested redemption and that customers could receive "their profits" by check monthly. However, what little forex trading Linton did using customer funds resulted in consistent net losses, and, in the aggregate, he lost more than 90 percent of the funds traded, according to the complaint.

The complaint also charges Linton with misappropriating customer funds to make personal mortgage, car and credit card payments. Linton allegedly used some customer funds to buy and sell items on Ebay and converted large sums of customer funds into cash and stashed it in a safe in his home. Linton allegedly paid earlier PTP customers purported profits with more recent customers' funds, as is typical of a Ponzi scheme.

In its continuing litigation, the CFTC seeks rescission of all contracts and agreements, restitution to defrauded customers, a return of ill-gotten gains, a civil monetary penalty and a permanent injunction against further violations of the federal commodities laws and against further trading. The CFTC also seeks an order requiring the defendant to make an accounting of all assets and liabilities, including funds received from or paid to participants or other persons in connection with forex transactions or purported forex transactions.

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