For Release: August 30, 2006
Washington, D.C.— The U.S. Commodity Futures Trading Commission (CFTC) announced today that the Honorable Orinda D. Evans of the United States District Court for the Northern District of Georgia entered a consent order of permanent injunction (consent order) against Georgia corporation Risk Capital Trading Group, Inc (Risk Capital); brokers Deron Baugh of Coral Springs, Florida; Ty Edwards of McDonough, Georgia; Stephen Margol of Fort Lauderdale, Florida; and Juan Valentin of Marietta, Georgia.
A separate consent order of permanent injunction was entered against another Risk Capital broker, Richard Tillman of Sunny Isles, Florida.
The consent orders permanently bar Risk Capital, Baugh, Edwards, Margol, Tillman, and Valentin from any commodity-related activity and impose more than $22 million in monetary sanctions for their violations of the anti-fraud provisions of the Commodity Exchange Act (CEA) and CFTC regulations.
The consent orders and the judgment arise from a CFTC enforcement action filed on September 3, 2003, which alleged that Risk Capital, Baugh, Edwards, Margol, Valentin, Tillman, and Siegel misrepresented facts and omitted pertinent information when soliciting customers to trade futures and options in violation of the CEA (see CFTC News Release 4835-03, September 8, 2003).
According to the court’s orders, from at least January 2001 to September 2003, Risk Capital and its staff of brokers/traders, including Baugh, Edwards, Margol, Valentin, and Tillman (from at least July 27, 2001 through at least August 5, 2003), fraudulently solicited members of the public using, among other things, high-pressure sales tactics to open accounts to trade options. The orders further state that Risk Capital, through its brokers, knowingly misrepresented and failed to disclose material facts concerning, among other things: (1) the likelihood that customers would profit from trading options; (2) the risk involved in trading options; and (3) the poor performance record of Risk Capital customers trading options.
The brokers/traders also enticed customers to invest using misleading leverage examples that emphasized large profit potential with only a small investment amount. Among other things, as noted in the consent orders, the examples failed to account for the high commissions charged by Risk Capital that substantially impacted the potential for any profit, let alone a large one. In fact, rather than reaping profits, between January 24, 2001 and September 2003, approximately 98 percent of the over 1,200 accounts opened by Risk Capital lost money, causing Risk Capital customers a combined loss of approximately $16 million — more than $8 million of which went to pay for commissions and fees. According to the orders, this losing performance record was never disclosed to customers.
The consent orders permanently enjoin Risk Capital, Baugh, Edwards, Margol, Valentin, and Tillman from engaging in any commodity-related activity, including soliciting funds or engaging in trading in any market regulated by the CFTC, and from registering or claiming exemption from registration with the Commission.
In addition, the consent orders require these defendants to repay customers more than $13 million, divided into the following amounts: Risk Capital, $12,833,470; Baugh, $125,000; Edwards, $250,000; Margol, $44,000; Valentin, $15,000; and Tillman, $15,000. The consent orders also impose civil monetary penalties totaling more than $9 million as follows: Risk Capital, $8,771,235; Baugh, $225,000; Edwards, $200,000; Margol, $86,000; Valentin, $60,000; and Tillman, $60,000.
On August 14, 2006, the District Court issued a separate order against Rick Siegel of Atlanta, Georgia, who was also a broker with Risk Capital, for violating the anti-fraud provisions of the CEA and CFTC regulations. The order, which was issued after a four-day bench trial, established a permanent injunction and imposed upon Siegel more than $150,000 in monetary sanctions. The trial was completed on June 16, 2006, and the District Court found that the evidence established that “Risk Capital was a scam. . . . [It]’s business model was designed to convince unsophisticated and financially insecure people to invest money . . . through engaging in deceptive and high-pressure sales practices . . . .” The District Court further concluded that “Siegel knew this and actively furthered the scam. [Siegel] played a crucial, enabling role by persuading prospective clients to open accounts and, at least in one case, encouraging them to misrepresent their income and net worth so that the account could be opened; placing the first trade; transferring the clients to trading advisors, referring to them as commodity investments experts thereby giving the impression that the client’s money was in good hands; and convincing disgruntled customers who had lost money on previous trades to stay on board for additional trades.”
Based on the evidence, the District Court concluded that Siegel violated the anti-fraud provisions of the CEA in his dealings with at least one customer by: (i) intentionally “undercut[ting]” Risk Capital’s general written and taped risk disclosures and “warnings” by statements like “I’ll double your money in a month”; (ii) “coach[ing] [a customer] on how to answer the questions” in the risk disclosure documents and compliance interview, telling [the customer] that these disclosures were “just ‘formalities’”; and (iii) failing to disclose Risk Capital’s and Siegel’s “disastrous” track record trading commodity options for customers. In its order, the District Court set forth various remedies against Siegel. In addition to establishing a permanent injunction, the District Court awarded full restitution ($8,301.92) to one customer who testified, along with pre-judgment interest, and ordered Siegel to pay a civil monetary penalty of $150,000.
The following CFTC staff members are responsible for this case: Anne M. Termine, Daniel C. Jordan, Lacey Dingman, Frank Rangoussis, Kathleen Banar, Jan Folena, Richard Glaser, and Richard Wagner.
Last Updated: April 22, 2010