For Release: February 27, 2002
CFTC CRACKS DOWN ON FOREIGN CURRENCY SCAMS NATIONWIDE
Nineteen Firms and Individuals Charged in Sweep with Selling Illegal Foreign Currency (Forex) Investments to the Retail Public
Actions Cap First Year of FOREX Initiative Using Reinforced Statutory Authority
WASHINGTON, D.C. - The U.S. Commodity Futures Trading Commission (CFTC) announced today that it recently filed four enforcement actions charging a total of nineteen firms and individuals with illegally offering foreign currency (forex) investments to the public. In two of the actions, the CFTC also charges the defendants with fraud. The CFTC filed three of the actions last week in federal courts in California and Florida and today issued an administrative order filing and simultaneously settling the fourth action. In the three federal court actions, the courts immediately issued restraining orders against the defendants, which, among other things, freeze the defendants’ assets and prohibit the destruction of documents.
These four actions bring to eleven the number of enforcement actions brought by the CFTC as part of its initiative against firms involved in the sale of illegal forex to the retail public, following Congress’s enactment of the Commodity Futures Modernization Act of 2000 (CFMA), which clarified the CFTC’s jurisdiction in this area. These actions involved schemes in which over 1,000 customers lost in excess of $60 million. (Please see CFTC News Releases 4513-01, May 2, 2001; 4528-01, June 20, 2001; 4551-01, August 14, 2001; and 4563-01, August 28, 2002.)
James E. Newsome, Chairman of the CFTC, commented:
“There are a number of crooks out there who continue to exploit retail investors. This sweep of prosecutions should send a signal to rogue foreign currency firms that we will not tolerate such scams.”
Rego Gainer Defendants Charged with Luring Customers to Invest in Illegal Futures Contracts Through Employment Ads in Korean Newspaper and On the Internet
The CFTC filed an action on February 19, 2002, against the Los Angeles-based firms Rego Gainer Financial, Inc., and Rego Gainer Inc. (collectively, Rego Gainer), and the president of the firms, Kwok Lun Lam, also of Los Angeles. The complaint charges that since at least December 21, 2000, the defendants, operating in Los Angeles, have been soliciting and accepting funds from retail customers to invest in illegal forex futures contracts. According to the complaint, the defendants obtained customers by running employment ads in a local Korean newspaper, the Korea Daily, and at www.hotjobs.com, supposedly seeking persons interested in profiting in the international currency markets. The complaint alleges that although they sought people to work as “Financial Traders”, the defendants solicited the customers to open personal trading accounts and to make initial investments of $10,000 each. The complaint further alleges that defendants falsely described the profit opportunities, misrepresented that they traded through a third party dealer, and falsely claimed that they were registered with the CFTC.
The Honorable Dickran Tevrizian issued an emergency restraining order on February 19, 2002 and has ordered a hearing on the CFTC’s motion for preliminary injunction on March 5, 2002.
FX Common Enterprise and GEM Charged With Fraudulently Soliciting Over $5 Million From at Least 135 Retail Customers in United States, Australia, and New Zealand
In an action filed on February 20, 2002, in the United States District Court for the Central District of California, the CFTC charged several related firms and individuals, MAS FX LLC, FX Advisors, LLC, FX Advisors Pacific, LLC, FX Advisors East, LLC, (collectively FX Common Enterprise), Global Equity Management Group (GEM), LLC, Brian Moore, Christian Weber, Dennis Heyburn, Ron Rozillio, Don Lakin, and Farzad Nafeiy. The complaint alleges that since at least January 2001, they have solicited and obtained over $5 million from at least 135 retail customers in the United States, Australia, and New Zealand to trade illegal foreign currency futures contracts. The complaint also charges that the defendants defrauded those customers by making false profit and risk claims -- such as claims to investors that they can double their money in a short period of time, failing to disclose the effect of the commissions charged by the defendants on their purported ability to profit, and engaging in unauthorized trading. According to the CFTC’s complaint, the defendants’ telemarketers work in an environment of intimidation and under a constant threat of being fired in an effort to obtain as much money as possible from investors. The Honorable David O. Carter issued an emergency restraining order on February 21, 2002 and has ordered a hearing on the CFTC’s motion for preliminary injunction on March 6, 2002.
Florida Defendants Allegedly Used Cell Phones and Copying Centers Instead of Real Offices to Sell Illegal Forex Options and Misappropriate Over $200,000 of Customer Funds
The CFTC filed a civil injunctive action on February 19, 2002, in the United States District Court for the Southern District of Florida against Myers, Arnold, Davidson Inc. (MAD), located in Boca Raton, Florida, Cooper, Thomas, Unger Inc. (CTU), located in Ft. Lauderdale, Florida, and Michael Dippolito, the director of MAD and CTU, also residing in Boca Raton. The CFTC complaint against MAD, CTU, and Dippolito charges that since April 2001, MAD and CTU fraudulently solicited and received more than $200,000 from customers purportedly to purchase foreign currency options. However, instead of buying options, MAD, CTU and Dippolito used those funds to pay for personal expenses such as hotels, entertainment, automobiles, and furniture. According to the complaint, MAD and CTU, unbeknownst to customers, operated without any physical office or location and instead utilized postal drop boxes, cell phones, Federal Express pick-up stations, and Kinko’s copying centers to run the forex scam. The CFTC also alleged that checks written by customers were cashed at a local check-cashing agency in Florida. According to the complaint, MAD and CTU in their sales pitches urged customers to invest immediately in order to realize extraordinary profits and offered to sell to customers, at the original price, blocks of forex options contracts that the defendants claimed they had pre-purchased and that had already appreciated in value or that were poised to move dramatically in value due to known market conditions.
The Honorable Daniel T.K. Hurley issued a restraining order on February 19, 2002 and has referred the case to United States Magistrate Judge Frank J. Lynch, Jr., for a hearing on the CFTC's motion for a preliminary injunction.
GCI and Vazquez Illegally Offered Forex Investments on Website; CFTC Settlement Order Requires Them To Cease Forex Operations
The CFTC also today filed and simultaneously settled an administrative action against Global Capital Investment LLC (GCI) of New York, New York and Mitchell Vazquez of Wilton, Connecticut, finding that they had offered illegal forex futures and options contracts to retail investors. The CFTC order issued against GCI and Vazquez, president of GCI, finds that from late 1999 through at least October 2001, GCI and Vazquez sold illegal forex futures contracts to retail customers through a website. On that website, GCI stated that they transacted nearly $2 billion per month in “spot foreign exchange” and invited customers to trade through GCI’s Internet trading platform. Contrary to their claim, the order finds that they were offering forex futures contracts. The order also finds that from at least December 21, 2000 through March 2001, GCI and Vazquez also solicited customers to enter into illegal forex options transactions. According to the order, the forex futures and options transactions were consummated off-exchange, i.e., not on a contract market or a derivatives transaction execution facility, designated or registered by the CFTC. The order finds that GCI and another forex entity acted as the counterparties to the forex futures and options contracts with the retail investors but were not lawful counterparties under the Commodity Exchange Act, as amended by the CFMA.
The CFTC order requires GCI and Vazquez to cease and desist from further violations of the CEA and CFTC regulations, imposes a $100,000 civil monetary penalty and requires them to comply with undertakings. Among other things, they undertake not to seek or claim exemption from registration with the CFTC for five years, not to engage in forex futures and options business for or on behalf of U.S. customers or cleared or conducted in the U.S. for three years, and to cease all current foreign currency operations. GCI and Vazquez recently represented that they have ceased operations and returned all customer funds in accordance with the terms of the order. In settling the action, GCI and Vazquez neither admit nor deny the findings in the order.
In each of the federal court actions, the CFTC is seeking permanent injunctive relief, restitution for customers, disgorgement of ill-gotten gains, and civil monetary penalties.
Investors Seeking Information on Forex Scams Should Review Warnings in the CFTC Consumer Advisory
Last year, the CFTC issued a Consumer Advisory as part of the Commission's continued efforts to combat retail Forex fraud (see CFTC Consumer Advisory of Foreign Currency Fraud, February 8, 2001). The Advisory urges the public to scrutinize claims of high-return, low-risk investment opportunities in forex trading. The Consumer Advisory provides "red flags" to look for, and cautionary steps consumers should take before making investments. The CFTC also issued an Advisory on how Forex firms may lawfully offer foreign currency futures and options trading opportunities to the retail public (see CFTC Advisory 06-01, February 5, 2001).
Investors and others with questions or concerns about forex investments may call any of our enforcement offices in Washington, D.C. (202-418-5320), the New York Metropolitan area (201-234-6926), Chicago (312-886-3090) (until February 28, 2002; 312-596-0520 starting on March 4) or Los Angeles (310-443-4700). Our Western Regional Office in Los Angeles office has a number for Chinese-speaking callers (310-443-4724), a number for Korean- speaking callers (310-443-4725), and one for Spanish-speaking callers (310-443-4722).
Rego Gainer Order
FX Advisors Complaint
FX Advisors Order
MAD Financial Complaint
MAD Financial Order
MEDIA CASE CONTACTS:
For the Rego Gainer case, please contact:
Regional Counsel, Western Regional Office
Division of Enforcement
For the FX Common Enterprise case, please contact:
Scott R. Williamson
Acting Regional Counsel, Central Regional Office
CFTC Division of Enforcement
For the MAD/CTU case, please contact:
Acting Associate Director, Headquarters
CFTC Division of Enforcement
For the GCI/Vazquez case, please contact:
Associate Director, Headquarters
CFTC Division of Enforcement
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