U.S. COMMODITY FUTURES TRADING COMMISSION CHARGES FLORIDA FOREIGN CURRENCY OPTIONS FIRM WITH DEFRAUDING CUSTOMERS
Gibraltar Monetary Corporation, Inc. and Employees Jayson Kline, Charles Fremer, Thomas Clancy, and Edward Johnson Allegedly Lied When Pitching Foreign Currency Options to Customers
Forex Capital Markets, LLC Also Charged
WASHINGTON, D.C.—The U.S. Commodity Futures Trading Commission (CFTC) announced today that it filed a complaint in a Florida federal district court against Gibraltar Monetary Corporation (Gibraltar), a Florida corporation, and Florida residents Jayson Kline of Boca Raton, Florida, Charles Fremer of Coral Springs, Thomas Clancy of Sunrise, and Ed Johnson of Wellington, for allegedly defrauding customers they solicited to trade foreign currency options. The complaint, filed on February 10, 2004, also charges foreign currency firm Forex Capital Markets, LLC (FXCM), a New York-based foreign currency dealer, with liability as a principal for the acts of Gibraltar.
Judge Enters Order Freezing Assets and Protecting Books and Records
On the same day the complaint was filed, federal district court judge Donald M. Middlebrooks issued a restraining order freezing the assets of Gibraltar, Fremer, Kline, Clancy, and Johnson. The restraining order also prohibits those defendants and FXCM from destroying documents.
The complaint alleges that starting in May 2002, Gibraltar, Kline, Fremer, Clancy and Johnson solicited at least 267 members of the retail public to trade foreign currency (forex) options through FXCM. According to the complaint, Gibraltar used aggressive, high-pressure sales tactics, including: 1) making false promises of large profits, 2) misrepresenting their expertise and track record, and 3) downplaying the risks inherent in trading forex currency option contracts. The complaint also alleges that Gibraltar failed to disclose that Kline had previously been enjoined by a federal court from committing solicitation fraud in connection with options, and that the CFTC had issued a cease and desist order against Kline, also prohibiting him from committing options fraud (CFTC Docket No. 94-8, December 9, 1993).
The complaint further alleges that Johnson was responsible for the majority of trading decisions made on behalf of Gibraltar’s customers and that he made deceptive and misleading statements to customers and prospective customers regarding the profit potential and inherent risks associated with trading foreign currency option contracts. The complaint alleges that these actions violated the antifraud provisions of the Commodity Exchange Act and Commission regulations. As alleged, Kline, Fremer, and Clancy were Gibraltar’s president, vice-president and compliance manager, respectively, and they are charged in the complaint as Gibraltar’s controlling persons.
Forex Capital Markets, LLC Charged With Liability for Gibraltar’s Conduct
According to the complaint, more than $3 million of Gibraltar’s customer funds were deposited and traded at FXCM. The complaint alleges that, through an exclusive introducing brokerage business relationship in which Gibraltar acted as FXCM’s agent, FXCM paid Gibraltar over $800,000 in commissions in connection with the customers' accounts Gibraltar introduced.
In the continuing litigation, the CFTC is seeking an order enjoining future violations, repayment of funds to defrauded customers, and civil penalties.
The following CFTC Division of Enforcement staff members are responsible for this case: Rocell Cyrus, Mary Beth Spear, Clifford Histed, Venice Bickham, Scott Williamson, and Rosemary Hollinger.
# # #