TEXAS FEDERAL COURT ORDERS DEFENDANTS RICHARD HALE AND ALLEGHENY GULF INVESTMENTS, INC. TO PAY $440,000 IN CIVIL PENALTIES FOR MISAPPROPRIATING CUSTOMER FUNDS
Defendants Also Prohibited From Handling Commodity Interest Accounts
WASHINGTON, D.C. -- The U.S. Commodity Futures Trading Commission (CFTC) announced today that the U.S. District Court for the Southern District of Texas issued an order of permanent injunction against Richard Hale, a Texas resident and Allegheny Gulf Investments, Inc. (Allegheny), a Texas corporation, prohibiting them from, among other things, controlling or directing any commodity futures or options trading accounts. The court’s order also requires the defendants to pay a civil penalty of $440,000.
The order, entered on December 17, 2004, by the Honorable Sim Lake represents a final judgment against defendants arising out of the CFTC’s September 30, 2003, complaint in CFTC v. Allegheny Gulf Investments, Inc. and Richard A. Hale, Civil Action No. H-03-3536 (see CFTC News Release 4850-03, October 7, 2003).
The order specifically finds, among other things, that between approximately November 1998 and January 1999, Allegheny, through Hale, entered into three separate joint venture trading agreements with three individuals for the purpose of trading natural gas futures and options on futures contracts. According to the findings in the order, the defendants then opened three separate joint trading accounts at Refco, Inc. (Refco) to trade pursuant to the three joint trading agreements. The order finds that the three accounts were opened in the name of Allegheny and established as sub-accounts of a master account also held in the name of Allegheny. The order further finds that Hale directed the trading in all four trading accounts.
According to the order, in or around January 1999, the defendants instructed Refco to cross-margin the sub-accounts with Allegheny’s master account, but failed to inform the three customers that their sub-accounts were cross-margined with Allegheny’s master account. By November 1999, the order finds, Hale had traded the Allegheny master account into a deficit of approximately $2 million. According to the order, funds from two customer sub-accounts were transferred to the Allegheny master account to cover those losses, resulting in customer losses of approximately $1 million for those two customers. The court’s order finds that these actions constitute fraud and misappropriation in violation of the Commodity Exchange Act.
The following CFTC Division of Enforcement staff members were responsible for this case: Eugene Smith, Rick Glaser, Charlotte Ohlmiller, and Paul Hayeck.
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