Daniel R. Salsburg, Esq.
Nicholas C. Milano, Esq.
Lawrence H. Norton
Associate Director for Enforcement
U.S Commodity Futures Trading Commission
1155 21st Street, N.W.
Washington, D.C. 20581
Attorneys for Plaintiff
Louis V. Traeger
Commodity Futures Trading Commission
Western Regional Headquarters
10900 Wilshire Boulevard, Suite 400
Los Angeles, CA 90024
Local Counsel for Plaintiff
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
________________________________________ : Commodity Futures Trading Commission, : Civ. No. : Plaintiff, : : COMPLAINT FOR CIVIL v. : PENALTIES, PERMANENT : INJUNCTION AND OTHER C.O.M. CONSULTANTS, INC., d/b/a GOLDEN : EQUITABLE RELIEF STATE BULLION; RICHARD DAVID OTTO, : a/k/a DAVID RICHARDS; FRED RONALD : WILLIAMS, a/k/a JOHN WOODS a/k/a : WOODY; LINTON SAMARU, a/k/a : STEPHEN BRADSHAW; and BRUCE : MICHAEL PAINE, : : Defendants. : : ________________________________________:
1. As more fully set forth below, defendants C.O.M. Consultants, Inc., Richard David Otto, Fred Ronald Williams, Linton Samaru and Bruce Michael Paine have engaged in or are engaging in acts or practices that violate Sections 4(a) and 4b of the Commodity Exchange Act (the "Act"), 7 U.S.C. §§ 6(a), 6b.
2. Accordingly, pursuant to Section 6c of the Act, 7 U.S.C. § 13a-1, the Commodity Futures Trading Commission ("Commission") brings this action to enjoin the defendants' unlawful acts and practices and to compel their compliance with the Act. In addition, the Commission seeks the disgorgement of the defendants' ill-gotten gains, rescission, restitution, civil monetary penalties, and such other relief as this Court may deem necessary or appropriate.
JURISDICTION AND VENUE
3. This Court has jurisdiction over this action pursuant to Section 6c of the Act, 7 U.S.C. § 13a-1, which provides that whenever it shall appear to the Commission that any person has engaged, is engaging, or is about to engage in any act or practice constituting a violation of any provision of the Act or any rule, regulation, or order promulgated thereunder, the Commission may bring an action against such person to enjoin such practice or to enforce compliance with the Act.
4. Venue properly lies with this Court pursuant to Section 6c(e) of the Act, 7 U.S.C. § 13a-1(e), because the defendants are found in, inhabit, or transact business in this District, and the acts and practices in violation of the Act have occurred, are occurring, or are about to occur within this District, among other places.
5. Unless restrained and enjoined by this Court, the defendants are likely to and will continue to engage in the acts and practices alleged in this Complaint or in similar acts and practices, as described more fully below.
6. Plaintiff Commission is an independent federal regulatory agency which is charged with the administration and enforcement of the Act, 7 U.S.C. §§ 1 et seq.
7. Defendant C.O.M. Consultants, Inc. ("Golden State"), a California corporation, does business under the name Golden State Bullion and maintains its principal place of business at 310 Washington Boulevard, Suites 206 and 212, Marina del Rey, California 90292. At all times material to this Complaint, Golden State has transacted business in the Central District of California.
8. Defendant Richard David Otto ("Otto") resides at 19 Beachcomber Drive, Corona del Mar, California 92625. Otto is the president and principal owner of Golden State and a telemarketer for the company. At all times material to this Complaint, acting alone or in concert with the other defendants, Otto has formulated, directed, controlled or participated in the illegal acts or practices as set forth in this Complaint. Otto uses the alias "David Richards."
9. Defendant Fred Ronald Williams ("Williams") resides at 17250 Sunset Boulevard, # 218, Pacific Palisades, CA 90272. Williams serves as a telemarketer for Golden State. At all times material to this Complaint, acting alone or in concert with the other defendants, Williams has participated in the illegal acts or practices as set forth in this Complaint. Williams uses the aliases "John Woods" and "Woody."
10. Defendant Linton Samaru ("Samaru") resides at 510 Rialto Avenue, Venice, CA 90291. Samaru serves as a telemarketer for Golden State. At all times material to this Complaint, acting alone or in concert with the other defendants, Samaru has participated in the illegal acts or practices as set forth in this Complaint. Samaru uses the alias "Stephen Bradshaw."
11. Defendant Bruce Michael Paine resides at 44 Thornton Avenue, Venice, CA 90291. Paine serves as a telemarketer for Golden State. At all times material to this Complaint, acting alone or in concert with the other defendants, Paine has participated in the illegal acts or practices as set forth in this Complaint.
12. Since at least 1994, Golden State has solicited hundreds of members of the public to invest in gold, silver, platinum, and palladium futures contracts. Irrespective of the month or year when the initial sales pitch is made, Golden State telemarketers claim that an impending strike at a South African platinum mine will cause the price of platinum to increase to between $600 and $700 per ounce and urge prospective customers to invest quickly before the opportunity is lost. The telemarketers also claim that these investments entail little or no risk.
13. After touting the enormous profits and minimal risks associated with Golden State's program, the telemarketers describe the mechanics of the leveraged investment program: the customer's initial investment represents a 20 or 25 percent down payment on the purchase of ten (10) ounces of platinum bullion; the balance of the purchase price of the platinum (roughly 75 or 80 percent) will be financed by an off-shore financial institution -- either International Bullion Services, Inc. ("IBS"), located in the Cayman Islands, or Amitex Investment Services, Ltd. ("Amitex"), located in the Bahamas; and the platinum will be physically stored at IBS or Amitex and held as collateral for the customer's loan. Golden State's telemarketers assure prospects that they will never have to receive the actual platinum. The telemarketers then explain that the they will carefully monitor the platinum market and instruct the customers when they should liquidate their accounts for a profit.
14. Golden State's telemarketers urge potential purchasers to act instantly to capitalize on this brief, but highly profitable investment opportunity. The telemarketers persuade prospective customers that the proper timing of this investment vehicle is so critical (and now is the proper time), that Golden State will arrange for FedEx to go to the prospects' homes or businesses to pick up the investment checks immediately.
15. After Golden State receives the funds, it sends the customer a transaction confirmation stating that the funds have been received and the full amount of the customer's funds has been allocated towards the purchase of a certain amount of platinum.
16. In fact, only a small fraction of customer funds are allocated by the off-shore financial institution for the purchase of platinum. The remaining funds are retained by Golden State and the off-shore financial institution as commissions and fees.
17. A few days after customers send their investment checks to Golden State, they receive account opening forms and risk disclosure documents from Golden State and the off-shore financial institution. These documents belatedly reveal that the off-shore financial institution charges interest at the rate of the Chase Manhattan Bank prime rate plus four percent and a "storage fee" for the customer's metal at the rate of .5 percent of the total market value of the ten ounces of metal supposedly in their accounts.
18. Around this time, Golden State telemarketers telephone the customers and urge them to sign the account opening and risk disclosure documents and return them promptly to Golden State.
19. Over the next several months, Golden State telemarketers repeatedly contact customers and solicit them to purchase additional metal. Frequently, the telemarketers convince customers to purchase silver, palladium, gold, or additional platinum by claiming that the price of these metals will increase substantially in the near future.
20. Since 1994, the defendants have represented that their financed precious metals program would produce high profits and expose the investor to little or no risk of loss. In their initial sales pitch, which has remained the same over the years regardless of actual market conditions, the defendants have consistently claimed that customers can expect to earn three to four times their investments in the next two to three months, and that the price of platinum will likely increase to $600 or $700 per ounce in the next two to three months. The defendants have also represented that the situation in South Africa assures that a platinum investment will be low risk or non-existent, and that the price of platinum is not going to drop.
21. The defendants' claims concerning extraordinary profits and minimal risk are false. Since January 1, 1994, the price of platinum has never approached the $600 to $700 per ounce level predicted by the defendants. Since 1994, the price of platinum has ranged between $350 and $490 per ounce. Indeed, between January 1, 1994 and May 28, 1997, the price of platinum did not increase sufficiently for a Golden State customer subject to the commission and fees described above, to earn back the commissions and fees charged by Golden State and the off-shore financial institutions, let alone make a profit. Moreover, the Golden State customers of which the Commission is aware consistently lost the bulk of their investments. Those losses indicate that the defendants' precious metals investments are high risk ventures, not low or minimal risk ventures.
22. The defendants' scheme has caused substantial injury to numerous customers. Golden State customers consistently lose the bulk of their investments.
23. On information and belief, the off-shore financial institutions, IBS and Amitex, do not in fact purchase and hold metal on behalf of Golden State customers. Under the IBS customer agreement provided to Golden State customers, IBS is not contractually obligated to purchase metal. Instead, it is obligated only to maintain the ability to deliver metal to customers who pay their loans in full. Thus, IBS is only bound to deliver metal to the customer in the future -- upon the maturity of the contract.
24. The off-shore financial institutions that purportedly hold the metal issue margin calls when a drop in the price of the metal or accumulating credit and storage fees charged by the off-shore financial institution decrease a customer's equity below permissible levels. When the off-shore financial institution issues a margin call, the customer must pay a certain amount of money ("maintenance margin") to the off-shore financial institution to return the customer's equity to an appropriate level. If the customer does not satisfy the margin call, the off-shore financial institution purportedly sells the metal. Sometimes, the off-shore financial institution does not inform the customer of the margin call and liquidates the customer's account without giving the customer an opportunity to meet the margin call.
25. The terms of delivery, rules for margin calls, and other terms and conditions of Golden State's precious metals program are standardized and contained in form contracts provided to customers by the defendants and the off-shore financial institutions.
26. Customers enter into their relationship with Golden State as a means of speculating in the precious metals markets. They do not expect to take physical delivery, and do not take delivery, of the precious metals.
27. Golden State offers investments in standardized commodity units -- for example, 10 ounces of platinum, 10 ounces of palladium, and 500 ounces of silver.
28. Golden State requires customers to make initial payments that are a fixed percentage of the contract price (initial margin) and additional payments when the value of the commodity moves against the customers' positions (maintenance margin).
29. Customers do not acquire any right or interest in any particular lot or commodity unit.
30. Golden State's financed precious metals contracts are not made on or subject to the rules of a board of trade, exchange, or market located outside the United States, its territories or possessions.
VIOLATIONS OF THE COMMODITY EXCHANGE ACT
VIOLATIONS OF SECTION 4b(a)(i)-(iii) of the Act,
7 U.S.C. § 6b(a)(i)-(iii)
Fraud in Connection with Orders to Make
Commodity Futures Contracts
31. Paragraphs 1 through 30 are realleged and incorporated herein by reference.
32. From at least 1994 to the present, the defendants, in or in connection with orders to make, or the making of, contracts of sale of commodities for future delivery, made, or to be made, for or on behalf of any other persons, where such contracts for future delivery were or could be used for the purposes set forth in Section 4b(a)(2) of the Act, 7 U.S.C. 6b(a)(2), have: (i) cheated or defrauded or attempted to cheat or defraud other persons; (ii) willfully made or caused to be made to other persons false reports or statements thereof, or willfully entered or caused to be entered for other persons false records thereof; or (iii) willfully deceived or attempted to deceive other persons, all in violation of Sections 4b(a)(i)-(iii) of the Act, 7 U.S.C. §§ 6b(a)(i)-(iii).
33. From at least 1994 to the present, defendant Otto, as principal, officer and shareholder of Golden State, directly or indirectly controlled Golden State; and he did not act in good faith or knowingly induced, directly or indirectly, the acts constituting the violations described in this Count One. Pursuant to Section 13(b) of the Act, 7 U.S.C. § 13c(b), therefore, defendant Otto is liable for the violations of Section 4b(a)(i)-(iii) of the Act, 7 U.S.C. § 6b(a)(i)-(iii), as described in this Count One, to the same extent as Golden State.
VIOLATIONS OF SECTION 4(a) of the Act,
7 U.S.C. § 6(a)
Offer and Sale of Off-Exchange Commodity Futures Contracts
34. Paragraphs 1 through 33 are realleged and incorporated herein by reference.
35. The contracts for precious metals offered and sold by Golden State are contracts for the purchase and sale of a commodity for future delivery, commonly known as futures contracts.
36. The precious metals which are the subjects of the futures contracts offered by Golden State are commodities as defined by Section 2(a)(1)(A) of the Act, 7 U.S.C. § 2.
37. Since at least 1994 and continuing to the present, the defendants have offered to enter into, entered into, executed, confirmed the execution of, and conducted an office and/or business in the United States for the purpose of soliciting and/or accepting orders for, or otherwise dealing in, transactions in, or in connection with, contracts for the purchase or sale of a commodity for future delivery (other than a contract which is made or subject to the rules of a board of trade, exchange, or market located outside the United States, its territories, or possessions) when:
a. such transactions have not been conducted on or subject to the rules of a board of trade which has been designated by the Commission as a "contract market" for such commodity; and
b. such contracts have not been executed or consummated by or through a member of such contract market;
in violation of Section 4(a) of the Act, 7 U.S.C. § 6(a).
38. From at least 1994 to the present, defendant Otto, as principal,
officer and shareholder of Golden State, directly or indirectly controlled
Golden State; and he did not act in good faith or knowingly induced,
directly or indirectly, the acts constituting the violations described in
this Count Two. Pursuant to Section 13(b) of the Act, 7 U.S.C.
§ 13c(b), therefore, defendant Otto is liable for the violations
of Section 4(a) of the Act, 7 U.S.C. § 6(a), as described in this
Count Two, to the same extent as Golden State.
WHEREFORE, plaintiff respectfully requests that this Court, as authorized by Section 6c of the Act, 7 U.S.C. § 13a-1, and pursuant to its own equitable powers:
1. enter a permanent injunction enjoining the defendants from violating the Act, as alleged herein;
2. require the defendants to pay restitution to customers, disgorge their ill-gotten gains, and rescind contracts;
3. order the defendants to pay civil penalties, to be assessed by the Court, in amounts not to exceed the higher of $110,000 (or $100,000 for violations occurring before November 28, 1996) or triple the monetary gain to them for each violation of the Act, as described herein;
4. award the plaintiff the costs of bringing this action and prejudgment and post-judgment interest; and
5. provide for such other and further relief as this Court deems
necessary and appropriate under the circumstances.
Daniel R. Salsburg, Esq.
Nicholas C. Milano, Esq.
Lawrence H. Norton
Associate Director for Enforcement
U.S. Commodity Futures Trading Commission
1155 21st Street, N.W.
Washington, D.C. 20581
Attorneys for Plaintiff
Date: June 18, 1997_