Release: #4082-97 (Civ 97-7422)
For Release: November 24, 1997
CFTC CHARGES FLORIDA COMPANIES, THREE PRINCIPALS, WITH NATIONWIDE TELEMARKETING SCHEME INVOLVING ILLEGAL OFF-EXCHANGE FUTURES CONTRACTS IN PRECIOUS METALS, HEATING OIL, OTHER COMMODITIES
WASHINGTON -- The Commodity Futures Trading Commission (CFTC) announced
today that on November 20, 1997, it filed an injunctive action in the U.S.
District Court for the Southern District of Florida against Midland Rare
Coin Exchange, Inc. (Midland), its president, Robert J. Mitchell
(Mitchell), and its vice-president, Terry A. Sands (Sands);
Globex Bullion and Financial Services Corporation (Globex) and its
president, Edward N. Tabb (Tabb); and Global Asset Management,
Inc. (Global). The CFTC's complaint charges that Midland telemarketers
fraudulently sell nationwide illegal off-exchange futures contracts in
various commodities. Globex and Global, according to the complaint, claim
to provide financing for these investments and store the purchased
commodities for Midland customers.
On November 21, 1997, the court entered an ex parte order which,
among other things, freezes the defendants' assets and appoints a receiver
to take control of Midland, Globex, and Global.
The CFTC complaint charges that defendants violated section 4a of the
Commodity Exchange Act (CEA) by selling or assisting in the sale of
illegal, off-exchange futures contracts, and that Midland, Mitchell, and
Sands violated section 4b of the CEA by cheating and defrauding customers
through false claims concerning the profitability and risk associated with
Midland's investment program.
According to the complaint, Midland telemarketers falsely claim that
customers will reap substantial profits from only slight increases in the
cash prices of commodities such as heating oil, unleaded gasoline, natural
gas, and various precious metals, currencies, and agricultural commodities.
The complaint also alleges that Midland telemarketers fail to disclose the
amount of commissions, interest, and fees charged to customers' accounts.
Customers consistently lose the bulk of their investments, according to the
Commenting on the filing of this matter, CFTC Director of Enforcement
Geoffrey Aronow said:
"This case is part of the Commission's continuing campaign against
fraudulent telemarketing schemes in precious metals, heating oil and other
commodities. Investors should be wary of high-pressure sales tactics and
promises of quick riches with little risk."
According to the complaint, the defendants' precious metals program is a
high-risk enterprise. The complaint alleges that under Midland's program, a
customer pays for a portion of the commodity (usually 20 to 23 percent) in
cash (known as "initial margin"); Global, Globex, and other firms loan the
customer the balance of the purchase price of the commodity and purportedly
purchase and hold the commodities on behalf of Midland customers. According
to the complaint, when decreases in the price of a commodity or
accumulating credit and storage fees cause a customer's equity to drop
below a specified level, the customer must pay additional money to return
his or her equity to a specified level (known as "maintenance margin").
Midland telemarketers claim they will monitor the market and instruct
customers when they should liquidate their accounts for a profit, according
to the complaint. It is only after customers send their funds to Midland,
the complaint alleges, that customers receive account opening forms and
documents purporting to disclose risks inherent in the investment
In its continuing litigation against the defendants, the CFTC is seeking
preliminary and permanent civil injunctions in addition to other remedial
relief including restitution to customers.
The Florida Comptroller's Office, the Texas Department of Public Safety,
the Federal Bureau of Investigation (San Diego office), the San Diego
Boiler Room Task Force, the Arizona Corporation Commission, the Utah
Division of Securities, and the United States Customs Service provided
valuable assistance to the CFTC during the investigation of this matter.