Release # 4257-99 (99-Civ-0967)
For Release: April 21, 1999
CFTC OBTAINS RESTRAINING ORDER IN CIVIL ACTION AGAINST DONALD E. JAMES AND DONALD JAMES, INC. OF GEORGIA ALLEGING COMMODITY POOL FRAUD; COMPLAINT ALLEGES THAT DEFENDANTS OPERATED A $5 MILLION PONZI SCHEME OVER A FOUR-YEAR PERIOD
WASHINGTON -- The Commodity Futures Trading Commission (CFTC) announced today the filing of an eight-count civil complaint on April 15, 1999, in the U.S. District Court for the Northern District of Georgia, Atlanta Division, alleging a $5 million fraud against Donald E. James (James) and Donald James, Inc. (James, Inc.), a Georgia corporation, both of Alpharetta, Georgia.
On April 16, 1999, U.S. District Court Judge Julie E. Carnes entered a statutory restraining order against James and James, Inc. The order enjoins the defendants from any further violations of the Commodity Exchange Act (CEA), freezes the defendants' assets, prohibits the destruction of books and records, and bans the defendants from any activity in the commodity futures industry. The court's order also appoints William G. Hays, Jr., of the Atlanta firm of William G. Hays & Associates, Inc. (Tel: 404-875-5645), as a temporary receiver to administer the terms of the order. The provisions of the court's restraining order remain in effect until further order of the court. The CFTC, in its continuing litigation, also seeks preliminary and permanent injunctions, civil monetary penalties, restitution, disgorgement of ill-gotten gains, and other equitable relief.
Defendants Allegedly Solicited, Accepted, and Pooled More than $5 Million from At Least 25 Investors, Mostly in the Atlanta, Georgia Area and Florida
The CFTC's complaint alleges that James and James, Inc. defrauded investors in two commodity pools they operated under the names of Franklin Thomas & Company and Franklin Thomas Investments, L.P., from November 1994 to the present, receiving more than $5 million from at least 25 investors, mostly in the Atlanta, Georgia area and Florida. The complaint names Franklin Thomas Investments, L.P. as a relief defendant and seeks to recover funds from it that are traceable to the fraud of the defendants.
The complaint alleges that James and James, Inc. misappropriated some of the funds of the newer investors in the pools to pay principal and purported profits to some of the earlier investors, in a manner akin to a "Ponzi" scheme. The complaint also alleges that the defendants misappropriated some of the investors' funds for James's own personal use.
The CFTC's complaint further charges that James and James, Inc. defrauded investors and violated sections 4b(a)(i), 4b(a)(ii) and 4o(1) of the CEA by: 1) misrepresenting to investors that all their funds were going to be used to trade commodity futures, when they were not; 2) misrepresenting James's trading success and promising profits, while claiming to be able to limit risks; 3) misrepresenting to investors that their funds were "frozen" at a brokerage firm in Chicago; 4) misrepresenting to investors that they could withdraw their funds at any time after appropriate notice; and 5) misrepresenting to investors, orally and in written statements, profits from trading and the value of each investor's share of the pool.
In addition, the complaint charges that James acted as a commodity pool operator and commodity trading advisor, and that James, Inc. acted as a commodity trading advisor, all without required registration with the CFTC under section 4m(1) of the CEA.
Finally, the complaint charges that James violated section 4n of the CEA and CFTC regulations 4.20(c), 4.21 and 4.22, by failing to provide risk disclosure documents and accurate account statements to investors and by illegally commingling investors' funds with James's own funds and the funds of others.
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