For Release: September 5, 2007
Florida Federal Court Sanctions Several South Florida Foreign Currency Options Boiler-Rooms, Brokerage Firms, and Ten Florida Individuals for Defrauding Customers
Series of Orders Requires Restitution to Customers Totaling More Than $65 Million, Imposes Civil Penalties Totaling More Than $25 Million and Disgorgement of More Than $12.5 Million
Washington, DC – The Commodity Futures Trading Commission (CFTC) announced today the final disposition of two cases pending before Federal Judge Cecelia M. Altonaga in the United States District Court for the District of Southern Florida. Judge Altonaga issued a pair of orders on July 13 and July 16, 2007 in CFTC v. Madison Forex, LLC, et al., No. 05-61672 (S.D.Fla.) and on June 27, 2006 and July 13, 2007 in CFTC v. World Market Advisors, Inc., et al., No. 05-60928 (S.D.Fla.). In both cases, Commission complaints alleged that customers had been fraudulently solicited by boiler-room operations to trade off-exchange foreign currency (forex) options. (See CFTC News Release 5134-05, October 20, 2005; and CFTC News Release 5092-05, June 29, 2005).
CFTC v. Madison Forex, LLC, et al., No. 05-61672 (S.D.Fla.)
The two Madison Forex orders resolve a complaint filed on October 18, 2005. According to the July 13 order, from June through November 2003, sales persons with Chadwick, Grayson Bauer & Co., Inc. (Chadwick), of Fort Lauderdale, in forex trading accounts, exaggerated the likelihood of profit and minimized the risk of loss and the cost of commissions. In reality, Chadwick had at least 64 customer accounts which collectively lost approximately $960,000. Only one of the 64 accounts was profitable.
In the fall of 2003, Chadwick shifted its business to a successor entity, Madison Forex International, LLC (Madison), and continued the solicitation fraud utilizing many of the same sales staff. The orders issued on July 13th and 16th find that from December 2003 to August 2004, Madison opened at least 240 accounts, most of which it introduced to Qualified Leverage Providers, Inc. (QLP), a futures commission merchant (FCM) of Aventura, Florida. Approximately 98% of those customer accounts sustained overall trading losses. The July 13th order finds QLP liable as a principal for Madison’s actions.
The July 16th order finds individual defendants John D’Onofrio of Fort Lauderdale, the president of Chadwick and owner of Madison, and Gary Baugh of Pompano Beach, the vice president of Chadwick and managing partner of Madison, liable for the fraud of Chadwick and Madison because they controlled the firms and lacked good faith or knowingly induced the firms’ violations. The order also finds that Christopher Peck of Boca Raton and Lea Lauren of Delray Beach were sales persons at both firms and directly liable for making fraudulent misrepresentations and omissions. The July 13th and 16th orders find Chadwick, Madison, QLP, and the four aforementioned individuals liable for the fraud and imposed restitution totaling slightly more than $4.5 million and civil monetary penalties totaling slightly less than $5.5 million.
CFTC v. World Market Advisors, Inc., et al., No. 05-60928 (S.D.Fla.)
In World Market Advisors, the June 9, 2005 complaint, as amended on July 21, 2005, sought to enjoin the continuous, deceptive and fraudulent offer and sale of forex options of a common enterprise that had operated from at least October 2002 to June 2005. On June 27, 2006, Judge Altonaga entered a default judgment against the five introducing brokers charged in the complaint, finding that they had acted as a common enterprise, beginning with World Market Advisors, Inc. (WMA) of Fort Lauderdale, and continuing with a series of short-lived affiliates and successors that operated out of the same address, including U.S. Capital Management, Inc. (U.S. Capital), United Equity Group, Inc. (United Equity), Liberty One Advisors, LLC (Liberty One), and Lighthouse Capital Management Inc. (Lighthouse). The default order holds the five introducing brokers liable for fraud and jointly and severally liable for restitution of approximately $20.5 million and disgorgement totaling over $12.5 million.
On July 13, 2007, Judge Altonaga also entered a consent order of permanent injunction against the remaining defendants in the World Market Advisors action. According to the order, more than 97% of the approximately 1,200 retail customers solicited by the five introducing brokers sustained losses totaling approximately $26.8 million of the $27.9 million invested during the four-year period. The order finds that the five introducing brokers introduced trading accounts to QLP, Universal Options, Inc. (Universal Options) of North Miami Beach, and Safeguard FX, LLC (Safeguard) of Boca Raton, each of which traded opposite their customers and set the prices of the forex options contracts their customers bought and sold. The order finds the three firms liable as principals for fraud committed by the five introducing brokers. In addition, the order finds six Florida men directly or indirectly liable for the fraud, including Jason T. Dean of Pompano Beach, Steven D. Knowles and Paul F. Plunkett of Deerfield Beach, Joseph D. Valko of Coconut Creek, Jeffrey Paul Jedlicki of Delray Beach, and Frank Anthony DeSantis of Stuart, Florida. The order imposes permanent injunctive and equitable relief, restitution against the defendants totaling close to $41.4 million, and civil monetary penalties totaling approximately $20 million.
The following CFTC Division of Enforcement staff members are responsible for these cases: Ava M. Gould, Ed Yoshimura, Diane M. Romaniuk, Louis Traeger, Jennifer S. Diamond, William Heitner, Don Nash, Venice Bickham, Rosemary Hollinger and Richard Wagner.
Last Updated: April 22, 2010