For Release: April 7, 2008
CFTC Charges Ex-felon Turned Business Man, Kenneth Branch, and His Company, Cocoon Trade Inc., with Fraud
Defendants Charged with Fraudulently Soliciting at Least $1.4 Million from Washington, DC, Area Residents to Trade Commodity Futures
Washington, DC - The U.S. Commodity Futures Trading Commission (CFTC) announced today that on April 4, 2008, a federal court in Maryland issued a statutory restraining order against Kenneth L. Branch, of Lanham, Maryland, and his company Cocoon Trade Inc. (Cocoon), freezing assets and prohibiting the destruction of documents. The court also entered a consent preliminary injunction order against Branch, barring him from acting in violation of the Commodity Exchange Act and CFTC regulations, as charged.
The court’s orders arise out of a CFTC complaint, filed in the U.S. District Court for Maryland on March 28, 2008, charging the defendants with fraudulently soliciting at least $1.4 million from at least 39 individuals to invest in commodity futures. Branch is a felon who served twelve years in federal prison on drug-related charges.
The complaint alleges that Cocoon and Branch with fraudulently solicited the individuals to invest in commodity futures, either through a commodity pool or individual trading accounts that defendants would manage on their behalf. The CFTC complaint further charges the defendants with misappropriating at least $941,897 of investor funds to pay purported profits to investors and to pay for personal expenses.
In addition, the complaint charges the defendants with registration and regulatory violations in connection with the operation of the commodity futures pool and individual managed trading accounts.
According to the complaint, since at least 2005 through February 2007, Cocoon and Branch, as president and sole officer and employee of Cocoon, fraudulently solicited prospective investors located primarily in the Washington, D.C., area by claiming to be a successful trader, promising profitable returns, and failing to disclose the risks of trading commodity futures. As alleged, Branch developed a website, www.cocoontrade.com, to aid in his solicitation of prospective investors. Utilizing the website, Branch purportedly advertised his trading techniques and acumen, and referred prospective investors to an August 2006 magazine article chronicling his rise from ex-felon to self-made business man.
Contrary to his claims of being a successful trader, Branch sustained monthly losses, except for one month, with overall net trading losses in the hundreds of thousands of dollars. According to the complaint, Branch used some of the misappropriated investor funds to conceal trading losses by making payments to existing pool participants as purported profits.
The complaint alleges that Branch disappeared in February 2007, and pool participants have not been able to obtain their funds since that time. According to the complaint, Branch was imprisoned in late 2007 on a parole violation stemming from the felony drug conviction. Branch was released on April 2, 2008.
In the ongoing litigation, the CFTC also seeks a permanent injunction against the defendants, disgorgement, restitution and civil monetary penalties.
The following CFTC Division of Enforcement staff members are responsible for this case: Kevin S. Webb, Kara Mucha, Michelle Bougas, Gretchen L. Lowe, and Vincent McGonagle.
The CFTC appreciates the cooperation of the Securities Division of the Maryland Attorney General's Office in investigating this matter.
Last Updated: April 4, 2008