For Release: April 2, 2009
Nacogdoches, Texas Businessman George D. Hudgins Ordered to Pay Approximately $86 Million for Defrauding 230 Investors in a “Ponzi” Scheme Involving Commodity Futures and Options Contracts
Washington, DC — The U.S. Commodity Futures Trading Commission (CFTC) announced that it obtained a federal court order against Texas resident George D. Hudgins (d/b/a George D. Hudgins, L.L.C.), requiring him to pay $71 million to victims of his Ponzi scheme and a civil penalty of $15 million. The order also permanently bars Hudgins from the commodity industry.
The consent order, entered by the Honorable Leonard Davis of the U.S. District Court for the Eastern District of Texas, on April 2, 2009, fully settles all charges in the civil lawsuit filed by the CFTC on March 13, 2008 against Hudgins. (See CFTC News Release, 5500-08, May 21, 2008.)
Hudgins Defrauded Victims of Approximately $88 Million
According to the order, as early as June 2001 through May 2008, Hudgins fraudulently induced members of the public to invest approximately $88 million in a commodity pool that traded on-exchange commodity futures and options contracts.
Specifically, the order states that Hudgins solicited investors through false representations in promotional packets, newsletters, group presentations and face-to-face meetings, including false statements about the length of time the commodity pool had been in existence, the historical profitability of the commodity pool, and the profits made by investors. For example, Hudgins falsely told investors and potential investors that from 2000 to 2007 the commodity pool produced net annual profits of from 22.5 percent to 99 percent, when the pool had a net loss each year since its inception in December 2003, and total losses of over $28 million as of April 30, 2008.
To lull investors into a false sense of security that their funds were not at risk, Hudgins sent investors false account statements, showing that their accounts were profiting from his trading activity. In fact, the accounts suffered millions in losses over their lifetime and Hudgins paid out approximately $17 million in false “profits” to certain investors from money Hudgins obtained from other victims of his fraud.
Further, after suffering millions of dollars in trading losses, court records show that Hudgins used the remainder of the money to support his lavish lifestyle, which included purchasing several antique classic sports cars, Tiffany jewelry, a 300-acre ranch along the Angelina River, and an airplane. Hudgins also commissioned and almost completed the construction of an airplane hangar.
The Receiver’s Interim Pro Rata Distribution to Investors of Over $24 Million
On May 13, 2008, at the CFTC’s request, Judge Davis froze Hudgins’ assets and appointed a receiver to recover and distribute Hudgins’ assets to defrauded investors. Of the $71 million solicited by Hudgins, the Receiver has collected over $24 million through the asset freeze, the sale of assets, the return of false profits already sent by Hudgins to certain investors, and the return of gifts made by Hudgins to family and friends. On March 12, 2009, the Receiver distributed these funds to defrauded investors on a pro rata basis.
In a separate criminal action, Hudgins pleaded guilty on September 9, 2008, to wire fraud, embezzlement, and money laundering. He was sentenced by U.S. District Court Judge Thad Heartfield on March 13, 2009, to 121 months in federal prison.
The CFTC appreciates the assistance of the United States Attorney’s Office for the Eastern District of Texas, the Federal Bureau of Investigation, and the Texas Rangers in this matter.
The following CFTC Division of Enforcement staff members are responsible for this case: Kathleen Banar, Kim Bruno, James Deacon, Michael Tallarico, Christopher Giglio, Rick Glaser, and Richard Wagner.
Last Updated: April 2, 2009