February 27, 2013
Federal Court in Florida Enters Preliminary Injunction Order against Hunter Wise Commodities, LLC, Lloyds Commodities, LLC, and 18 Other Defendants in Connection with Operating a Multi-Million Dollar Fraudulent Precious Metals Scheme
Finding that new Dodd-Frank anti-fraud authority applies, Court freezes defendants’ assets and appoints special corporate monitor for corporate defendants
Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that the Honorable Donald M. Middlebrooks of the U.S. District Court for the Southern District of Florida entered a Preliminary Injunction Order against Defendants Hunter Wise Commodities, LLC; Hunter Wise Services, LLC; Hunter Wise Credit, LLC; Hunter Wise Trading, LLC; Lloyds Commodities, LLC; Lloyds Commodities Credit Company, LLC; Lloyds Services, LLC; C.D. Hopkins Financial, LLC; Hard Asset Lending Group, LLC; Blackstone Metals Group, LLC; Newbridge Alliance, Inc.; United States Capital Trust, LLC; Harold Edward Martin, Jr.; Fred Jager; James Burbage; Frank Gaudino; Baris Keser; Chadewick Hopkins; John King; and David A. Moore that prohibits the Defendants from offering investments in physical metals to the retail public.
The Court’s decision stems from the CFTC’s December 5, 2012 Complaint charging the Defendants with fraudulently soliciting and accepting at least $46 million from hundreds of customers since July 2011 to invest in physical precious metals, such as gold, silver, platinum, palladium, and copper. (See CFTC Press Release 6447-12, December 5, 2012). According to the CFTC Complaint, the Defendants claimed to sell physical metals to customers who made a down payment on the amount of physical metals they wished to buy, usually 25 percent of the total purchase price. Defendants allegedly claimed to arrange loans for the balance of the purchase price, and advised customers that their physical metals would be stored in a secure depository. The Complaint alleges that these statements were false because the Defendants did not own, purchase or store any metal for their customers, and that the Defendants cheated and defrauded customers by charging customers interest on loans which were never made, and storage and insurance fees on metals that did not exist. In addition, the Complaint alleges that the offering of these investments in physical metals constituted illegal, off-exchange retail commodity contracts in violation of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act).
Following a hearing on February 22, 2013, Judge Middlebrooks found that the CFTC had shown a likelihood of success in proving the allegations of the Complaint. In the Court’s Order issued on February 25, Judge Middlebrooks described Hunter Wise as “the conductor of th[e] orchestra, with the other Defendants playing instruments at Hunter Wise’s direction.” According to the Order, Hunter Wise provided reports to customers that were misleading because they created the “illusion that actual commodities are being transferred into or out of their accounts, when in reality, no real metals are being transferred as a result of the transaction.” According to the Order, “Hunter Wise does not actually buy, sell, loan, store, or transfer physical metals in connection with these retail commodity transactions. Instead, Hunter Wise records and tracks customer orders and trading positions, and then manages its exposure to these retail customer trading positions by using the customer’s funds to trade derivatives – such as futures, forwards and rolling spot contracts – in its own margin trading accounts.”
The Court’s Order prohibits the Defendants from trading, soliciting orders, committing fraud or engaging in business activity related to contracts or transactions regulated by the CFTC. In its continuing litigation against the Defendants, the CFTC is seeking a permanent civil injunction, in addition to other remedial relief, including restitution to customers.
The Court’s Order also froze all the defendants’ assets, and appointed Melanie Damian, Esq. as Special Corporate Monitor to assume control over the corporate defendants. The CFTC has established a website that will be updated periodically with information about the ongoing proceedings and has other relevant information for consumers and other victims, http://www.cftc.gov/ConsumerProtection/CaseStatusReports/hunterwise.
The Dodd-Frank Act expanded the CFTC’s jurisdiction over transactions in physical metals, like these, and requires that such transactions be executed on or subject to the rules of a board of trade, exchange or commodity market, according to the Complaint. This new requirement took effect on July 16, 2011. The Complaint alleges that all of the Defendants’ financed commodity transactions after July 16, 2011, were illegal. The Complaint also alleges that the Defendants defrauded customers in all of these financed commodity transactions.
In January 2012 the CFTC issued a Consumer Fraud Advisory regarding precious metals fraud, saying that it had seen an increase in the number of companies offering customers the opportunity to buy or invest in precious metals. The CFTC’s Consumer Fraud Advisory specifically warned that frequently companies do not purchase any physical metals for the customer, instead simply keep the customer’s funds. The Consumer Fraud Advisory further cautioned consumers that leveraged commodity transactions are unlawful unless executed on a regulated exchange.
The CFTC thanks the Florida Office of Financial Regulation, the Florida Department of Agriculture and Consumer Services, and the United Kingdom Financial Services Authority for their assistance in this matter.
The CFTC Division of Enforcement staff responsible for this action are Carlin Metzger, Heather Johnson, Joseph Konizeski, Jeff LeRiche, Peter Riggs, Jennifer Chapin, Steven Turley, Brigitte Weyls, Joseph Patrick, Susan Gradman, Thaddeus Glotfelty, William Janulis, Scott Williamson, Rosemary Hollinger, and Richard Wagner.
Last Updated: February 27, 2013