May 15, 2014
CFTC Charges Florida-Based Palm Beach Capital LLC and Lawrence Scott Spain with Engaging in Illegal, Off-Exchange Precious Metals Transactions
Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that it filed a civil injunctive enforcement action in the U.S. District Court for the Southern District of Florida against Defendants Palm Beach Capital LLC (PBC) of Palm Beach, Florida, and its owner and manager, Lawrence Scott Spain, of Boca Raton, Florida. The CFTC Complaint charges the Defendants with engaging in illegal, off-exchange transactions in precious metals with retail customers on a leveraged, margined, or financed basis. The Complaint further alleges that Spain, as controlling person for PBC, is liable for PBC’s violations of the Commodity Exchange Act (CEA).
According to the Complaint, since at least July 16, 2011 and continuing through at least August 2012, PBC, by and through its employees including Spain, solicited retail customers by telephone and on PBC’s website, to engage in leveraged, margined, or financed precious metals (including gold, silver, platinum and palladium) transactions. During that period, the Complaint alleges, approximately 39 of PBC’s customers paid at least $1.35 million to PBC in connection with precious metals transactions. The Complaint alleges that these customers lost at least $1.25 million of these funds to trading losses, commissions, fees, and other charges by PBC and other companies. PBC received commissions and fees totaling at least $526,000 in connection with these precious metals transactions, according to the Complaint.
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, leveraged, margined, or financed transactions such as those conducted by PBC, are illegal off-exchange transactions unless they result in actual delivery of metal within 28 days. The Complaint alleges that metals were never actually delivered in connection with the leveraged, margined, or financed precious metals transactions made on behalf of PBC’s customers.
The Complaint further alleges that PBC executed the illegal precious metals transactions through Lloyds Commodities, LLC and associated entities (collectively, Lloyds Commodities) and Hunter Wise, LLC and associated entities (collectively, Hunter Wise). The CFTC filed enforcement actions against, among others, Lloyds Commodities and Hunter Wise in December 2012, charging both Lloyds Commodities and Hunter Wise with engaging in illegal, off-exchange precious metals transactions, and charging Hunter Wise with fraud and other violations (see CFTC Press Release 6447-12). On February 5, 2014, in a consent order resolving the Commission’s claims against Lloyds Commodities, the District Court found that the CFTC had jurisdiction over the transactions at issue pursuant to Section 2(c)(2)(D) of the CEA and ordered Lloyds Commodities to pay over $5 million in restitution and penalties (see CFTC Press Release 6850-14).
On February 19, 2014, the District Court found that Hunter Wise had no actual metal to deliver to customers and held that Hunter Wise engaged in illegal precious metals transactions and was required to register as a futures commission merchant but did not do so and therefore violated Sections 4(a) and 4d of the CEA (see CFTC v. Hunter Wise Commodities, LLC, et al., 12-81311-CIV (Order on the Parties’ Motions for Summary Judgment). A bench trial against Hunter Wise on remaining charges, which allege fraud, was concluded on March 3, 2014, and the parties are awaiting the court’s final judgment. And on April 15, 2014, in CFTC v. Hunter Wise Commodities, LLC, et al., the U.S. Court of Appeals for the Eleventh Circuit affirmed the District Court’s issuance of a preliminary injunction and held that the Commission’s jurisdiction under Section 2(c)(2)(D) of the CEA extends to the precious metals transactions at issue in the case and that no exception to the Commission’s jurisdiction applied.
In its continuing litigation against PBC and Spain, the CFTC seeks disgorgement of ill-gotten gains, restitution for the benefit of customers, civil monetary penalties, permanent registration and trading bans, and a permanent injunction from future violations of the CEA, as charged.
CFTC Division of Enforcement staff members responsible for this action are R. Stephen Painter, Jr., Michael C. McLaughlin, David W. MacGregor, Lenel Hickson, Jr., and Manal M. Sultan.
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CFTC’s Precious Metals Customer Fraud Advisory
The CFTC has issued several customer protection Fraud Advisories that provide the warning signs of fraud, including the Precious Metals Fraud Advisory, which alerts customers to precious metals fraud and lists simple ways to spot precious metals scams.
Customers can report suspicious activities or information, such as possible violations of commodity trading laws, to the CFTC Division of Enforcement via a Toll-Free Hotline 866-FON-CFTC (866-366-2382) or file a tip or complaint online.
Last Updated: May 15, 2014