May 22, 2014
CFTC Wins Fraud Trial against Hunter Wise Related Precious Metals Firms and Their Owners
Federal court orders Fred Jager, Harold E. Martin, Jr. and the Hunter Wise Companies to Pay over $108 Million in Restitution and Penalties
Court Calls Fraudulent Conduct “repeated, callous and blatant”
Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that on May 16, 2014, a federal court in Florida entered an Order finding in the CFTC’s favor following a trial against four Hunter Wise related companies and their owners on charges that they had fraudulently misrepresented the nature of precious metals transactions that resulted in millions of dollars in customer losses.
Hunter Wise Commodities, LLC, Hunter Wise Services, LLC, Hunter Wise Credit, LLC, and Hunter Wise Trading, LLC and the individuals running the companies, Fred Jager and Harold Edward Martin, Jr., have been ordered to pay, jointly and severally, $52.6 million in restitution to the defrauded customers, and to pay a civil monetary penalty, jointly and severally, of $55.4 million, the maximum provided by law.
“This result makes clear that the CFTC will aggressively act to protect customers from fraud. Customers are entitled to know the truth of how their hard-earned money is being used. Here, customers thought Defendants were purchasing precious metals on their behalf and they were not,” said Gretchen L. Lowe, Acting Director of the CFTC’s Division of Enforcement. “This is also another excellent example of how the CFTC is using its new enforcement authority under Dodd-Frank to go after fraudsters.”
The CFTC charged Hunter Wise, Martin, Jager, and others in December 2012 (see CFTC Press Release 6447-12, December 5, 2012). The Court entered a Preliminary Injunction against all of the Defendants on February 22, 2013 (see CFTC Press Release 6522-13, February 27, 2013). Defendants appealed that ruling, arguing that the CFTC lacked jurisdiction over the conduct at issue, and lost when the United States Court of Appeals for the Eleventh Circuit affirmed the lower’s court’s issuance of the preliminary injunction (see CFTC v. Hunter Wise Commodities, LLC, Case No. 13-10993, April 15, 2014).
In his 58-page Opinion and Order (see under Related Links), Judge Donald M. Middlebrooks of the U.S. District Court, Southern District of Florida, found that Jager and Martin knowingly defrauded more than 3,200 retail customers for more than 16 months, between July 2011 and February 2013. The Court found that Jager and Martin’s fraudulent conduct was “repeated, callous and blatant.”
According to the Order, Hunter Wise orchestrated a multi-level marketing scheme in which so-called retail dealers served a sales function for Hunter Wise, soliciting customer accounts. The dealers advertised and claimed that they sold physical metals, including gold, silver, platinum, palladium, and copper, to retail customers on a financed basis, and forwarded customer funds to Hunter Wise, whose identity was not disclosed to the customers.
As explained in the Order, using marketing materials and training provided to them by Jager, Martin and other Hunter Wise employees, the dealers claimed to arrange loans for the purchase of physical metals, and advised customers that their physical metals would be stored in a secure depository. The Order finds that customers were then charged “exorbitant interest” on the purported loans and storage fees for the metal they thought they had purchased. In fact, the Order finds that neither Hunter Wise nor any of the dealers purchased any physical metals, arranged actual loans for their customers to purchase physical metals, or stored physical metals for any customers participating in their retail commodity transactions – in other words, there was “no metal at the end of the rainbow.” According to the Order, over 90 percent of the retail customers lost money.
The Court found that Jager and Martin knew that they were defrauding customers and violating the law. “[Jager and Martin] purposefully decided to risk criminal and civil liability by continuing Hunter Wise’s fraudulent and illegal operations. … The house cannot win when, in violation of the law, the game is rigged.”
The Court further found Martin and Jager’s proferred excuses for their conduct “implausible,” “disingenuous” and “highly unreasonable.” For example, the Court noted that Hunter Wise’s attorneys had advised them to change their business or shut down, so that Jager and Martin were keenly aware of the choices available to them and the possible criminal consequences of continuing to operate, to the extent that Martin wrote in an email to Jager, “With any luck we will have adjoining cells.”
In considering the appropriate penalties, the Court noted that the fraudulent scheme was “egregious and recurrent” and “calculated to deceive retail customers.” The Court held that the likelihood of future violations was “strong” given that Jager and Martin did not acknowledge any wrongdoing. Further, the “systematic and pervasive nature” of the fraud necessitated full restitution for all customers who lost money between July 16, 2011 and February 25, 2013.
In a separate Order, the District Court entered default judgments against C.D. Hopkins Financial Group, LLC, Hard Asset Lending Group, LLC, and their principal, Chadewick Hopkins (CD Hopkins Defendants), and Blackstone Metals Group, LLC and its principal Baris Keser (Blackstone Defendants). CD Hopkins Defendants were ordered to pay $1,158,278.78 in restitution and $3,474,000 in civil penalties. Blackstone Defendants were ordered to pay $617,818.93 in restitution and $1,853,000 in civil penalties.
The CFTC Division of Enforcement staff members responsible for this action are Carlin Metzger, Joseph Konizeski, Heather Johnson, Nancy Hooper, Jeff LeRiche, Peter Riggs, Jennifer Chapin, Thaddeus Glotfelty, Stephen Turley, Brigitte Weyls, Scott Williamson, Rosemary Hollinger, and Richard Wagner.
The CFTC thanks the Florida Office of Financial Regulation, the Florida Department of Agriculture and Consumer Services, and the United Kingdom Financial Conduct Authority for their assistance in this matter.
Recent CFTC Precious Metals Enforcement Actions
The CFTC has taken action against numerous precious metals telemarketing firms that unlawfully solicited precious metals orders from retail customers to be executed through Hunter Wise, including:
• London Metals LLC (CFTC Press Release 6680-13);
• Matthew Hall d/b/a Pacific Exchange Group (CFTC Press Release 6681-13);
• Lloyds Commodities LLC (CFTC Press Release 6850-14);
• Newbridge Metals, LLC (CFTC Press Release 6705-13);
• Joseph Glenn Commodities, LLC (CFTC Press Release 6542-13);
• Newbridge Alliance, Inc. & U.S. Capital Trust, LLC (CFTC Press Release 6903-14);
• Pan American Metals of Miami (CFTC Press Release 6653-13);
• Secured Precious Metals (CFTC Press Release 6503-13);
• Barclay Metals (CFTC Press Release 6503-13);
• Vertical Integration Group (CFTC Press Release 6824-14);
• Lions Wealth (CFTC Press Release 6729-13);
• Yorkshire Group (CFTC Press Release 6713-13);
• PGS Capital Wealth Management and Rockwell Asset Management (CFTC Press Release 6909-14);
• Empire Sterling Metals Corp. and I.P.M. Investments, Inc. (CFTC Press Release 6912-14); and,
• Palm Beach Capital LLC (CFTC Press Release 6931-14).
The CFTC has established a website that will be updated periodically with information about the proceedings and has other relevant information for consumers and other victims: http://www.cftc.gov/ConsumerProtection/CaseStatusReports/hunterwise. The court-appointed Manager for Hunter Wise and the other Defendants has posted information about the case at http://www.hunterwisemanager.com.
CFTC’s Precious Metals Customer Fraud Advisory
In January 2012 the CFTC issued a Precious Metals 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.
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 22, 2014