Federal Court Orders More than $16.2 Million in Customer Restitution and Monetary Penalties against Texas Defendants Scott P. Kear, Sr., Jeffery L. Lyon and their Firms in CFTC Anti-Fraud Action
Elderly persons targeted through churches in Ponzi scheme. Less than a month after the CFTC obtained an emergency court order freezing assets of the defendants it managed to get a ruling.
Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that it obtained more than $16.2 million in restitution and civil monetary penalties in a federal court order against defendants Scott P. Kear, Sr., Jeffery L. Lyon and entities they controlled, M25 Investments, Inc. (M25) and M37 Investments, LLC (M37), all of Waxahachie, Texas.
The consent order, entered on October 25, 2010, by Judge Barbara M. G. Lynn of the U.S. District Court of the Northern District of Texas, resolves a CFTC anti-fraud enforcement action filed in September 2009 that charged the defendants with fraudulently soliciting approximately $8 million from approximately 213 individuals to trade off-exchange leveraged foreign currency (forex), forex options and commodity futures contracts (see CFTC Press Release 5723-09, September 30, 2009).
The order requires the defendants jointly and severally to pay $7,404,036.56 in restitution. The order also requires M25 and M37 jointly and severally to pay a $7.1 million civil monetary penalty and Kear and Lyon to pay civil monetary penalties of $1.4 million and $375,000, respectively. The order permanently prohibits the defendants from engaging in any commodity-related activity and from registering with the CFTC in any capacity.
The order finds that, from December 2007 to September 2009, the defendants and their representatives fraudulently solicited individuals in West Virginia, Texas, Mississippi, Maryland and other states to trade forex and forex options. The defendants often targeted elderly individuals through their churches.
Rob Frasca Talks Ndau as an Adaptive Store of ValueGo to article >>
The defendants solicited potential customers, promising guaranteed interest payments on investments of two percent monthly and 24 percent annually, as well as an additional two percent renewal bonus if customers reinvested, the order finds.
The defendants also represented to customers that their returns would come from profitable trading. Instead, the majority of customers’ funds were not used for trading, and funds that actually were traded sustained significant losses, according to the order.
The few funds paid to customers by M25 and M35 were funds received from other customers and were not trading profits. Therefore, the order finds that M25 and M37 operated a Ponzi scheme. The defendants concealed their fraud by issuing monthly account statements that falsely assured customers that they were earning two percent monthly interest, the order finds.
By separate order, the litigation against defendant David Seaman is dismissed.
The CFTC appreciates the assistance of the National Futures Association in this matter.
CFTC Division of Enforcement staff members responsible for this case are Timothy M. Kirby, Kevin K. Batteh, Kara Mucha, Gretchen L. Lowe and Phyllis J. Cela.
var docstoc_docid="58506062";var docstoc_title="Federal Court Orders More than $16.2 Million in a forex scam";var docstoc_urltitle="Federal Court Orders More than $16.2 Million in a forex scam";
Federal Court Orders More than $16.2 Million in a forex scam