The National Futures Association (NFA) has announced that it has instigated charges against Euro Pacific Holding Corporation and Alexander Craig Blum, a principal and associated person of the company, in the form of two separate complaints which were filed by the US regulatory authority on Thursday, November 7.
Summarizing the complaint, the NFA asserts that Euro Pacific and Mr. Blum had carried out improper activities including cheating, defrauding or deceiving another person or attempting to do so, and submitting false information to the NFA.
Euro Pacific was also charged with conducting Forex business with non-members of the NFA who were required to be registered, and for using a deficient disclosure document.
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Euro Pacific came to the attention of the NFA during its investigation of Prodigy Asset Management LLC (Prodigy), a former CTA/commodity pool operator (CPO) Member of NFA.
Prodigy was permanently barred from NFA membership in June 2013, pursuant to its settlement of a Complaint issued by this Committee, which charged Prodigy and its principal with failing to cooperate with NFA in an investigation of Prodigy’s operations, and possible fraudulent activity involving a commodity pool that it operated. In reaching that settlement, neither Prodigy nor its principal admitted or denied the charges against them and no findings of violations by them were made.
ln the course of its investigation of Prodigy, the NFA learned that Prodigy had a pending associated person and principal named Dustin Collins who was also pending as an associated person and principal of another firm called The Ottoman Group LLC (Ottoman), which had applied for NFA membership as a CTA, CPO, introducing broker, FX firm, and swap firm in September 2012.
All of those applications were withdrawn in December of that year, and neither Collins nor Ottoman has ever had any membership status with the NFA. The regulator stated that it was already familiar with Ottoman because of a customer complaint it had received against Ottoman in September 2012, involving an account at Ottoman that was traded by Euro Pacific and Mr. Blum.
Managed Account Cover-Up
In the complaint against Euro Pacific Holding Corporation, the NFA has disclosed that it reviewed various aspects of Euro Pacific’s operations, and in doing so, determined that Mr. Mr. Blum had provided false information to the NFA during its 2010 examination of Euro Pacific, when Mr. Blum told the NFA examiners that he and Euro Pacific were not managing customer accounts.
In addition, during the 2013 examination, the NFA found that Euro Pacific and Mr. Blum had used a misleading disclosure document and deceptive promotional material to solicit managed account customers, demonstrating the rigorous method by which the United States officials conduct compliance inspections and maintain records.
NFA Compliance Rule 2-39(a) provides, in pertinent part, that Members and Associates who solicit customers, introduce customers to a counterparty, or manage accounts on behalf of customers in connection with forex transactions shall comply with Sections (b) and (d) of NFA Compliance Rule 2-36.
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During the NFA’s 2010 examination of Euro Pacific, Mr. Blum represented to NFA that neither he nor Euro Pacific had ever managed any customer accounts.
Furthermore, during NFA’s 2013 examination, Mr. Blum claimed that he and Euro Pacific had managed only three accounts since the firm became an NFA Member in October 2007, and according to Mr. Blum, those accounts were opened in September and October 2012. These statements to the NFA by Mr. Blum were materially false in that, contrary to Mr. Blum’s claims, he and Euro Pacific had actually managed at least 21 customer accounts, some dating as far back as 2007.
Regulation 4.35 within the Commodity Futures Trading Commission (CFTC)’s stipulations provides, in pertinent part, that a CTA’s disclosure document must include certain performance related information as specified in the regulation, including the number of accounts directed by the CTA or other persons trading the account as of the date of the DD; total assets under management as of the date of the disclosure document and the performance of accounts actually traded. Furthermore, the Regulation requires the CTA to maintain all supporting documents necessary to substantiate its performance figures.
Euro Pacific’s July 8, 2012 disclosure document, which was provided to customers and prospective customers, failed to include performance related information required by CFTC Regulation 4.35, including the number of accounts directed by the firm, including its total client assets under management at the time of the submission of the disclosure document.
Read The Small Print – Unless It Is Inaccurate
Mr. Blum made, according to the NFA, insubstantiable claims relating to trading performance which came to light after he provided a customer of Euro Pacific with promotional material that purported to display his performance for the period of August 2006 through August 2012.
The material included a grid showing purported performance for each month during the period and represented that Mr. Blum had made a total return over the period of 162%.
The presentation of such rate of return was deceptive and misleading in that NFA’s analysis of the performance of a sample of the customer accounts that Mr. Blum had actually traded during the period showed that the accounts were far from profitable, and in reality, experienced rates of return ranging from negative 16% to negative 97%.
In addition, Mr. Blum and Euro Pacific Holding Corporation are charged with engaging in business with third party firms which are not registered with the NFA nor the Commodity Futures Trading Commission.
The outcome of the case will be decided by a court of law, but the NFA has a tariff according to its guidelines, which states that the penalties for infringements such as this, include possible reprimand or censure, a $250,000 maximum penalty for each violation, of which Euro Pacific is accused of committing six violations, or expulsion or suspension from NFA membership.