The Commodity Futures Trading Commission (CFTC) has filed a civil enforcement action against Dro Kholamian and his company Blue Star Trading for ongoing foreign exchange (forex) and commodities fraud, the regulator announced on Monday.
The complaint follows on from a US Judge in Illinois entering a Statutory Restraining Order on November 30, 2018, to freeze the assets of Kholamian and Blue Star Trading and to prevent them from destroying their books and records.
The CFTC complaint details
According to the complaint, from around January 2013 up until the present Kholamian, a long-time commodity and former floor broker fraudulently solicited clients to trade leveraged off-exchange forex and commodity futures. However, Kholamian and his company did not trade all of the clients’ funds and instead misappropriated around $775,000 from at least three individuals.
The complaint alleges that Kholamian attracted investors by promising them a 10-20 percent return on a $25,000 investment, generated over 12 months. He promised his clients that they could withdraw their funds at any time, without penalty.
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These individuals were acquainted with Kholamian through his local Armenian community, the complaint states. Overall, he may have managed to solicit $1.9 million from more than 30 clients.
However, once a client opened a trading account, despite Kholamian’s reassurances that their investments were “doing well” he was actually using these expenses both for his personal expenses such as paying medical bills, business expenses and making cash withdrawals, as well as paying other clients to cover their returns, similar to a Ponzi scheme.
Despite his promises, when clients asked to withdraw their funds, Kholamian ignored these demands. Furthermore, he lied about trading conditions, stating that they prohibited him from giving back their money, saying for instance that he was “tied up in trades.” After the demands persisted, he issued two cheques worth $25,000, allegedly knowing full well he didn’t have sufficient funds to clear them.
CFTC is seeking full restitution
The CFTC is seeking “full restitution to defrauded clients,” the statement said. This includes disgorgement of ill-gotten gains, a civil monetary penalty and permanent registration and trading bans. In addition, the commodities regulator wants a permanent injunction against the defendants to prevent further violations of the Commodity Exchange Act and CFTC Regulations, as charged.