Crime, it seems, does not pay. Especially in the United States where the Commodity Futures Trading Commission (CFTC) is concerned, as the regulator continues to apply stiff penalties to perpetrators of forex fraud. Just last month, the CFTC unearthed two forex Ponzi schemes, the results of which were criminal prosecution and severe monetary penalties.
Yesterday, another such Ponzi scheme brought the CFTC a successful prosecution, this time involving defendants Kevin Harris, Keelan Harris, Complete Developments, LLC (CDL), and Investment International Incorporated (I3) all of Warren, Ohio, and Karen Starr of Barrie, Ontario, Canada.
The defendants were ordered collectively to pay restitution and civil monetary penalties of over $23 million for solicitation fraud and misappropriation in connection with operating a multi-million dollar off-exchange foreign currency Ponzi scheme.
In a court hearing at the US District Court for Northern Ohio, Judge David D. Dowd handed down the default Judgment and Memorandum Opinion on May 8, 2013, requiring CDL, I3, Kevin Harris, Keelan Harris, and Karen Starr to pay over $15.7 million in restitution to defrauded investors. The Judgment also imposes civil monetary penalties of $2.49 million on Kevin Harris, $2.49 million on Keelan Harris, and $2.64 million on Starr and permanently bans them, CDL, and I3 from trading and registering with the CFTC and from violating anti-fraud provisions of the Commodity Exchange Act (CEA), as charged.
Misappropriation of Client Money
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Worldwide, the matter of the security of client funds has come under close scrutiny from regulators, resulting in stringent rulings such as the FCA’s Client Assets (CASS) procedures in the UK whereby there is a specific document issued by the regulator detailing a firm’s responsibilities when handling client funds, and the inclusion of a tariff making firms aware of the consequences if any misappropriation is discovered. More recently, the ASIC in Australia invested in a high level deep surveillance system from British software firm First Derivatives in order to monitor the behavior of firms. This system has already been successful in bringing a prosecution in Australia for misappropriation just last month.
This leaves only unregulated firms with the ability to conduct such malpractice, however time is running out for these entities also, as described in a recent Forex Magnates report in so far as payment processors and merchant companies are returning funds to clients if it is found that they are placing funds with an unregulated forex company as part of the customer protection and risk management policies of merchant services companies.
On this basis, the US authorities were among the first to apply strict sanctions to individuals and companies which seek to misappropriate client capital. Therefore, in addition to the provisions made as part of the abovementioned default Judgment which is set in place to restore some of the lost capital to the victims of this case, the court’s memorandum opinion stated that all parties involved were in violation of anti-fraud provisions of the CEA by fraudulently soliciting customers to trade forex and misappropriating customer funds.
The Opinion further finds that, from about November 2006 until October 2008, CDL and I3 fraudulently solicited and accepted funds from customers seeking to open “professionally managed” forex trading accounts and that customers invested more than $23 million. Rather than trading forex on their customers’ behalf, the Opinion finds that CDL and I3 operated as a Ponzi scheme and used customers’ money to make payments to other customers and for Kevin Harris, Keelan Harris, and Starr’s own personal use. The Opinion also finds that Kevin Harris, Keelan Harris, and Star controlled CDL and I3 and are liable for CDL and I3’s fraudulent conduct.
Authorities Seize Proportion of Ill-Gotten Gains
Finally, the Judgment orders Relief Defendants Majestic Enterprises Collision Repair, Inc. and UCAN Overseas Corporation S.A. to disgorge $302,277 and $768,000, respectively, consisting of customers funds that they received, but are not entitled to, as a result of the Defendants’ fraudulent conduct. The amounts disgorged are to be applied to the restitution ordered for CDL and I3 customers, according to the Judgment.