Federal Court Allows CFTC Case Against $290M Fraud to Proceed

The CFTC alleges Monex Deposit Company scammed thousands of retail customers out of more than $290 million.

In a surprising turn of events, the Ninth Circuit Court of Appeals ruled in favor of the CFTC to proceed with its lawsuit that accuses a Newport Beach-based company with defrauding thousands of customers out of $290 million.

The federal court said that the district court was wrong in dismissing the regulator’s case against the company and its principals Louis Carabini and Michael Carabini. It ruled that the CFTC’s charges of fraud and illegal trading could proceed.

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Although the derivatives regulator has jurisdiction over only swaps and commodity futures contracts, the CFTC has historically had also enforcement authority on the spot or physical markets.

“The decision reverses a March 2018 ruling by the district court, which dismissed the case based on its holding that the CFTC lacked authority over the alleged fraud because defendants make “actual delivery” of precious metal to customers,” the agency explains.

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In 2017, the Commodity Futures Trading Commission (CFTC) had filed a federal lawsuit in Illinois, charging three affiliated companies located in Newport Beach of California with defrauding customers through commodity investment pools.

Background

The CFTC alleges that beginning in 2011 and through March 2017, Monex Deposit Company, Monex Credit Company, and Newport Services Corporation solicited the public to invest in commodity trading pools, scamming thousands of retail customers out of more than $290 million.

According to court records, California-based Monex Deposit and its subsidiaries offered leveraged trading in gold, silver, platinum, and palladium to retail customers through its ‘Atlas’ program.

The order also finds that the company accepted clients’ trades and funds and therefore acted as a Futures Commission Merchant (FCM), without registering as such with the CFTC.

Using high-pressure sales tactics, the agency claims that Monex representatives “deceptively pitched leveraged trading through the Atlas program as a safe, secure and profitable way to invest in precious metals.” In reality, Monex’s Atlas trading program defrauded over 12,000 trading accounts through large price spreads on trades, plus commissions, interest on loans and administrative fees. In some cases, Monex’s spreads were 100 times higher than the standard rates offered on regulated exchanges.

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