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July 16, 2013

In this Issue: Commodity Pool Due Diligence Doctors Help Military Consumer Protection Day Investor Resources in Spanish Recent Enforcement Actions

Look before jumping in the commodity pool

Like with most things in life, it's always in your best interest to look before you leap. This advice is especially appropriate when looking to invest in commodity pools. These types of managed futures funds can be worthwhile investment vehicles for consumers. However, it's important to note that while the majority of commodity pools are above board, the possibility for fraud always exists, and investors should be wary at all times. Therefore, all commodity pools and their principals should be thoroughly vetted before any money changes hands.

In the first half of this year, NFA took enforcement actions against a couple of commodity pools. In March, NFA took an emergency action against James A. Shepherd Inc. (Shepherd Inc.) and its principal, James Shepherd. NFA took the action to protect Shepherd Fund participants and investors in other Shepherd Inc.-controlled investment vehicles after failing to cooperate with NFA's examination of the firm.

Specifically, Shepherd Inc. failed to confirm the approximately $6 million in cash that was reported in the Shepherd Fund's Dec. 31, 2012 audited financial statement as being on deposit at a bank. NFA was unable to determine whether Shepherd Inc. and James Shepherd had acted properly in their dealings with participants of the Shepherd Fund or whether they have misappropriated participants' funds and provided false information to NFA and participants concerning the assets of the fund.

In May, NFA also took an emergency action against another commodity pool, Light Tower Investments, Inc. (LTI) and Klaus P. Weyers, a principal and associated person of LTI. NFA believed that LTI was operating a commodity pool despite LTI and Weyers failing to list the pool with NFA, submit a Pool Disclosure Document to NFA for review or file an exemption from CFTC registration. NFA also believed that LTI and Weyers had been managing several accounts as a commodity trading advisor (CTA) since June 2011, yet only recently disclosing to NFA that LTI was active as a CTA.

While NFA is vigilant about policing the industry, rooting out bad actors and effectively uncovering fraud, investors should always do their due diligence and investigate the firms with which they consider doing business. You can conduct background checks, determine registration status and view the disciplinary histories of commodity pool operators, CTAs, principals and others by using NFA's Background Affiliation Status Information Center (BASIC) service.

Additionally, the Commodity Futures Trading Commission (CFTC) recently featured its brochure on commodity pool fraud and highlighted additional information about commodity pool fraud on its website in a newsletter.

The CFTC's literature provides helpful information to help investors spot a fraudulent commodity pool. It also identifies the signs of a potentially deceptive sales pitch:

  • Leading you to believe you can profit from current news already known to the public: "As a result of that hurricane, the price of oil futures will increase substantially;"
  • Made through word of mouth referrals or emails from friends, relatives, members of churches or social groups—one fraudulent pool operator even solicited his cancer support group;
  • Claims to know unique market trends or to have a record of highly profitable trading;
  • Promises quick, large and guaranteed returns;
  • Contacts you asking for personal information such as your full name, phone number, email or home address;
  • Requests cash immediately.

Doctors help to cure investment fraud

Most people visit their medical professionals strictly for treatment and advice about physical and mental issues. But according to a recent survey, some doctors and nurses are adding an extra facet to their professional care—assistance with investment fraud.

In June, Investor Protection Trust (IPT), a nonprofit dedicated to helping consumers make more-informed investment decisions, conducted a survey of 603 U.S.-based doctors and nurses who frequently work with older patients suffering from mild cognitive impairment (MCI). These patients, according to IPT, are more susceptible to investment scams and other financial abuse. IPT's survey found the following results:

  • Twenty-one percent of doctors/nurses say that they are aware that they often deal with the elderly victims of investment fraud/financial exploitation;
  • Eighty-four percent of doctors/nurses are willing to refer an elderly patient who may be the victim of investment fraud to those who may be able to help them with their financial affairs or to the proper authorities for help;
  • Ninety-two percent of doctors/nurses think that MCI often makes seniors more vulnerable to investment fraud/financial exploitation;
  • Sixty-one percent of doctors/nurses are interested in continuing medical education (CME) credits to learn more about the spotting the signs of investment fraud/financial exploitation of the elderly;
  • Sixty-two percent of doctors/nurses say the research linking MCI to investment fraud/financial exploitation and the elderly is consistent with what they see in their practice;
  • Eighty-one percent of doctors/nurses think that doctors have an important role to in recognizing and reporting the signs of investment fraud/financial exploitation targeting the elderly;
  • Ninety-one percent of doctors/nurses think that older Americans are vulnerable to investment fraud/financial exploitation;
  • Eighty-two percent of doctors/nurses say that investment fraud/financial exploitation targeting the elderly is a serious problem.

In order to help protect the elderly IPT has worked since 2010 to secure the participation of state securities offices in 28 states and jurisdictions to form a coalition to prevent elder investment fraud/financial exploitation. Additionally, IPT has held 52 CME events across the U.S. to date, and provided Elder Investment Fraud and Financial Exploitation training to 3,625 medical professionals.

Learn more on how to protect against elder fraud on IPT's website.

Military Consumer Protection Day Arrives

Military veterans and their families now have additional information at their fingertips when it comes to fighting fraud and making wiser investment decisions. On July 17, the inaugural Military Consumer Protection Day (MCPD) Information Fair is slated to be held at the U.S. Capitol Building, Room HC-8, in Washington, D.C. from 3:30 p.m. to 5:30 p.m.

MCPD is a joint initiative, led by the Federal Trade Commission (FTC) and its partners to empower active duty and retired service members, military families, veterans and civilians in the military community. NFA, the FTC and the other partners will be on hand on July 17 to distribute investor education resources in an effort to combat fraud and help this unique consumer group make better-informed money-management decisions.

Additionally, MCPD has a website that will be regularly updated with information on a number of topics, including banking, credit cards, investing, scams and technology, to name a few. The website also contains detailed information about MCPD's partner agencies, which are comprised of government agencies, advocacy organizations and private sector groups from across the nation, and offers resources for people and organizations to get involved in the program. NFA is proud to participate as a steering committee partner of MCPD.

The website also boasts a blog featuring regular posts from MCPD partners. Many of the blogs provide information intended to assist consumers with a variety of topics, including privacy protection, money and debt management, and recognizing identity theft, frauds and scams. NFA recently published a blog post on the MCPD site, entitled "Promoting due diligence: NFA tools for investors," that details recent enhancements to our Background Affiliation Status Information Center.

For the most up-to-date information on the upcoming MCPD, visit its website.

  1. Estafas y chantajes: Una guía educativa para prevenir fraudes financieros/Scams and Swindles: An Educational Guide to Avoiding Investment Fraud - National Futures Association. This guide describes common characteristics of investment scams and outlines steps individuals can take to avoid them.
  2. ¡Cuidado, alguien quiere su dinero!/Careful Someone Wants Your Money - U.S. Commodity Futures Trading Commission (CFTC). This includes resources from the CFTC on how to protect yourself from fraud, the warning signs of fraud and different types of fraud.
  3. Cómo invertir en bonos con inteligencia/Smart Bond Investing - Financial Industry Regulatory Authority. This is a guide to help current and future bond investors better understand bonds as an important component of a balanced portfolio.
  4. Cómo detener el fraude de afinidad en su comunidad/Stopping Affinity Fraud in Your Community - U.S. Securities and Exchange Commission. This guide looks to raise awareness regarding investment scams that target specific groups. It teaches key strategies that investors can use to protect themselves and their community from the potentially devastating impact of affinity fraud.
  5. Sitio web Asuntos de dinero/Money Matters website - Federal Trade Commission. The Federal Trade Commission (FTC), the nation's consumer protection agency, created this website to help consumers tackle some money issues, like managing your money, looking out for scams, credit cards and dealing with debt, among other things.

Click here to see AIE's full list of Spanish-language offerings.

Recent Enforcement Actions

In the second quarter of 2013, NFA's Business Conduct Committee issued Decisions, Member Responsibility Actions, Final Orders in Registration Cases and Complaints against the following NFA Member firms and individuals. Click on the name for more detailed information.

Decisions in Disciplinary Cases
Steven A. Michael
Multi Capital LLC
John R. Perry
Perry Trading Inc.
Prodigy Asset Management LLC
Ezekiel Abdel Rahman
Courtney D. Smith
Charles R. Stone
Stonehenge Asset Management LLC
Transcend Capital LLC
Mackenzie Wallace & Co. Limited

Final Orders in Registration Cases
Matthew C. Cuocci
Kenneth J. Frieden
Terry L. Jodry
Lance R. Kring
William J. Lane
Jon T. Mulvihill

2nd Tier Capital Co.
Alpari US LLC
Cambridge Capital Group LLC
Helder Cunha
Terry James Dorrity
Noble A. Drakoln
Fidelity Planning Group
Bruce A. Gwyn
IKON Global Markets Inc.
Diwakar Jagannath
Lek Securities Corporation
Level III Management LLC
Level III Trading LLC
Light Tower Investments Inc.
Prodigy Asset Management LLC
Ezekiel Abdel Rahman
Klaus P. Weyers

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