February 25, 2014
NFA's collaboration with law enforcement reaps results
Nothing is more important than vigorous criminal prosecutions to deter illegal actions that cause serious harm to customers. In most cases, when NFA uncovers potential criminal activity, NFA immediately notifies the CFTC which, in turn, refers cases to law enforcement agencies. NFA staff will often assist authorities by reviewing records, providing technical expertise and testifying in hearings.
Over the years, NFA's work with law enforcement has resulted in a number of criminal prosecutions with significant prison sentences and penalties, including the following that occurred in the last few months:
- R. Christopher Reade (Reade) was a principal of Trend Commodities Limited Partnership, a former NFA Member, futures commission merchant and forex dealer member. On Jan. 22, 2014, Reade—a licensed attorney in Nevada—entered a plea of guilty in the U.S. District Court for the District of Nevada to assisting a client in laundering approximately $2.25 million that had been fraudulently obtained in an online investment scheme, in which more than 1,400 persons lost $16 million. In his plea agreement, Reade also admitted to hiding from NFA his client's role in the purchase of Trend Commodities. Reade faces up to 10 years in prison and a $1.2 million fine. He is scheduled to be sentenced on May 2, 2014. In the spring of 2007, NFA previously conducted an investigation into the ownership and funding of Trend Commodities. NFA's investigation led to the issuance of an emergency enforcement action against the firm, which shut down its operations. NFA also referred the case to the Internal Revenue Service, whose investigation resulted in criminal charges being filed.
- On Jan. 10, 2014, Chicago U.S. District Judge James Zagel sentenced former NFA Associate Edward Velazquez to 11 years in federal prison based on his guilty plea to charges that he defrauded investors in V-Tek Capital (a non-NFA Member firm). NFA previously barred Velazquez from NFA membership for failing to cooperate with NFA in the course of an NFA investigation of a misleading disclosure document used by V-Tek Trading Group, a commodity trading advisor NFA Member owned and operated by Velazquez. NFA referred that matter to the CFTC, which filed an enforcement action against Velazquez, V-Tek Capital and V-Tek Trading. These actions against Velazquez led to the criminal investigation that resulted in Velazquez being criminally charged and sentenced to prison.
- On Jan. 23, 2014, the U.S. District Court for the Middle District of Florida sentenced NFA Associate John G. Wilkins, and Philip Leon to nine years in federal prison and ordered them to pay restitution in the amount of $17 million based on their guilty pleas to charges that they and their firm, Altamont Global Partners LLC, operated a Ponzi scheme that resulted in approximately $35 million in losses to defrauded investors. Wilkins and Leon also were ordered to forfeit more than $4 million of artwork and monies held in various bank and trading accounts. The criminal charges stemmed from a referral NFA made to the CFTC, which, in turn, referred the matter to federal law enforcement based on an emergency enforcement action NFA issued against Altamont and Wilkins in June 2012 that shut down the firm.
- On Nov. 13, 2013, a U.S. District Court for the Southern District of New York sentenced former NFA Associate, Abdul Walji, to 12-1/2 years in federal prison in connection with a multimillion-dollar fraud scheme. Along with non-NFA Member Reniero Francisco, who was sentenced to eight years in federal prison, Walji perpetrated the scheme through their investment company, Arista LLC, a former NFA Member commodity pool operator (CPO) that was located in Newport Coast, Calif. The court found that Walji and Francisco defrauded 40 investors of approximately $10 million through a series of misrepresentations concerning the nature and performance of the investment fund, and issued fraudulent account statements to investors to cover up massive losses. The criminal case against Walji and Francisco arose out of an investigation NFA conducted of Arista in 2012. Based on that investigation, NFA issued an emergency enforcement action, shutting down the firm's operations.
- On Nov. 19, 2013, a Lee County, Ala. state court sentenced former NFA Associate, John Stroud, to serve 10 years in prison for defrauding investors of $2.1 million by posing as a successful commodities trader. Stroud used investors' money for unauthorized business and personal expenses, as well as to pay returns to other investors and send investors false account statements to conceal his misappropriation of their funds. Stroud operated TS Capital Management LLC, a CPO located in Auburn, Ala. In October 2011, NFA issued an emergency enforcement action against TS Capital, shutting down the firm's operations. NFA referred the matter to the CFTC and to the State of Alabama, which led to the criminal charges against Stroud that resulted in his prison sentence.
These are just the most recent examples of the results that can be achieved when self-regulatory organizations, government agencies and law enforcement collaborate in pursuit of a common goal: bringing criminals to justice. NFA is committed to sharing knowledge and information that will strengthen its relationships with other enforcement agencies and safeguard the integrity of the derivatives markets.