In a recent press release, the Commodities Futures Trading Division (CFTC) has announced that a Federal Court has ordered a California-based precious metals trading firm to return more than $38 million in fraudulently obtained funds to their company’s customers, and sanctioned it for fraud and violations.
The CFTC has entered consent order for permanent injunction, monetary sanctions, and equitable relief against five defendants:
- Monex Deposit Company
- Monex Credit Company
- Newport Services Corporation
- Owner Louis Carabini
- Owner Michael Carabini, son of owner Louis Carabini
According to the CFTC allegations, from July 16, 2011, through August 31, 2021, Louis and Michael Carabini operated their own over-the-counter retail trading platform under the three companies collectively called “Monex Entity Defendants.” Their trading platform, known as “Atlas,” in which customers could speculate on the prices of precious metals. Atlas was not a regulated exchange as they claimed, and Monex was involved in nearly every transaction.
The Carabinis executed thousands of trades for these customers through Atlas. While doing so, they knowingly engaged in fraud with their unregulated platform. Most of the trades led to losses, but this was not mentioned in their solicitations to new customers. Monex instructed its sales team in various methods to gain the trust of prospects and leads. This included offering information about precious metals as a hedge against economic turbulence. Their pitches convincing information about precious metals’ profitability and the staff were urged to steer customers into leveraged trading that came with higher commissions and bonuses.
While touting its profitability, Monex failed to notify customers that most people lost money on their trades, making their information deceptive. Customers expected to make money on trading precious metals but lost money instead. According to the order, the Carabinis are liable for the fraudulent and illegal activities since they were in full control of Monex.
The order, filed in the U.S. District Court for the Central District of California, includes:
- A civil monetary penalty of $5 million
- Financial restitution of $33 million to customers
- Injunctions against the defendants:
- A 10-year ban on defendants from registration with the CFTC
- Permanent enjoinment from off-exchange retail commodity activity
- Ban on trading futures or options on a regulated market (except for hedging)
The availability of funds returned to investors will depend on the availability of assets. The order became effective on December 19, 2022.
If you’re considering investing in precious metals, we always urge you to do due diligence before investing. Like other investments, a sales pitch may over-promise possible returns, or even suggest “guaranteed” returns. You can read more about precious metals fraud on the CFTC’s website, along with their library of articles on commodities trading.
CFTC Enforcement Actions Against Precious Metal Firms
In September, 2022, the Commodity Futures Trading Commission announced an order resolving charges against Goldline, Inc. (Goldline) and A-Mark Precious Metals, Inc. (A-Mark), both California companies, for fraud in connection with off-exchange retail commodity transactions; failing to register as a Futures Commission Merchant (FCM); and engaging in illegal off-exchange retail commodity transactions. The order requires Goldline and A-Mark to disgorge $627,801.78; pay, jointly and severally, a $450,000 civil monetary penalty; and to cease and desist from further violations of the Commodity Exchange Act (CEA) and CFTC regulations, as charged.
Leveraged Precious Metal Investments Can Lead to Disaster
The CFTC has clearly taken notice of the number of precious metal firms that recommend investors purchase precious metals on margin or on a leveraged basis. However, many firms that recommend a leveraged precious metal investment program fail to fully disclose the costs, fees and commissions charged to the customers. Accordingly, in many circumstances, the risk to the investor is directly tied to the costs associated with the program which statistically is most likely going to fail and result in substantial losses to the investor.
While the CFTC has demonstrated that many of these firms are required to be registered to sell investments or otherwise comply with the federal commodities laws, many of these shops hide behind boilerplate contracts with non-descript risk disclosures, use high pressure sales tactics using investment advisors who have previously worked at boiler room operations and disavow any responsibility to the customer after substantial losses are incurred.
Did You Invest In A Leveraged Precious Metal Scheme?
Silver Law Group represents investors in securities and investment fraud cases. Our lawyers are admitted to practice in New York and Florida and represent investors nationwide to help recover investment losses due to stockbroker misconduct. Our attorneys have represented investors in multiple cases involving precious metals, leverage and claims of breach of fiduciary duty or allegations that the Respondent operated a boiler room. If you have any questions about how your account has been handled, call to speak with an experienced securities attorney. Most cases are handled on a contingent fee basis, meaning that you won’t owe us until we recover your money for you. Contact us today at (800) 975-4345 and let us know how we can help.