Injunctions under the Commodity Exchange Act (part 1)

(Blog written by: Jay Lewis)

 

In United States Commodity Futures Trading Commission (“CFTC”) v. Simmons et. al., (Case Number 3:11-cv-00023 W.D.N.C.), CFTC filed a Motion for Preliminary Injunction against a plethora of defendants including Keith F. Simmons and Black Diamond Capital Solutions, L.L.C. for their roles in an alleged Ponzi scheme.  The Complaint was filed on January 13, 2011.

 

CFTC alleges that starting in April 2007 until Simmons’ arrest in December 2009 $35 million was fraudulently solicited from more than 240 individuals and businesses. (Complaint, ¶ 2).  The Defendants in Simmons obtained investments with promises of remarkable returns using a forex trading system. (Complaint, ¶ 4).  Forex is short-hand for foreign exchange market, an over-the-counter market used to exchange one national currency for another.  The forex was created to assist corporations transacting business overseas to pay each other in their respective currencies, but is now dominated by speculators.  Mark Levinson, Guide to Financial Markets pp 14-36 (4th ed., The Economist 2006).

 

In Simmons, the Defendants persuaded investors they had developed an advanced computerized trading system created by a group of software developers.  (Plaintiff’s Memorandum in Support of its Motion for a Statutory Restraining Order, p 10).  They enticed investors with promotional materials claiming a track record of exceptional returns. (Memorandum p 11).  But according to the CFTC allegations no such system ever existed, and the Defendants never traded a dime of investors’ money in the forex market.  (Memorandum pp 9-16).  Instead, CFTC alleges the investments went to pay for the Defendants’ real estate purchases, cars and lavish trips. (Memorandum pp 14-15). 

 

However, once investors started demanding their returns on investment or attempted to withdraw principal, the whole system crumbles and the schemers are left making excuses.  CFTC alleges that starting in March of 2009 the Defendants created fanciful reasons as to why the investors were unable to receive any payments. (Complaint ¶¶ 8-9)  To keep investors placated, they altered existing bank statements by fraudulently multiplying actual assets ten-fold.  (Memorandum p 20).  CFTC alleges the Defendants claimed agencies froze Black Diamond’s accounts to conduct investigations, that banking restrictions limited the payouts, and that “a non-existent German liquidity provider by the name of Klaus” was planning to buy out Black Diamond.  (Complaint ¶ 9).  Allegedly these frauds were still perpetuated even as the Defendants failed to pay their own employees.  (Memorandum pp 18-24).  By December of 2009 it was obvious to the investors they had been scammed and the FBI arrested Keith F. Simmons for his role in the fraud.

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