The Commodities Futures Trading Commission (CFTC) has announced a civil action against Capitol Equity FX LLC (Capitol Equity) and its principles, Robert Leland Johnson IV and Marisa Elena Johnson.
In a Complaint filed on April 19, 2017, the CFTC charges Defendants with commodity futures fraud; off-exchange, leveraged or margined retail foreign currency (forex) fraud; commodity pool fraud; and failure to register with the CFTC, as required. The Complaint also charges Capitol Equity with engaging in activities prohibited for a commodity pool operator, including commingling customer funds with Defendants’ personal funds.
The CFTC cited two specific areas of fraud: misrepresentation and material omission and misappropriation of funds.
According to the Complaint, from May 2012 and continuing through May 2015, the Johnson’s solicited $1,735,750 from at least ten investors by telling them that their money would be pooled into a hedge fund which would trade commodity futures and off-exchange leveraged or margined foreign currency exchange contracts. However, the purported hedge fund was never properly registered. The fund was in fact a Ponzi scheme, and no trades were made.
The Complaint states: “To perpetuate and conceal their fraud, Defendants made material 20 misrepresentations and omissions to pool participants and fabricated sham documents 21 that falsely reflected significant trading returns and soaring account balances. In reality, Defendants did not trade commodity futures or forex for the benefit of pool participants, participants did not have their own accounts, no profits were generated, and Defendants misappropriated participants’ funds for their own use.”
The Complaint goes on to allege that the Johnsons misappropriated all of pool participants’ funds by paying their own personal expenses, by depositing pool participants’ funds into their personal bank accounts, and by trading pool participants’ funds in their personal trading accounts. As alleged, Defendants also diverted a portion of pool participants’ funds to earlier-in-time customers in the manner of a “Ponzi” scheme.
In its continuing litigation, the CFTC seeks full restitution to defrauded pool participants, disgorgement of ill-gotten gains, civil monetary penalties, permanent registration and trading bans, and a permanent injunction against future violations of federal commodities laws, as charged.