The Commodity Futures Trading Commission (CFTC) today announced that the U.S. District Court for the Southern District of New York entered an Order of Default Judgment (Order) and Permanent Injunction against Royal Metals Group, LLC (RMG), and its member, manager and part owner, Chelsea Gless (Gless) of Iowa (collectively, defendants) for fraudulent misrepresentations and the misappropriation of customer funds in a precious metals scheme.
The court’s Order requires the defendants to jointly pay restitution of $584,549.84 to defrauded customers, as well as a civil monetary penalty of $1,753,647. The Order also permanently bans the defendants from trading regulated commodities and registering with the CFTC and prohibits them from violating provisions of the Commodity Exchange Act, as charged.
Director of Enforcement James McDonald, stated: “As this case shows, the CFTC will work tirelessly to detect and vigorously prosecute commodity fraud, enforce the anti-fraud provisions of the Commodity Exchange Act and to hold wrongdoers accountable for their misconduct.”
The Order, entered on January 25, 2019, stems from a CFTC Complaint filed on September 14, 2018 in the U.S. District Court for the Southern District of New York (see CFTC Complaint and Press Release 7791-18).
The Order finds that from at least March 2016 to present (the “relevant period”), the defendants defrauded at least eight clients in connection with precious metals transactions and fraudulently obtained more than $617,000 from these clients. This resulted in the clients losing a total of $584,549.84.
Specifically, the Order finds that during the relevant period, the defendants fraudulently obtained funds from at least four of these eight clients after the defendants and/or their agents represented to these clients that they would deliver precious metals in return for their funds. The defendants failed to deliver all of the precious metals as represented and instead only made a small delivery of coins and returned a small portion of their funds causing these four clients to suffer losses in excess of $402,000. According to the Order, defendants also fraudulently obtained precious metals, including gold and silver, from at least four of these eight clients after defendants and/or their agents represented to these clients that they would be paid in full for their precious metals. The defendants instead kept the clients’ precious metals and only returned a small amount of funds to one of these clients causing these four clients to suffer losses in excess of $181,000.
Instead of delivering the precious metals and paying the clients as represented, the Order finds that the defendants misappropriated their clients’ funds and their precious metals. Clients’ funds deposited into RMG bank accounts were used by defendants for their own purposes including, in part, the payment of airline fees, purchases at Walmart and transfers to accounts controlled by Gless and other third parties. In addition, the Order finds that in order to perpetuate and/or conceal this scheme, defendants provided clients with invalid delivery tracking numbers for their precious metals and/or funds and provided the clients with unsigned checks and checks that could not be cashed due to stop payment orders and/or insufficient funds.
The CFTC cautions that Orders requiring repayment of funds to victims may not result in the recovery of any money lost because the wrongdoers may not have sufficient funds or assets. The CFTC will continue to fight vigorously for the protection of customers and to ensure the wrongdoers are held accountable.
CFTC Division of Enforcement staff members responsible for this action are Janine Gargiulo, Alben Weinstein, Judith Slowly, Steven Ringer, Lenel Hickson and Manal Sultan.
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CFTC’s Precious Metals Customer Fraud Advisory
The CFTC has issued several customer protection Fraud Advisories that provide the warning signs of fraud, including the Precious Metals Fraud Advisory, which alerts customers to precious metals fraud and lists simple ways to spot precious metals scams.
Also, before investing or trading with a firm, check the firm’s registration status and disciplinary history, if registered, with the National Futures Association. A company’s registration status can be found at www.nfa.futures.org/basicnet.
Customers can report suspicious activities or information, such as possible violations of commodity trading laws, to the CFTC Division of Enforcement via a Toll-Free Hotline 866-FON-CFTC (866-366-2382) or file a tip or complaint online.