CFTC Charges Texas-Based Willie Lee Cloud, Jr., Principal & Agent of C & R Financial, with Operating Ponzi Scheme
Cloud, Jr. Charged with Violating CEA, Misappropriating Customer Funds, Providing False Account Statements
Overview
- CFTC filed complaint against Willie Lee Cloud, Jr. (Cloud), principal and agent of C & R Financial, Inc. in Texas, for soliciting at least $200,000 from nine investors which he claimed would be put in individual forex trading accounts
- Cloud advertised to customers that he would “double or triple” their investments in one year
- Instead, Cloud put approximately $169,000 intro trading accounts in his own name; of this amount, Cloud lost over $88,000 trading forex and withdrew over $81,000 from the accounts, leaving the accounts empty
- Cloud sent false account statement to investors claiming that their “accounts” were up 259% in less than 6 months
- Cloud charged with misappropriating customer funds
Violations
Section 4b(a)(2)(A)-(C) of Commodity Exchange Act (CEA):
- cheating/defrauding customers
- providing customers with false account statements
- deceiving customers
- not acting in good faith
Potential Punishment
- Court order finding that Cloud and his company violated Section 4b(a)(2)(A)-(C) of CEA
- Permanent injunction prohibiting Cloud and C & R Financial and any of their agents, servants, employees, assigns, attorneys, and persons in concert or participation with them from essentially:
- trading any commodity (commodity futures, options on commodity futures, commodity options, forex contracts)
- having any of the above commodities traded on their behalf
- controlling or direction trading, in any capacity, for the above commodities
- soliciting , receiving, or accepting funds from any person for the purpose of trading the above commodities
- applying for registration with or claiming exemption from CFTC
- acting as a principal, agent, or other officer/employee of anyone registered, exempted from registration, or required to be registered with CFTC
- Court order for them to repay the investors and to rescind all contract/agreements with any of the investors whose funds were misappropriated
- Court order to pay a fine for each violation, and other costs/fees
Takeaways
We have seen this same type of “ponzi scheme” over and over again. If you misappropriate funds, provide false account statements to customers, and act in poor faith, you should expect to be caught by the CFTC. The bottom line: be honest with your customers and yourself. Those who invest their money with you are instilling trust in you; deceive them, and you will be caught!
To view the complaint, click here.
The full text of the CFTCpress release is reprinted below and can also be found here.
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Release: 5791-10
For Release: March 9, 2010
CFTC Charges Texas Resident Willie L. Cloud, Jr. and His Investment Company, C & R Financial, with Operating a Foreign Currency Ponzi Scheme
Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that it charged Willie L. Cloud, Jr. and his investment company, C & R Financial, Inc., both of Houston, Texas, with operating a Ponzi scheme in connection with foreign currency (forex) trading.
The CFTC’s complaint, filed on March 4, 2010, alleges that, since at least April 2008, Cloud and C & R Financial solicited at least $200,000 from individuals for the sole purpose of trading forex. Allegedly, the defendants promised several customers that they would each have personal accounts at a registered futures commission merchant, through which defendants would trade forex for them. The defendants allegedly lured customers with promises of doubling or tripling their investments within a year through forex trading gains.
Defendants, however, opened an account in Cloud’s name, deposited only a portion of customers’ funds into the account and misappropriated at least $75,000 of customer funds for personal use, according to the complaint. The complaint also charges that defendants sent false account statements to customers showing large profits, when, in fact, defendants’ forex trading resulted in substantial losses. Defendants allegedly returned approximately $36,000 to customers as redemption of principal and purported “profits.” Because the defendants lost a substantial portion of customer funds in forex trading, the complaint alleges that the redemptions and purported “profits” came from the principal invested by existing or subsequent customers, thus constituting a Ponzi scheme.
Federal Court Sets Preliminary Injunction Hearing for April 1, 2010
On March 9, 2010, the Honorable Gray H. Miller of the U.S. District Court for the Southern District of Texas ordered Cloud and C & R Financial to appear in court on April 1, 2010 at 1:00 pm for a preliminary injunction hearing.
In the continuing litigation, the CFTC seeks restitution, disgorgement of ill-gotten gains, civil monetary penalties and a permanent injunction prohibiting further violations of the federal commodities laws.
The following CFTC Division of Enforcement staff members are responsible for this case: Andrew Ridenour, Patrick Pericak, Michael Loconte, Jessica Harris, Kenneth McCracken, Rick Glaser and Richard Wagner.
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Other forex law blog articles include:
- CFTC Stops Another Ponzi Scheme
- Capital FX LLC Violates NFA Compliance Rules, Permanently Banned from NFA Membership
- Forex Fraudster Jailed For Violating Court Orders in CFTC Anti-Fraud Action
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