Forex Hedge Fund Group Ordered to Pay Penalties for Forex Fraud
In one of the more interesting forex fraud actions I have seen, a forex hedge fund acted as a counterparty to transactions with retail investors. Generally off-exchange foreign currency trades with retail customers can only be completed by firms which are Futures Commission Merchants or Forex Dealer Members, and who are also registered with the NFA. In addition to losing money, the forex investors also paid hefty commissions to, it appears, the forex investment manager. The full release can be found below.
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Release: 5580-08
For Release: December 9, 2008
Florida Federal Court Orders Nine Defendants in CFTC Foreign Currency (Forex) Anti-Fraud Action to Pay More than $12 Million in Penalties and Customer Restitution
Defendants Engaged in Illegal Off-Exchange Forex Options Transactions and Defrauded Customers of More than $7 Million
Washington, DC — The U.S. Commodity Futures Trading Commission (CFTC) announced today that it obtained more than $12 million in restitution and civil monetary penalties against nine Florida defendants to settle a CFTC anti-fraud lawsuit in connection with the offer and sale of illegal off-exchange foreign currency (forex) options (CFTC v. The Liberty Mutual Group, et al., No. 07-21267 (S.D. Fla.)).
U.S. Magistrate Judge Edwin G. Torres of the Southern District of Florida on December 4, 2008, entered four separate consent orders of permanent injunction against The Liberty Mutual Group, Inc., Addison Financial Group, Inc., Hamlin Mercer Group, Inc., Colfax Management Group, Inc. (collectively, “Addison Enterprise”), Alan Lerner, Forefront Investment Limited Partnership, Todd Guthrie, and Benji Dayan, all of whom were charged with fraud in a CFTC complaint filed on May 16, 2007 (see CFTC Press Release 5340-07, May 25, 2007).
Specifically, the court’s orders require defendants to pay a total of $7,081,036.63 in restitution to defrauded investors. In addition, the orders impose civil monetary penalties, as follows: The Addison Enterprise, $3,329,524.50; Forefront Investment Limited Partnership, $1, 065,459.61; Dayan, $260,000; Guthrie, $260,000; and Lerner, $260,000.
The orders also permanently bar Forefront Investments Limited Partnership and the Addison Enterprise firms from engaging in any commodity-related activity, and permanently bar Dayan, Guthrie, and Lerner from engaging in any commodity trading on behalf of others on any exchange or soliciting or accepting any funds from others for any on-exchange commodity trading.
Additionally, all defendants are permanently prohibited from applying for registration with the CFTC, engaging in any activity requiring registration, or acting as a principal, agent, or any other officer or employee of any registered entity or person required to be registered.
The orders find that, from at least February 2005 through at least June 2006, the Addison Enterprise fraudulently solicited retail customers to engage in off-exchange forex options transactions, with Forefront Investments Limited Partnership as the counterparty to each transaction. Customers lost at least $7,081,036.63 out of approximately $7,611,306.46 that they invested in the scheme, or approximately 93 percent of their investments, while Addison Enterprise generated commissions of $3,329,524.50.
During the relevant period, Lerner acted as the controlling person of the Addison Enterprise, while Dayan and Guthrie were acting as the controlling persons of Forefront Investments Limited Partnership.
The CFTC appreciates the assistance of Michael Lipsitt, Andrea Appleman, Pablo Abrill, and Robert Crespo, all members of the Florida Office of Financial Regulation.
The following CFTC Division of Enforcement staff members are responsible for this case: Eugene Smith, Christine Ryall, Patricia Gomersall, Paul Hayeck, and Joan Manley.
Last Updated: December 9, 2008
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