October 20, 2015

Alan James Watson, Cash Flow Financial LLC, and Michael S. Potts Ordered to Pay More than $91.9 Million in Final Disposition of Commodity Pool Ponzi Scheme Case

In a related criminal action, Watson pleaded guilty to wire fraud and was sentenced to 12 years imprisonment

Washington, DC - The U.S. Commodity Futures Trading Commission (CFTC) today announced that Judge Mark A. Goldsmith of the U.S. District Court for the Eastern District of Michigan entered an Order requiring Defendant Alan James Watson of Clinton Township, Michigan, to pay $37,224,928.82 in restitution and a $27 million civil monetary penalty, plus interest on both amounts, for his role in operating a commodity pool Ponzi scheme.

Previously, on January 5, 2012, the Court had entered a Consent Order against Watson, banning him from trading in, or participating in transactions involving, commodity futures or options, swaps, and foreign currency exchange (forex).

The Orders stem from a CFTC Complaint filed on March 10, 2011, which charged Watson, and Defendants Cash Flow Financial LLC (CFF), also of Clinton Township, and Michael S. Potts of Mountville, Pennsylvania, with fraudulently soliciting at least $45 million from more than 600 commodity pool investors and misappropriating the majority of pool participants’ funds (see CFTC Press Release 6002-11). According to the Complaint, the Defendants misappropriated funds for personal use and to pay principal and purported returns to existing pool participants, as is typical of a Ponzi-type scheme. The Complaint also alleged that Relief Defendant The Jedburgh Group (a/k/a Jedburgh Group International, Inc.) of Longwood, Florida, received funds to which it had no legitimate interest as a result of the Defendants’ fraudulent conduct. Jedburgh has been ordered to return such funds.

On August 26, 2015, the court granted the CFTC’s motion for a Default Judgment against CFF and ordered CFF to pay restitution and a $27 million civil monetary penalty, plus interest. The court also permanently enjoined CFF from trading in, or participating in transactions involving, commodity futures or options, security futures products, swaps, and forex.

On June 24, 2015, the court ordered Potts to pay restitution and a $558,542.61 civil monetary penalty, plus interest, and to disgorge $186,180.87 in illicit profits. The Order permanently enjoins Potts from trading in, or participating in transactions involving, commodity futures or options, security futures products, swaps, and forex.

Related Criminal Action

In a related criminal action brought by the U.S. Attorney’s Office for the Eastern District of Virginia, Watson pleaded guilty to one count of wire fraud and was sentenced to 12 years imprisonment and ordered to pay more than $37 million in restitution. United States v. Alan James Watson, No. 11-CR-441 (E.D. Va. June 24, 2013).

The CFTC cautions victims that restitution orders may not result in the recovery of 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 that wrongdoers are held accountable.

The CFTC Division of Enforcement staff members responsible for this case are Jason Mahoney, Daniel J. Grimm, George Malas, Timothy Mulreany, Paul Hayeck, and Joan Manley.

* * * * * *

CFTC’s Commodity Pool Fraud Advisory

The CFTC has issued several customer protection Fraud Advisories that provide the warning signs of fraud, including the Commodity Pool Fraud Advisory, which warns customers about a type of fraud that involves individuals and firms, often unregistered, offering investments in commodity pools.

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. 

Media Contact
Dennis Holden
202-418-5088
 

Last Updated: October 20, 2015