Release: 4331-99
For Release: November 3, 1999
CFTC WINS CASE AGAINST WEB OF FLORIDA FIRMS AND THEIR PRINCIPALS ENGAGED IN FRAUDULENT TELEMARKETING OF ILLEGAL FUTURES CONTRACTS
Federal District Court Rules that CFTC Has Jurisdiction Over Defendants' Sale of Highly-Leveraged Precious Metal Contracts; Orders Florida Defendants to Pay Restitution Totaling Over $12.4 Million to Defrauded Investors Nationwide
WASHINGTON -- The Commodity Futures Trading Commission (CFTC) announced today that a federal district court has found that Midland Rare Coin Exchange, Inc. (Midland) of Lauderdale Lakes, Florida; its principals, Robert J. Mitchell of Tamarac, Florida, and Terry A. Sands of Coral Springs, Florida; and eight other defendants violated federal commodity laws by fraudulently telemarketing illegal futures contracts.
Judge William P. Dimitrouleas of the U.S. District Court for the Southern District of Florida ruled on October 20, 1999, that the defendants sold leveraged investments in such precious metals as silver, palladium, and platinum by fraudulently claiming that customers would achieve huge profits with little risk.
Judge Dimitrouleas also found that the defendants illegally sold futures contracts, which should only be sold on a contract market designated by the CFTC. Concluding that the defendants ran "a systematic scheme to defraud investors," the court permanently barred Midland, Mitchell, and Sands from the commodities industry, and ordered them to pay restitution to defrauded customers totaling over $12.4 million.
The CFTC filed a complaint against the defendants on November 20, 1997 (see CFTC News Release #4082-97, November 24, 1997). The complaint alleged that since at least 1993, Midland used high-pressure sales tactics to convince prospects that they would reap tremendous profits in a short time, with little or no risk, if they participated in the firm's investment scheme. Under Midland 's program, a customer paid for a portion of the commodity (usually 20 to 23 percent) in cash (known as "initial margin"), with other firms, including defendants Globex Bullion and Financial Services Corporation (Globex) and Global Asset Management, Inc. (Global), purporting to loan the customer the balance of the purchase price of the commodity and claiming to purchase and hold the commodities on behalf of each customer.
According to the CFTC complaint, when decreases in the price of a commodity or accumulating credit and storage fees caused a customer's equity to drop below a specified level, the customer had to pay additional money to return his or her equity to a specified level (known as "maintenance margin"). Midland telemarketers claimed they would monitor the market and instruct customers when they should liquidate their accounts for a profit.
In its October 20th ruling, the court found that, in soliciting customers to purchase the leveraged investments, Midland telemarketers falsely claimed that "investors could double, or even triple their money within a relatively short period of time" and that "a 350 percent profit was a conservative estimate."
The court concluded that "such profit and risk claims are false," finding that "the defendants cannot identify a single investor who made a profit." The court also found that "approximately fifty percent of an investor's initial investment was comprised of various commissions and fees," leading investors to suffer "a fifty percent loss as soon as they invested."
The court also concluded that defendants' commodity sales constituted futures contracts and not, as defendants characterized them, investments in physical commodities. In so ruling, the court rejected "self-serving statements from defendants [designed] to evade the CFTC's legitimate jurisdiction."
In addition to the orders entered against Midland, Mitchell, and Sands, the court barred defendants Edward N. Tabb, Globex Bullion and Financial Services Corp., Eurex Marketing Corporation, GlobalMark Corporation, Southwest Research Associates, Inc., Southern Advertising and Marketing, Inc., Quantum Advertising and Marketing, Inc., and North American Asset Management, Inc. from the commodities industry, and ordered each of them to pay restitution for their unlawful actions associated with the Midland telemarketing fraud scheme and a similar fraudulent scheme carried out by Eurex Marketing Corporation.
CFTC has Continuing Litigation against Two of the Defendants
The CFTC's litigation continues as to defendant Global Asset Management, Inc. and its principal, Mark Modist. The CFTC is seeking permanent civil injunctive and other remedial relief as to both. The CFTC's complaint alleges that Global and Modist aided and abetted Midland's illegal sale of futures contracts. It also charges that Modist issued reports to customers that charged "storage fees" when Modist did not, in fact, purchase and store commodities on behalf of Midland customers and charged "credit fees" when Modist did not lend Midland customers any funds for the purchase of commodities.
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