In an Aug. 30 statement, the CFTC said the defendants misrepresented facts and omitted pertinent information when seeking customers to trade futures and options. The accused are: Risk Capital Trading Group Inc., and brokers Deron Baugh, Ty Edwards, Stephen Margol, and Juan Valentin.
Another Risk Capital broker, Richard Tillman, consented to a separate order of permanent injunction, while broker Rick Siegel was subjected to a separate order and sanctions following a short trial. The orders were handed down June 29, July 13, and Aug. 14.
Pressure Sales
According to the commission, from at least July 2001 to August 2003, the defendants used high-pressure sales tactics to fraudulently solicit investors. Risk Capital, meanwhile, "knowingly misrepresented and failed to disclose material facts," the CFTC said.Among mispresentations, the CFTC alleged, was the likelihood that customers would profit from trading options, the risk involved in trading options, and the poor performance record of Risk Capital clients.
Further, the CFTC said the accused brokers enticed clients to invest "using misleading leverage examples" that touted large profit potential with only a small investment. In doing so, the agency alleged, the examples presented by the individuals failed to account for the high commissions charged by Risk Capital. Those commissions, the CFTC said, "substantially impacted the potential for any profit, let alone a large one."
As related by the CFTC, between January 2001 and September 2003, approximately 98 percent of the more than 1,200 accounts opened at Risk Capital lost money--a total of approximately $16 million. Of that sum, more than $8 million went to pay for commissions and fees, the CFTC said.
More than $13 million of the $22 million consent order is for restitution. Risk Capital will pay $12.8 million; Baugh $125,000; Edwards $250,000; Margol $44,000; Valentin $15,000; and Tillman $15,000.
Of the $9 million in fines, Risk Capital will pay $8.7 million; Baugh $225,000; Edwards $200,000; Margol $86,000; Valentin $60,000; and Tillman $60,000.
Trial Decision
Meanwhile, the court issued a separate order Aug. 14 against Risk Capital broker Siegel after a four-day trial. The order established a permanent injunction against Siegel, imposed a $150,000 fine, and ordered $8,300 to be paid as restitution.According to the CFTC, the court said that evidence in Siegel's trial led it to conclude that "Risk Capital was a scam" with a business model "designed to convince unsophisticated and financially insecure people to invest money ... through engaging in deceptive and high-pressure sales practices."
Learn more about the main types of commodities fraud.