FINANCIAL CRIME NEWS
COMMODITIES and DERIVATIVES NEWS STORIES
By Stephanie Ayres
27 January 2006
San Diego, California
The US Attorney’s office in San Diego announced on December 16 that Richard Robert Matthews Jr., the former operator of a fraudulent forex scheme called Pinnacle Capital Fund through his company called White Pine Trust, was sentenced to 63 months in federal prison, three years supervised release, and payment of $14,767,579 of restitution to investors.
Matthews had raised over $21 million from at least 250 investors, but instead of the investments he had promised to make, used the funds to buy a private island off the coast of Belize, luxury residences in Southern California, a yacht, and other personal spending.
For more information on the Pinnacle Capital Fund scheme, see “Financial Crime News” story “White Pine Trust Promoter Pleads Guilty in San Diego,” May 27, 2005 and Feature “CFTC Cracks Down on Forex Scams,” November 2004.
By Stephanie Ayres
20 December 2005
Atlanta, Georgia
The Commodity Futures Trading Commission (CFTC) announced in October the filing of a complaint against Lake Dow Capital LLC, an affiliated hedge fund called Aurora Investment Fund, and the operator of both, Ty Edwards. Edwards was accused of advertising that the Aurora fund had achieved profits each year of its existence without a single “losing month,” and had purportedly grown to a total of between $60 million to $100 million of assets under his management. The CFTC complaint claimed that the Aurora fund’s assets never exceeded $20 million.
According to the CFTC’s statement, Edwards failed to disclose to potential Aurora investors that he was charged in a separate CFTC case in 2003 along with a company called Risk Trading Group, Devon Baugh, and others.
By Stephanie Ayres
5 December 2005
New York, New York
Daniel L. Gordon, a former president of Merrill Lynch’s Global Energy Markets and former president of Allegheny Energy Supply Company LLP, was sentenced to 42 months in federal prison in October. Gordon pleaded guilty in December 2003 to conspiracy, wire fraud, and money laundering in a case which had accused him of stealing some $43 million from Wall Street firm Merrill Lynch through offshore shell companies and sham transactions, then using some of the laundered funds to buy a business in Connecticut.
According to an October 14 statement from the US Attorney’s office in Manhattan, while still employed by Merrill Lynch, Gordon arranged for his employer to enter into a sham hedging transaction with two offshore companies created for hiim by Canadian offshore facilitator Newport Pacific of Edmonton, Alberta.
The fake contract would cost Merrill Lynch $43 million. Supposedly to settle the deal, Gordon had the company transfer the entire amount to a Swiss account controlled by Falcon Energy Holdings SA, one of his own shell companies. From Falcon’s Swiss account, investigators found that Gordon then transferred $33 million to Swiss accounts of his other shell company, Ostrich Capital Partners Inc.
At least $30 million next went from Ostrich’s account to those of a Delaware shell company controlled by Gordon, from which he used $23 million to buy a controlling stake in Daticon Inc., a Connecticut company.
After Merrill Lynch sold the energy trading division headed by Gordon to Allegheny Energy Supply, Gordon became an Allegheny executive and proceeded to close out the fake Falcon transaction. Falcon reportedly returned about $440,000 of the $43 million to Allegheny as successor to the Merrill Lynch division which had entered into the contract. According to the US Attorney’s October 14 statement, the Falcon payment came not from Falcon itself, but from the accounts of Eastern Energy, another energy company Gordon had purchased in 2001.
Of the total $43 million of forfeiture ordered, about $32 million had already been recovered by October 2005.
By Stephanie Ayres
22 Novermber 2005
New York, New York
The US Attorney’s office in Manhattan announced on October 12 that Philip R. Bennett of Gladstone, Jersey was arrested on a criminal complaint charging that he had defrauded investors in Refco’s initial public offering (IPO) of stock by his actions in allegedly concealing an entity he secretly controlled which owed hundreds of millions of dollars to Refco at the time of the IPO.
Manhattan-based Refco, which had grown under private ownership to become one of the world’s largest commodity companies, conducted an IPO starting on August 16 that raised about $583 million from public investors. On October 10 the company announced its discovery of about $430 million owed to it by an entity controlled by Bennett. Upon this news, Refco’s stock crashed from $28.56 per share to about $13.85 per share.
According to the US Attorney’s October 12 statement, Bennett, to conceal his link to the secret entity, had Refco file false statements and reports with the SEC which failed to disclose his interest in the entity owing hundreds of millions of dollars to Refco. Bennett was charged with one count of securities fraud.
By Stephanie Ayres
15 November 2005
Atlanta, Georgia
A civil complaint filed by the Commodity Futures Trading Commission (CFTC) alleged that Atlanta-based American Derivatives Corporation (ADC), its affiliate Brokerage Management Corporation, and associates Layne David Gerstel and Devereux Decatur Booth (both Atlanta residents), as well as David N. Mittler of Aventura, Florida, engaged in a fraudulent promotion of ADC’s options trading program.
The ADC promoters allegedly told customers that they could double or even triple their money through a risk-free commodity options trading program based on seasonal or “predictable” events. According to an October 5 statement from the CFTC, American Derivatives and its promoters failed to inform potential customers that about 97% of their existing customers had lost money on the program.
The CFTC also named two futures commission merchants, National Commodities Corporation Inc. and International Commodity Clearing LLP, both of which had allegedly guaranteed certain American Derivatives commodity contracts and should, alleges the CFTC, therefore be held responsible for ADC’s alleged misrepresentations.
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