United States: CFTC Brings Two Commodity Pool Fraud Cases

Last Updated: July 21 2017
Article by Robert Zwirb

Most Read Contributor in United States, August 2018

The CFTC charged a New York resident and his company with commodity pool fraud, off-exchange foreign currency derivatives fraud, and failure to register with the CFTC. In a separate action, a federal judge entered an Order of Final Judgment by Default against two Florida residents and their company for futures fraud, options fraud, failure to register with the CFTC, and other related violations.

In a Complaint filed with the United States District Court for the Eastern District of New York against Daniel Winston LaMarco and his company, GDLogix, Inc. ("GDLogix"), the CFTC alleged that Mr. LaMarco (i) fraudulently solicited clients by misrepresenting the level of success of his personal foreign exchange trading, (ii) misrepresented trading and profits to clients, including by distributing falsified account statements, (iii) misappropriated investors' funds to use for personal trading and expenses, and (iv) failed to register as an associated person of GDLogix. The CFTC also alleged that GDLogix operated as a commodity pool operator while failing to register with the CFTC at any point. The Complaint follows a related criminal action in which Mr. LaMarco pleaded guilty to commodities fraud and wire fraud, and was sentenced to 42 months in prison and ordered to pay $872,600 in criminal restitution.

A federal judge in the U.S. District Court for the Middle District of Florida entered an Order of Final Judgment by Default (the "Order") against Anthony J. Klatch II, Lindsey Heim and their company, Assurance Capital Management, LLC ("Assurance"), that will require the defendants to pay nearly $2.5 million in combined restitution and penalties. The Order stemmed from a January 2017 Complaint alleging that Mr. Klatch and Ms. Heim (i) made material misrepresentations to clients about Mr. Klatch's criminal history, permanent trading bans, and other aspects of the commodity pool they formed, (ii) misrepresented trading and profits to clients, including by distributing falsified account statements, (iii) misappropriated funds to use for personal expenses, among other things, and (iv) failed to register with the CFTC in any capacity. Before the Order was entered, Mr. Klatch pleaded guilty to one count of wire fraud and is awaiting sentencing. Ms. Heim pleaded guilty to one count of obstruction of justice and was sentenced to one year in prison.

Describing the extensive resources available to the CFTC, Division of Enforcement Director James McDonald stated:

"Through our cooperative enforcement efforts, we can combine our available remedies with those of our law enforcement partners to achieve maximum deterrence and protection for customers and the markets. In appropriate cases like this one, the U.S. Department of Justice can seek a term of imprisonment, while we seek to ensure wrongdoers never return to the markets we regulate."

Commentary / Bob Zwirb

These matters illustrate a larger issue in modern-day enforcement in the financial markets, i.e., concurrent enforcement activity by both civil and criminal authorities for the same misconduct. That is, a single transaction may give rise to enforcement actions by both the CFTC and the Department of Justice (as well as by the self-regulatory agency, the NFA). See Allan Horwich, Warnings to the Unwary: Multi-Jurisdictional Federal Enforcement of Manipulation and Deception in the Energy Markets after the Energy Policy Act of 2005, 27 Energy L. J. 363, 392 (2006) (observing that the same conduct may be subject to both civil and criminal proceedings, including civil proceedings by more than one regulatory agency).

This trend recently has become most prominent in the prosecution of spoofing, where both the CFTC and the Department of Justice have filed civil and enforcement actions simultaneously in a number of matters. See, e.g., CFTC v. Nav Sarao Futures Ltd., PLC, and Navinder Singh Sarao, Civil Action No. 1: 15-cv-03398 (N.D. Ill., Apr. 2015), and U.S. v. Navinder Singh Sarao, Case. No. 15-CR -75 (N.D. Ill., Apr. 2015) (Criminal Complaint) (see also Indictment and Plea Agreement). Adding criminal charges raises liability for commodity pool fraud to a new level because the defendant may become subject to sanctions imposed by at least three regulatory entities: the CFTC, the DOJ, and the NFA.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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