Currency trading: US CFTC freezes assets of insolvent FOREX Ponzi operator

The Court Order also prohibits the destruction of documents and grants the CFTC immediate access to defendants’ documents.

The order, entered on 3 September, 2009, in the U.S. District Court for the Middle District of Florida, arises from a CFTC enforcement action filed that day charging Diamond and Diamond Ventures with operating a USD37 million foreign currency (forex) Ponzi scheme that defrauded at least 200 investors.

Specifically, the complaint alleges that, from at least April, 2006, to the present, the defendants falsely guaranteed investors the return of their principal plus monthly returns ranging from 2.75 percent to 5 percent purportedly paid from defendants’ successful forex trading.

In reality, the defendants lost USD13.3 million trading investors’ funds, according to the CFTC. To conceal and perpetuate their alleged fraud, the defendants provided investors with false account statements showing that their accounts were increasing as promised although the accounts actually were losing money.

The CFTC also alleges that the defendants misappropriated at least USD850,000 of customer funds and used the money for luxury purchases and gambling.

In the continuing litigation, the CFTC is seeking repayment of investor losses, repayment of funds received by the defendants, civil monetary penalties and permanent injunctions prohibiting the defendants from violating federal commodity laws and from engaging in further trading.

In its Order the Court found that Beau Diamond's existing personal voluntary bankruptcy proceedings issued in March 2009 under Chap. 11 of the US Bankruptcy Code (a true bankruptcy rather than a form of arrangement or administration) do not affect the Commission's ability to file an action for injunctive relief where fraud is alleged. The Court found that this is an exception to the bankruptcy stay provisions. Further more, the court found that the bringing of the action was not stayed by the bankruptcy proceedings because there is good cause to believe that both Diamond and his company "are likely to engage in acts and practices that" that amount to breaches of various legislative provisions.

Criminal charges were laid against Diamond in July 2009.