Commodities: USD41.2 million penalties in USA's CFTC case

But the order is a summary judgment obtained in an action issued in February 2009 in relation to the fraudulent solicitation and misappropriation of funds.

The fraudulent vehicle, the SEC says, was a commodities pool Ponzi scheme.

USD20.6 million is ordered to be repaid to victims and the remaining amount is paid as a civil money penalty. Because the action is taken in a civil not a criminal court (despite the SEC's use of the word "charged," the penalty is not, strictly, a fine.

The CFTC also obtained a permanent injunction against Palmer, banning him "from engaging in any commodity-related activity, including trading, and from registering or seeking exemption from registration with the CFTC."

The following is extracted from the CFTC's statement:

"Trigon, through Palmer, was held out to be an investment business that traded futures and options and generated high returns of 20 percent to 25 percent annually, the order finds. Since September 2000, Palmer solicited and accepted more than USD68 million from at least 55 pool participants, according to the order.

In soliciting pool participants, Palmer misrepresented that participants’ returns were guaranteed and claimed that his investments had been generating annual returns of 20 percent or greater for more than 12 years, the order finds. While telling participants that he would retain a portion of the generated profits, Palmer, in fact, paid personal credit card bills and salary with flat monthly fees ranging between USD25,000 and USD35,000 per month, or over USD5.8 million total, regardless of Trigon’s profitability, the order finds. In addition, the court found that Palmer misappropriated pool participants’ money for personal use, including over USD9 million to build a new home, more than USD360,000 to charter planes and more than USD980,000 for business expenses. Additionally, Palmer gave over USD2.7 million of pool participant funds to close family members, the order finds.

Through manufactured account statements sent to pool participants, Palmer misrepresented that pool and customer accounts had increased to almost USD60 million by June 2008, when, in fact, Palmer’s trading accounts held only approximately USD1 million, the order finds. The order also finds that in or around January 2008, Palmer admitted to owing pool participants USD35 to USD45 million but claimed that he had lost or expended all funds and that he had been running a Ponzi scheme for many years.

Finally, Palmer did not disclose to pool participants that neither he nor Trigon was registered with the CFTC, as required by federal commodities law, the order finds."

Action has also been taken by the SEC which resulted in penalties.

No criminal action has been announced.

Due Diligence Information:

SEC v. Scott R. Sand and Ingen Technologies, Inc, Civil Action No. 1:10-cv-23602-PAS (U.S. District Court for the Southern District of Florida)

SEC v. Jeffrey Galpern, Civil Action No. 1:10-cv-23603-JLK (U.S. District Court for the Southern District of Florida)

SEC v. Jean R. Charbit and Tzemach David Netzer Korem, Civil Action No. 1:10-cv-23604-CMA (U.S. District Court for the Southern District of Florida)

SEC v. Anthony Mellone, Alex Parsinia, Larry Wilcox, Macada Holding, Inc. f/k/a Tri-Star Holdings, Inc., Zcom Networks, Inc., and The UC HUB Group, Civil Action No. 1:10-cv-23609-JAL (U.S. District Court for the Southern District of Florida)

SEC v. Bruce Palmer and AccessKey IP, Inc., Civil Action No. 1:10-cv-23601-DLG (U.S. District Court for the Southern District of Florida)

SEC v. John "Buckeye" Epstein, Steven E. Humphries, Earthworks Entertainment, Inc., and The Fight Zone, Inc. a/k/a Gold Recycle Corp., Civil Action No. 1:10-cv-23606-AJ (U.S. District Court for the Southern District of Florida)