Tue, 24/02/2009 - 06:00
The US Commodity Futures Trading Commission has obtained a federal court order freezing the assets of an Illinois commodity pool operator, Brookshire Raw Materials Management, and its principals John M. Marshall and Stephen Z. Adams, Brookshire Raw Materials Group and Brookshire and Company, all of Toronto.
Brookshire Raw Materials Group Trust, a Delaware statutory trust that held customer funds, was named as a relief defendant.
The asset freeze order, entered on 19 February 2009 by the Honourable Amy J. St. Eve of the US District Court for the Northern District of Illinois, arises from a CFTC complaint filed the same day charging the defendants with misappropriating more than USD4.6m of customer funds and destroying records, among other things.
'This case is an excellent example of cross-border cooperation among regulators dedicated to fighting fraud and protecting investors,' says CFTC acting director of enforcement Stephen J. Obie.
As alleged in the CFTC's complaint, between September 2006 and December 2008 Marshall, Adams, and BRM accepted millions of dollars from customers for investment in a commodity pool known as the Trust and operated as a Ponzi scheme.
The Trust is governed by a private placement memorandum, which, among other things, states that each fund in the commodity pool will invest customer proceeds in a portfolio of commodity futures and forward contracts designed to approximately replicate the investment methodology of corresponding indices developed and managed by BRMG.
However, as alleged, Marshall and Adams, as agents and officers of BRM, BRMG, and BCL withdrew more than USD5m from the Trust account and wired those funds to bank accounts in Canada, mostly in the care of Marshall.
Under the private placement memorandum, the only authorized withdrawals from the Trust are fees, expenses, and participant redemptions. As alleged, management fees and expenses for the relevant time period totalled only USD401,708.
Furthermore, the CFTC complaint charges that Marshall and Adams did not disclose their unauthorized withdrawal of more than USD4.6m in customer funds from the commodity pool and issued false monthly pool statements overstating the value of the pool while hiding the withdrawals.
When certain participants sought redemptions of their investments in accordance with the private placement memorandum, they allegedly received additional false statements regarding the whereabouts and existence of their investments, but did not receive any funds.
According to the complaint, in December 2008 Marshall and Adams closed their offices, destroyed company data stored on computer servers, and failed to acknowledge redemption requests. BRM allegedly has failed to produce required financial documents regarding the operation of the commodity pool in response to recent CFTC requests.
In this continuing litigation, the CFTC seeks an order of permanent injunction against the defendants, monetary penalties, and other relief.
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