The US Commodity Futures Trading Commission has filed an enforcement action charging Highlands Capital Management, based in San Francisco, California, and its principal Glenn Kane Jackson of Tiburon, California, with operating a fraudulent off-exchange foreign currency scheme.
Specifically, the CFTC complaint charges the defendants, in connection with the fraudulent scheme, with misappropriating customer funds, issuing false account statements to customers, misrepresenting Jackson’s success and background as a forex trader and misrepresenting the reasons why defendants could not honour customer withdrawal requests.
On 17 June 2010, the same day the complaint was filed under seal, the Honorable Samuel Conti of the US District Court for the Northern District of California entered an order, also under seal, freezing assets held or controlled by the defendants and prohibiting the destruction of books and records. Both documents were unsealed by the court on 23 June.
According to the complaint, beginning in January 2006 and continuing through December 2009, the defendants solicited and accepted at least USD4.3m from at least 23 customers for the purported purpose of trading forex. Of the approximate USD4.3m provided to Jackson by customers, approximately USD1.6m was traded and lost, about USD600,000 was refunded to customers and the remaining USD2.1m remains unaccounted for.
The complaint alleges that Jackson claimed never to have experienced a single losing year trading forex. Actual domestic forex trading accounts managed and controlled by Jackson, however, had consistent net losses each year from 2005 to 2009.
Beginning as early as August 2008 and continuing through December 2009, the defendants allegedly sent customers account statements indicating that the defendants’ forex trading was consistently generating profits. Actually, however, forex trading during this period conducted by the defendants on behalf of the customers resulted in net losses.
Although Jackson honoured withdrawal requests from some customers, he responded to others with delay and numerous false explanations as to why customers’ money could not or would not be returned, according to the complaint. In total, the defendants allegedly failed to return or otherwise account for USD2.1m in customer funds.
In the continuing litigation, the CFTC seeks rescission of all contracts and agreements, full restitution to customers and disgorgement of ill-gotten gains. The CFTC also seeks civil monetary penalties and permanent injunctions against further trading and violations of the federal commodities laws.
At the same time, the Tiburon Police Department arrested Jackson based on criminal charges filed by the Marin County District Attorney.
