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Court fines defendants USD26m for multi-million dollar Ponzi scheme

The US Commodity Futures Trading Commission has obtained more than USD26m in restitution and civil monetary penalties against defendants Kenneth W. Lee, Simon Yang, Prestige Ventures and Federated Management Group, and relief defendants Sheila Lee, Darren Lee and David Lee.

The court’s order stems from a joint action filed by the CFTC and the Oklahoma Department of Securities on 20 November 2009, charging the defendants with fraudulently operating a multi-million dollar commodity futures Ponzi scheme with 140 participants.

On 27 October 2010, the US District Court for the Western District of Oklahoma granted summary judgment against the defendants, finding that they fraudulently solicited at least USD10.6m from approximately 140 customers, primarily ethnic Chinese located in Oklahoma City, to trade commodity futures and leveraged forex through commodity pools.

Specifically, the court found that Lee misrepresented the returns he had allegedly made, the assets under management and current returns. Defendants also failed to disclose Lee’s diversion of funds and his criminal past, the court found.

The court further found that Lee lost USD4.3m in trading and misappropriated pool participants’ funds to pay off other pool participants and for personal use, including buying houses and boats, and funnelling funds to his family members named as relief defendants. The defendants issued false account statements to conceal their fraud, the order finds.

After a trial on sanctions and penalties, the court issued an order on 29 November 2010, requiring Prestige, FMG and Lee to pay restitution of USD5,857,503, plus interest. The court also assessed an USD18.2m civil monetary penalty against Prestige and FMG, jointly and severally, and a USD7.2m civil monetary penalty against Lee.

The court ordered Yang to pay USD133,500 in restitution and barred him from making any claim against the receivership for his investment with Prestige and FMG. The court also barred the defendants from engaging in certain commodity-related activity, including trading and registering or seeking an exemption from CFTC registration.

The court ordered relief defendants Sheila Lee to disgorge USD711,845, Darren Lee to disgorge USD638,938 and David Lee to disgorge USD574,273. Defendant Kenneth Lee and relief defendant Darren Lee were ordered by the court to surrender their residences, which the court found were purchased with pool participants’ funds, to the receiver.

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