The US Commodity Futures Trading Commission has obtained more than USD2.8m in restitution and civil monetary penalties in a federal judgment order against defendants Patrick J. Dailey of California and his company Strongbow Investments of Austin, Texas.
The order requires the defendants jointly and severally to pay more than USD1.95m in restitution and an USD850,000 civil monetary penalty.
The order also permanently bans Strongbow and Dailey from engaging in any commodity-related activity, including trading and registering with the CFTC.
The consent order, entered on 8 December 2010, by the Honorable Sam Sparks of the US District Court for the Western District of Texas, stems from a CFTC complaint filed on 30 June 2009 charging Dailey and Strongbow with fraud and recordkeeping violations.
The order finds that the defendants operated a multi-million dollar fraudulent commodity pool, violated recordkeeping and registration requirements and failed to operate the pool in accordance with CFTC regulations.
The order finds that from at least July 2005, the defendants solicited at least USD17m from approximately 22 members of the general public for the purported purpose of investing in Strongbow and Strongbow Investments Fund II, a commodity pool operated by Strongbow.
Instead of using all pool participant funds to trade commodity futures and options, the order finds that Dailey and Strongbow commingled millions of dollars of pool participant funds with funds held in bank and trading accounts in the names of Dailey, Strongbow and third parties.
The order finds that, without disclosing to pool participants, Dailey frequently borrowed from pool participant assets for his own benefit, including as much as USD1m to pay off his personal home equity credit line.
During an unannounced audit by the National Futures Association commenced on 1 June 2009, the order finds that defendants had only limited documentation to support their operations and were unable to produce other statutorily required records.
The court also entered an order on 8 December 2010 dismissing relief defendants Suzi Dailey and the Dailey Family Limited Partnership, both of Dana Point, California.
