Orange FRAUD sign with a magnifying glass

CFTC charges John David Stroud and companies with commodity pool fraud

Fri, 09/03/2012 - 10:00

The US Commodity Futures Trading Commission (CFTC) has filed an enforcement action in the US District Court for the Middle District of Alabama charging John David Stroud and his companies, Stroud Capital Management, LLC, TS Capital Partners, LLC, and TS Capital Management, LLC, all of Auburn, Ala, with fraud and misappropriation in operating two commodity pools.

On 7 March, 2012, US District Court Judge Myron H Thompson entered an emergency restraining order freezing defendants’ assets. The order also prohibits the defendants from destroying books and records and denying CFTC staff access to such records. The judge set a hearing date for 16 March, 2012.

The CFTC’s complaint, filed on 5 March, 2012, charges that since at least February 2008, Stroud and his companies fraudulently solicited and accepted at least USD4.8 million from at least 17 individuals and used the funds to trade commodity futures and off exchange foreign currency (forex) contracts in the Stroud Capital Fund, L.P. and the TS Capital Fund, L.P. commodity pools. When soliciting and accepting funds, Stroud allegedly misrepresented to prospective and actual pool participants that he was a successful commodity futures trader and that both pools were profitable. In reality, Stroud lost more than USD1.1 million trading commodity futures and forex between August 2008 and October 2011, according to the complaint. Moreover, the defendants allegedly misappropriated more than USD2.2 million of pool participant funds between at least April 2008 and the present for various personal expenses, including car payments, travel expenses, entertainment, and retail purchases.

To conceal their fraud, the defendants sent pool participants false account statements, tax records that misrepresented the profitability of their accounts, and at least one bank account statement reflecting substantial profits and failing to disclose Stroud’s significant trading losses and his misappropriation of participant funds, according to the complaint.

In a further effort to conceal the fraud, Stroud and TS Capital Management allegedly willfully made false representations to, and concealed information from, the National Futures Association (NFA) during two audits conducted in April and October 2011. In connection with the audits, TS Capital Management and Stroud misrepresented to the NFA that they traded only proprietary funds, concealed its trading of customer funds, and misrepresented the amount of funds it managed, according to the complaint.

After the defendants ran out of funds and their scheme collapsed, Stroud allegedly confessed to pool participants that he had “lied” and that “there was no money.”

In its continuing litigation, the CFTC seeks a return of ill-gotten gains, restitution to defrauded participants, civil monetary penalties, trading and registration bans, and permanent injunctions against further violations of the federal commodities laws.

 


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