Fraud

Mihailovich, Sr. and Growth Capital Management to pay USD9.3m in anti-fraud action

The US Commodity Futures Trading Commission has obtained an order of permanent injunction against defendants Robert Mihailovich, Sr. of Rockwall, Texas, and Growth Capital Management requiring them to pay over USD9.3m for fraudulently soliciting over USD30m from customers to trade commodity futures contracts and foreign currency. 

The order also imposes permanent trading and registration bans against the defendants.
 
The court’s order, entered on 26 June 2012, arises out of a CFTC complaint filed on 27 July 2010, against Mihailovich, Sr., GCM, and Robert Mihailovich, Jr., Mihailovich, Sr.’s son. 

As alleged in the complaint, Mihailovich, Sr. was convicted and incarcerated on federal wire fraud charges, served 27 months, and while on a three-year supervised release, fraudulently solicited and accepted more than USD30m from approximately 93 customers to open managed trading accounts. 

The complaint also alleged that Mihailovich, Jr., at the time of GCM’s initial registration, failed to disclose Mihailovich, Sr.’s involvement with GCM, and failed to disclose in CFTC registration filings that his father was a controlling principal of GCM. 
 
Previously, the federal court had entered an order of default judgment against GCM on 15 March 2011. The federal court later also entered an order of default judgment against Mihailovich, Sr. on 22 November 2011, as a sanction for discovery violations.
 
The federal court’s 26 June 2012 order finds that during discovery Mihailovich, Sr. engaged in a pattern of wilfulness and bad faith. Mihailovich, Sr. failed to attend a number of court-ordered hearings, repeatedly failed to abide by court orders, failed to communicate with plaintiff CFTC, failed to appear or respond to his scheduled deposition, and failed to respond to written discovery requests, according to the order.
 
The order imposes sanctions against Mihailovich, Sr. and GCM arising out of the prior default judgments against them. The order requires Mihailovich, Sr. and GCM jointly and severally to pay USD3,475,112 in restitution, to disgorge USD389,006 in ill-gotten gains, and to pay a civil monetary penalty of USD5,440,000. The order also permanently prohibits the defendants from violating the Commodity Exchange Act and CFTC regulations, as charged, and from engaging in certain commodity-related activities, including personal trading and applying for registration or claiming exemption from registration with the CFTC.
 
The CFTC previously obtained a consent order against Mihailovich, Jr., that imposed a USD40,000 civil monetary penalty and banned him from seeking registration with the CFTC for 10 years and from engaging in certain commodity-related activities, including trading, for five years.

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