The Northern District of California has entered an emergency order freezing the assets of defendants Victor Yu of San Jose, California, and his company VFRS based in Alameda, California.

The court’s order also prohibits the destruction or alteration of books and records, and grants the CFTC immediate access to such documents. The judge set a hearing on the CFTC’s motion for a preliminary injunction for 10 August 2012.

The order arises out of a civil enforcement action filed by the CFTC on 26 July 2012, charging defendants Yu and VFRS with defrauding at least 100 clients in connection with off-exchange foreign currency (forex) trading. The CFTC’s complaint also charges Yu with failure to register with the CFTC as a commodity trading advisor.

According to the CFTC complaint, since at least August 2009 to the present the defendants’ clients invested more than USD5m in forex trading accounts and lost more than USD2m, while defendants received fees of more than USD270,000 from their clients.

The defendants allegedly fraudulently solicited clients to open forex accounts that allowed the defendants to place trades in their accounts using trading software that Yu claimed to have developed. Further, defendants misrepresented to clients that the trading software made forex trading “extremely safe,” prevented clients from ever reaching certain loss thresholds, and guaranteed that clients will not have a losing trade, according to the complaint. In addition, defendants allegedly misrepresented to some prospective customers that their trading software had shown positive returns on every trade it had ever made and has successfully predicted activity in the currency markets back to the 1920s.

To solicit new clients, Yu and VFRS, by and through Yu, held face-to-face meetings with prospective clients in various clients’ homes, obtaining leads primarily through word-of-mouth, according to the complaint. Yu allegedly promised existing clients a referral fee or a percentage of any profits earned in the new clients’ forex accounts. When opening accounts, clients signed agreements promising to pay the defendants a service fee of 30 per cent of their net profits, and the defendants provided log-in and password information so that clients could “hook up” to the defendants’ trading software. The complaint alleges that by this conduct, Yu acted as a CTA and was required to register with the CFTC.

In its continuing litigation, the CFTC seeks civil monetary penalties, restitution, trading and registration bans, and preliminary and permanent injunctions against further violations of the federal commodities laws, as charged.
 


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