The US Commodity Futures Trading Commission has obtained a federal court order in Santa Ana, California, against Mission Viejo-based investment firm Safevest and its owners and officers, Jon G Ervin and John V Slye, freezing the defendants' assets, prohibiting the destruction of documents, and appointing a temporary receiver.

Slye, the purported founder, president and chief executive of Safevest, claims to be an ordained minister and pastor of a church in Washington, DC as well as a founder and former director of the National Foundation for Cancer Research in the US.

The order, in the US District Court for the Central District of California, arises from a CFTC complaint filed on the same day alleging that defendants solicited more than 500 members of the public to invest more than USD25.7m in an illegal commodity pool. According to the regulator, the defendants misappropriated virtually all customer funds rather than depositing them in an account for trading commodity futures.

The complaint charges that since at least May last year, Safevest fraudulently solicited members of the public through a multi-level marketing scheme to purchase interests in a purported commodity pool that traded exchange-traded commodity futures contracts. The firm untruthfully claimed that its computerised trading software consistently produced daily profits of between 1.6 and 1.9 per cent.

In addition to using client funds to pay their personal expenses, the complaint alleges, defendants misappropriated funds by using funds from some pool participants totalling at least USD18.5m to pay off other participants in a manner characteristic of a Ponzi scheme.

The CFTC claims that that pool participants funds deposited in Safevest bank accounts were used to pay USD282,500 to Mission Loans, a corporate entity partially owned by Ervin and of which he is president, USD120,452 to Ervin and his family members, USD259,500 to Slye and his wife, and about USD170,000 for cash withdrawals.

The complaint argues that defendants are liable for Safevest's failure to register with the CFTC as a commodity pool operator, and that Safevest and Ervin are liable for his conduct as an unregistered associated person of a commodity pool operator. Both Ervin and Slye are charged with liability for Safevest's fraudulent conduct as controlling persons of the firm.

The CFTC is seeking preliminary and permanent injunctive relief, the return of funds to defrauded customers, the repayment of ill-gotten gains, and civil monetary penalties for each violation of the Commodity Exchange Act.

       

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