The US Commodity Futures Trading Commission (CFTC) today filed an enforcement action charging Colorado-based defendants Arjent Capital Markets LLC (has), Chicago Trading Managers LLC (CT Managers), Spencer Montgomery, and Brian Reynolds with defrauding commodity pool investors by knowingly or recklessly issuing false account statements for three separate commodity pools.
Arjent was a Boulder, Colorado-based broker-dealer, dissolved by Reynolds effective 4 September, 2011. CT Managers, also based in Boulder, is registered with the CFTC as a Commodity Pool Operator and Commodity Trading Advisor. Colorado residents Montgomery and Reynolds are owners and managers of Arjent and CT Managers.
The CFTC civil complaint, filed 13 March, 2012, in the US District Court for the Southern District of New York, alleges that beginning on or about June 2008 through at least November 2009, participants in the three commodity pools invested a total of approximately USD10.5 million. The defendants allegedly aggregated investors’ funds into a single account in Arjent’s name, the Arjent Trading Account, held at and cleared by a futures commission merchant (FCM) in New York, NY.
The defendants then assigned subaccounts of the Arjent Trading Account to the pools. The value of each subaccount depended on the overall value of the Arjent Trading Account, according to the complaint. Thus, if one subaccount carried a negative balance, that would negatively impact the value of the other subaccounts because they were all combined in the Arjent Trading Account. Some subaccounts carried negative balances and by June 2009, some had losses of millions of dollars, according to the complaint. A draft disclosure statement provided by Arjent to the FCM in December 2009 allegedly disclosed that Arjent had carried negative capital balances of approximately USD6.8 million since October 2009. However, the account statements provided by defendants to investors allegedly did not disclose these critical facts. By not disclosing the negative account statement balances, defendants fraudulently overstated the value of the subaccounts, and it created the false impression that the individual accounts were worth more than they actually were, according to the complaint.
In August 2009, defendants Montgomery, Reynolds, and Arjent issued at least one subaccount statement falsely indicating that the pool’s trades were cleared by a non-existent affiliate of the FCM clearing firm, according to the complaint.
In its continuing litigation, the CFTC seeks disgorgement of ill-gotten gains, civil monetary penalties, trading and registration bans, and a permanent injunction prohibiting further violations of the federal commodities laws.
The CFTC appreciates the assistance of the National Futures Association, the Chicago Board Options Exchange, the US Securities and Exchange Commission, and the Financial Services Authority (UK).
CFTC Division of Enforcement staff responsible for this case are Laura Martin, Janine Gargiulo, Candice Aloisi, Judith Slowly, David Acevedo, Manal Sultan, Lenel Hickson, Lisa Hazel, Annette Vitale, Ronald Carletta, Stephen Obie, and Vincent McGonagle.