Judge Richard W Story of the US District Court for the Northern District of Georgia, has entered an emergency order freezing the assets of defendants Robert A Christy of Milton, Georgia, and his company Crabapple Capital Group LLC (Crabapple) of Alpharetta, Georgia.
The order also prohibits the defendants from destroying or altering books and records. The judge set a hearing date for 1 May, 2012.
The order stems from the filing of a federal court action on 19 April, 2012, against the defendants, charging them with foreign currency (forex) fraud, misappropriation, and making false statements to the National Futures Association (NFA). Both Christy and Crabapple are registered with the CFTC and are NFA members.
The CFTC complaint alleges that from at least October 2008 to the present, Christy and Crabapple have defrauded at least 20 commodity pool participants who invested at least USD1,311,000 in a commodity pool that trades forex and is operated by Crabapple.
According to the complaint, the defendants portrayed Crabapple as a reputable and well-established investment firm, claiming that Crabapple traded forex profitably since 2006 and is affiliated with a larger investment firm, which purportedly has over USD50 million in assets under management. The CFTC complaint further alleges that instead of using pool participants’ money to trade forex, defendants used it to pay for, among other things, Christy’s travel, restaurant meals, groceries, and other personal expenses, as well as payments to members of Christy’s family. In total, defendants allegedly misappropriated at least USD800,000.
In their sales solicitations, according to the complaint, the defendants advertise a “conservative” forex investment strategy that targets annual returns of approximately eight percent with a low risk of loss.
Defendants gave prospective customers marketing literature, including a formal disclosure document and monthly bulletins, which showed from 2006 to 2011: (a) average annual returns ranging from 15 percent to 20 percent; (b) 55 profitable months compared to only 10 unprofitable ones; and (c) the highest monthly losses reaching only negative 0.74 percent. According to the complaint, however, this performance history was a lie, as the defendants’ actual forex trading records show consistent and significant losses from 2006 to 2011. The complaint alleges that defendants’ claim that Crabapple had USD50 million in assets under management was likewise false.
In order to perpetuate their fraud and misappropriation, the defendants allegedly prepared and distributed to pool participants false monthly account statements that showed pool participants earning purported monthly profits on their investments, even in months when defendants were losing money in all of their forex trading accounts, according to the complaint.
Finally, the complaint alleges that defendants attempted to keep their fraud hidden from the NFA. During a 2011 examination, defendants provided NFA with false accounting records that labeled money received from pool participants as “loans from Christy.” In two written documents given to the NFA, Christy falsely certified, among other things, that Crabapple did not operate any trading pools and had not received any money from customers to trade forex and that all of the money deposited with Crabapple represented Christy’s own funds.
In January 2012, NFA filed membership actions against Christy and Crabapple barring them from soliciting or accepting any funds from customers and from disbursing or transferring any funds without prior approval from NFA. Despite this, the defendants continue to deposit money received from pool participants into Crabapple’s checking account and expend funds without NFA’s prior approval, according to the complaint.
In its continuing litigation, the CFTC seeks civil monetary penalties, restitution, rescission, disgorgement of ill-gotten gains, trading and registration bans, and preliminary and permanent injunctions against further violations of the federal commodities laws, as charged.