The CFTC has filed an enforcement action against Charles L. Harris (Harris) of Winnetka, Illinois, and his hedge fund, Tradewinds International, LLC.
The complaint alleges that defendants defrauded investors by misrepresenting the value of the commodity pool they operated, issuing fraudulent statements to investors, and misappropriating investor funds that Harris allegedly used for personal and business purposes. CFTC v. Charles L. Harris, Tradewinds International, L.L.C., Civil Action No. 04-C-(N.D. Ill., filed 1 September 2004).
Also on 1 September 2004, the Honorable Blanche M. Manning, United States District Judge, entered a restraining order against Harris and Tradewinds freezing the defendants' assets and prohibiting the destruction of fund records.
Specifically, the CFTC's complaint alleges that since September 1995, defendants fraudulently raised at least USD 10 million from at least 30 investors for participation interests in Tradewinds International II, a private investment "hedge fund,"and a predecessor fund.
According to the complaint, defendants made false and misleading statements to investors regarding the fund's past rates of return and the uses of investor funds. The complaint also alleges that Harris misrepresented to investors in 2003 that fund's net asset value was between USD 18 million and USD 23 million, when, as alleged, commodity futures trading account statements reflect a total value of only USD 1.1 million during that period, with only approximately USD 30,000 remaining at year's end. The complaint further alleges that during 2003 and 2004, contrary to representations to investors, Harris may have used at least USD 1 million in investor funds for purposes other than trading, including for Harris's personal and business expenses.
As alleged in the complaint, Harris sent certain key investors e-mails and a DVD in July 2004 in which he confessed that he had falsely reported a 12 percent annual profit to investors in Tradewinds II for 2003, when, in reality, the fund lost a significant amount of money trading commodity futures. According to the complaint, Harris claimed to have fled the country and to have taken the purported remaining investor assets offshore.
In the ongoing action, the CFTC seeks orders of preliminary and permanent injunction against the defendants, a return of alleged ill-gotten gains, repayments to defrauded investors, monetary penalties and other relief. The Commission coordinated its investigation with the U.S. Securities Exchange Commission (SEC).
The following CFTC Division of Enforcement staff are responsible for this action: Jennifer S. Diamond, Ava M. Gould, Scott Williamson, Rosemary Hollinger, Mary E. Spear, Hugh Rooney, William Heitner, Thomas Koprowski, Cynthia Cannon, and Venice Bickham.