The US Commodity Futures Trading Commission (CFTC) has filed an anti-fraud civil lawsuit charging defendants PMC Strategy, LLC (PMC) of Monroe, NC, and its principals, Michael Hudspeth of Statesville, NC, and Timothy Bailey of Monroe, NC, with committing fraud in connection with operating a foreign currency (forex) Ponzi scheme that solicited at least USD669,000 from more than 22 individuals since June 2008. The defendants also allegedly misappropriated USD129,000 of customer funds for their personal use.
None of the defendants has ever been registered with the CFTC in any capacity, according to the CFTC complaint, filed under seal on February 9, 2011, in the US District Court for the Western District of North Carolina. On the same day, Judge Graham C. Mullen entered an emergency order freezing the defendants’ assets and prohibiting the destruction of books and records. The order also schedules a hearing on the CFTC’s motion for a preliminary injunction on February 17, 2011.
Specifically, the CFTC complaint alleges that the defendants fraudulently solicited and accepted funds from retail investors to engage in leveraged or margined forex transactions. Pool participants were allegedly advised that their funds would be pooled together in the name of PMC and used to trade off-exchange forex. Hudspeth falsely claimed that PMC had been trading forex successfully from at least January through June 2008, that only two percent of a pool participant’s funds were ever at risk and that customers could receive their initial investment back with a 30-day redemption notice, according to the complaint.
Hudspeth allegedly made material omissions of fact by failing to disclose that 1) not all of the customer funds collected were to be used to trade forex and 2) customer funds were used to pay purported monthly trading profits to other customers and for payments to defendants, as is typical of a Ponzi scheme.
Defendants allegedly deposited only USD497,000 of USD669,000 solicited from customers into forex trading accounts, of which approximately USD300,000 was lost in trading and approximately USD151,000 was withdrawn by defendants. The withdrawn funds were allegedly used to remit false profits to customers reflecting the promised returns when, in fact, PMC’s trading resulted in losses almost every month. Defendants allegedly concealed their trading losses and on-going fraud through false representations and by sending false profit checks to customers. As recently as November 2010, the defendants were still soliciting funds from current and prospective customers, but since February 2010, they failed to make promised monthly customer payments and to honor customers’ redemption requests, according to the complaint.
In its continuing litigation, the CFTC seeks disgorgement of ill-gotten gains, restitution to defrauded customers, rescission of all contracts and agreements, civil monetary penalties, permanent trading and registration bans and a permanent injunction prohibiting further violations of the federal commodities laws.