Digital Assets Report


Like this article?

Sign up to our free newsletter

CFTC obtains USD86m order against commodity futures and options fraudster

Related Topics

The US Commodity Futures Trading Commission has obtained a federal court order against Texas resident George D.

The US Commodity Futures Trading Commission has obtained a federal court order against Texas resident George D. Hudgins, requiring him to pay USD71m to victims of his Ponzi scheme and a civil penalty of USD15m, and permanently barring him from the commodity industry.

The consent order, entered by Judge Leonard Davis of the US District Court for the Eastern District of Texas, fully settles all charges in the civil lawsuit filed by the CFTC against Hudgins on 13 March 2008.

According to the order, between June 2001 and May 2008, Hudgins fraudulently induced members of the public to invest approximately USD88m in a commodity pool that traded on-exchange commodity futures and options contracts.

Specifically, the order states that Hudgins solicited investors through false representations in promotional packets, newsletters, group presentations and face-to-face meetings, including false statements about the length of time the commodity pool had been in existence, the historical profitability of the commodity pool, and the profits made by investors.

For example, Hudgins falsely told investors and potential investors that from 2000 to 2007 the commodity pool produced net annual profits of from 22.5 to 99 per cent, when the pool had a net loss each year since its establishment in December 2003, and total losses of more than USD28m as of 30 April 2008.

To lull investors into a false sense of security that their funds were not at risk, Hudgins sent investors false account statements, showing that their accounts were profiting from his trading activity. In fact, the accounts suffered millions in losses over their lifetime and Hudgins paid out approximately USD17m in false ‘profits’ to certain investors from money Hudgins obtained from other victims of his fraud.

Further, after suffering millions of dollars in trading losses, court records show that Hudgins used the remainder of the money to support his lavish lifestyle, which included purchasing several antique classic sports cars, Tiffany jewellery, a 300-acre ranch along the Angelina River, and an airplane. Hudgins also commissioned and almost completed the construction of an airplane hangar.

On 13 May 2008, at the CFTC’s request, Judge Davis froze Hudgins’ assets and appointed a receiver to recover and distribute Hudgins’ assets to defrauded investors. Of the USD71m solicited by Hudgins, the receiver has collected over USD24m through the asset freeze, the sale of assets, the return of false profits already sent by Hudgins to certain investors, and the return of gifts made by Hudgins to family and friends. On 12 March 2009, the Receiver distributed these funds to defrauded investors on a pro rata basis.

In a separate criminal action, Hudgins pleaded guilty on 9 September 2008 to wire fraud, embezzlement, and money laundering. He was sentenced by US District Court Judge Thad Heartfield on 13 March  2009 to 121 months in federal prison.

Like this article? Sign up to our free newsletter

Most Popular

Further Reading