The US Commodity Futures Trading Commission (CFTC) has obtained more than USD84 million in disgorgement and civil monetary penalties in a federal summary judgment order against defendants Charles E. Hays and his company, Crossfire Trading, LLC (Crossfire), both of Rosemount, Minnesota.
Judge Donovan W Frank of the US District Court for the District of Minnesota entered the order requiring the defendants to pay USD19,977,250 in disgorgement and a USD64,779,751 civil monetary penalty for operating a commodity pool Ponzi scheme from January 2001 to February 2009.
The order stems from a CFTC complaint filed on February 5, 2009, charging Hays and Crossfire with fraudulently soliciting and misappropriating customer funds to purchase, among other things, a USD4 million yacht in connection with operating the scheme. The CFTC complaint also charged Hays with various registration violations and providing customers with false account statements (see CFTC Press Release 5608-09).
On April 28, 2010, following a plea to charges in a criminal information based on substantially the same facts as alleged in the CFTC’s civil enforcement action, Hays was sentenced to 117 months imprisonment and was ordered to pay more than USD21 million in restitution to defrauded investors. In his plea, Hays admitted to devising and participating in a Ponzi scheme in which he lost or misappropriated approximately half of the USD40 million he and Crossfire fraudulently solicited. Hays admitted that he misrepresented the performance of the commodity pool, failed to adhere to the terms of the customer investment agreement and diverted and converted customer funds for his personal use and other unauthorised purposes. He also admitted that he created and sent investors fraudulent monthly statements purportedly showing investments and gains that clients supposedly realized. Hays also misrepresented where investors’ funds were maintained and created a fictitious trading statement that reflected a USD37 million balance in Crossfire’s account at a registered brokerage firm, when in reality Crossfire did not have an account with the firm, the court found. In addition, to give legitimacy to the scheme, Hays used funds received from new customers to make payments to earlier customers in a manner typical of a Ponzi scheme, according to the order.