The US Commodity Futures Trading Commission has obtained more than USD16.2m in restitution and civil monetary penalties in a federal court order against defendants Scott P. Kear, Sr., Jeffery L. Lyon and entities they controlled, M25 Investments and M37 Investments, all of Waxahachie, Texas.
The consent order, entered on 25 October 2010 by Judge Barbara M. G. Lynn of the US District Court of the Northern District of Texas, resolves a CFTC anti-fraud enforcement action filed in September 2009 that charged the defendants with fraudulently soliciting approximately USD8m from approximately 213 individuals to trade off-exchange leveraged foreign currency, forex options and commodity futures contracts.
The order requires the defendants jointly and severally to pay USD7,404,036.56 in restitution. The order also requires M25 and M37 jointly and severally to pay a USD7.1m civil monetary penalty and Kear and Lyon to pay civil monetary penalties of USD1.4m and USD375,000, respectively. The order permanently prohibits the defendants from engaging in any commodity-related activity and from registering with the CFTC in any capacity.
The order finds that from December 2007 to September 2009, the defendants and their representatives fraudulently solicited individuals in West Virginia, Texas, Mississippi, Maryland and other states to trade forex and forex options. The defendants often targeted elderly individuals through their churches.
The defendants solicited potential customers, promising guaranteed interest payments on investments of two percent monthly and 24 per cent annually, as well as an additional two percent renewal bonus if customers reinvested, the order finds.
The defendants also represented to customers that their returns would come from profitable trading. Instead, the majority of customers’ funds were not used for trading, and funds that actually were traded sustained significant losses, according to the order.
The few funds paid to customers by M25 and M35 were funds received from other customers and were not trading profits. Therefore, the order finds that M25 and M37 operated a Ponzi scheme. The defendants concealed their fraud by issuing monthly account statements that falsely assured customers that they were earning two per cent monthly interest, the order finds.
By separate order, the litigation against defendant David Seaman is dismissed.