The
Commodity Futures Trading Commission today slapped a Miami man with fraud charges and other allegations, claiming that he ran a phony $3 million commodity pool.
The man, Oscar Hernandez, and his companies Midway Trading Co. LLC and Conquest Investment Group Inc. are all named defendants in a civil enforcement case filed by the CFTC in the U.S. District Court for the Southern District of Florida.
The commodities regulator claims that between 2005 and 2009, Mr. Hernandez solicited some $3 million from participants who were told that their funds would be invested in futures. Most of those funds were placed in commodity futures trading accounts, where Mr. Hernandez ended up losing about $1.3 million from his trading activities, according to the CFTC.
But he and his firms also allegedly misappropriated $1.8 million for personal uses, including paying mortgages and credit card bills, and to make monthly payments — phony returns —- to participants.
Neither Mr. Hernandez nor his firms were ever registered with the CFTC.
Participants were allegedly told that Mr. Hernandez's investments, which were supposedly invested in futures and overseas stock markets, were reaping 180% in annual returns and were risk free, according to the complaint.
One client, who borrowed $1 million in 2007 to participate in the program, allegedly received monthly payments equivalent to an annual return of between 20% and 30%, the CFTC claimed.
Amazed with the investment's success, that customer passed the word on and referred about eight other clients to invest a total of more than $1 million with Mr. Hernandez, according to the complaint. Ten more clients brought in another $1 million for the pool.
Many of the clients ended up getting promissory notes, promising payments of 20% to 30% in annual returns, with a balloon payment of the principal at maturity, the CFTC alleged. The “returns” were actually coming from participants' inflows into the scheme, according to the complaint.
Eventually the frequency of the payments tapered off, and clients haven't received payouts since early 2009, the CFTC alleged. Angry customers confronted Mr. Hernandez, who allegedly gave them a variety of excuses: that he had lost the money through bad investments, that some of the cash went toward real estate purchases and that some of the money went toward helping family members with their financial difficulties, according to the suit.
The CFTC has charged Mr. Hernandez and his firms with fraud, acting as a commodities pool operator without registration and failing to register as an associated person who can solicit funds for participation in a commodity pool.
In tandem with the CFTC's charges, the U.S. attorney's office for the Southern District of Florida also charged Mr. Hernandez with conspiracy to commit securities and commodities fraud. If convicted, he could face up to five years in prison.
A call to Mr. Hernandez's office was answered by a unnamed woman who said the firm was moving to a new office. She requested that
INvestmentNews call back on Monday.
