The Commodity Futures Trading Commission (CFTC) today announced that Judge David G. Campbell of U.S. District Court for the District of Arizona entered a Consent Order against Defendants Derek Springfield and his company, Draven, LLC (Draven), both of Mesa, Arizona finding that they fraudulently solicited and received at least $1.8 million from approximately 112 commodity pool participants in connection with pooled investments in commodity futures and foreign currency exchange (forex). The Order, entered on November 13, 2017, also finds that the Defendants engaged in fraudulent sales practices, misappropriated pool participant funds, and provided false account statements to pool participants.
The Order requires the Defendants to pay, jointly and severally, $1,487,964.45 in restitution to defrauded customers and an $800,000 civil monetary penalty. The Order also imposes permanent trading and registration bans against Defendants, among other things, and prohibits them from committing further violations of the Commodity Exchange Act and CFTC Regulations, as charged.
The Court’s Order arises from a CFTC enforcement action, filed on December 13, 2016 (see CFTC Complaint and Press Release 7503-16, December 20, 2016).
The Order finds that, from at least June 2012 through December 2016, the Defendants used Draven’s website, among other methods, to solicit potential pool participants to invest with Draven by telling them that their funds would be placed in segregated accounts and traded on their behalf by “institutional quality traders with extensive experience generating returns on the Futures, Forex and Options markets.” In reality, however, the Order finds that Defendants never traded pool participants’ funds in the manner advertised. Rather, Defendants pooled together the funds received from pool participants into two separate commodity pools. Defendants traded only a small percentage of the funds deposited into these pools. What trading was done on behalf of pool participants, according to the Order, was executed by Springfield through one or more trading accounts maintained in his name at various registered futures commission merchants and retail foreign exchange dealers. Springfield was not profitable in his trading of the trading accounts, and these accounts incurred net losses of approximately $195,880, according to the Order. In addition, Defendants deducted 10% management fees, based on profits, despite incurring net losses, the Order finds.
Misappropriated Customer Funds
The Defendants misappropriated some of pool participants’ funds to pay for Draven’s corporate expenses, Springfield’s personal expenses, and withdrawal requests of other clients, according to the Order. In addition, Springfield used participants’ funds to pay for personal expenses, such as mortgage payments, food, shopping, and medical expenses, the Order finds.
To cover up their losses and the misappropriation, Defendants fabricated and issued false statements to pool participants, which purported to show profitable trading results on their behalf. The profits shown on these statements bear no relationship to the actual trading results of Springfield’s accounts, the Order finds. In addition, the Defendants further perpetuated their fraud by operating a Ponzi-style scheme, in which they used pool participants’ funds to pay returns to other pool participants who requested withdrawals from their accounts, the Order finds.
The CFTC cautions that Orders requiring repayment of funds to victims may not result in the recovery of any money lost because the wrongdoers may not have sufficient funds or assets. The CFTC will continue to fight vigorously for the protection of customers and to ensure the wrongdoers are held accountable.
CFTC Division of Enforcement staff members responsible for this case are Michelle Bougas, Alan Edelman, James H. Holl, III, and Rick Glaser.
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CFTC’s Commodity Pool Fraud Advisory
The CFTC has issued several customer protection Fraud Advisories that provide the warning signs of fraud, including the Commodity Pool Fraud Advisory, which warns customers about a type of fraud that involves individuals and firms, often unregistered, offering investments in commodity pools.
Customers can report suspicious activities or information, such as possible violations of commodity trading laws, to the CFTC Division of Enforcement via a Toll-Free Hotline 866-FON-CFTC (866-366-2382) or file a tip or complaintonline.