Robert Escobio and His Companies are Permanently Banned from Commodity Trading and Registration, and Ordered to Pay Approximately $2.5 Million in Restitution and Penalties
By Commodity Futures Trading Commission ….
The U.S. Commodity Futures Trading Commission (CFTC) announced today a victory after trial involving a fraudulent precious metals scheme perpetrated by Robert Escobio of Miami, Florida, through his companies Southern Trust Metals, Inc. (Southern Trust) and Loreley Overseas Corporation (Loreley) (collectively, Defendants). U.S. District Judge James Lawrence King of the U.S. District Court for the Southern District of Florida issued his Findings of Fact and Conclusions of Law (Order) and Final Judgment (Judgment) in favor of the CFTC on August 29, 2016. The Judgment permanently enjoins and prohibits Escobio and the two companies from trading and orders them to pay restitution in the amount of $1,543,892 USD and a civil penalty of $254,919.66 for an illegal precious metals scheme.
The Judgment also orders Southern Trust and Escobio to pay additional restitution of $559,725 and an additional penalty of $120,112.33 for an unregistered futures scheme.
The three-day trial held by Judge King from July 25-27, 2016, capped off two years of contentious litigation in which the Defendants disputed almost every aspect of the CFTC’s case.
Aitan Goelman, Director of the CFTC’s Division of Enforcement, said: “Protecting consumers from fraud and ensuring market integrity are core components of the CFTC’s mission. This case is another demonstration that the CFTC will be relentless in fulfilling its mission, including successfully prosecuting cases through trial where necessary.”
As Judge King found in the Order, the Defendants’ precious metals fraud scheme lured retail investors to purchase physical precious metals that allegedly were held in depositories in London or Hong Kong. The Order finds that customers were told that they could purchase additional metals by utilizing loans arranged by Defendants, when, in reality, Defendants did not purchase or sell physical metals, nor did Defendants make any loans. Instead, according to the Order, Defendants transferred customer funds through Loreley, a British Virgin Islands company, and then to trading accounts at firms based in the United Kingdom where customer funds were used to engage in margined derivatives trading. According to the Order, 78 leveraged metals customers suffered losses totaling $1,543,892. The Order describes Defendants actions as “egregious” and found that they warranted a slew of sanctions, including full restitution, a permanent ban on commodity trading, and a substantial civil penalty.
As noted in the Order, Escobio testified at trial that he believed that he was selling physical precious metals. However, the Court found this testimony incredible. The Court also rejected Defendants’ attempt to blame customer losses on falling market prices, finding that “a defendant who fraudulently induces another to participate in a transaction cannot blame market losses for his or her victims’ losses.”
The Court’s judgment incorporates its April 2016 order granting the CFTC’s motion for partial summary judgment, where the Court ruled that Defendants violated the Commodity Exchange Act (CEA) by conducting illegal off-exchange commodity transactions and by failing to register with the CFTC as a Futures Commission Merchant (FCM). In its summary judgment order, the Court found that Defendants leveraged precious metals transactions were required to be conducted on a regulated exchange. The Court also rejected the Defendants’ argument that a previous settlement with the National Futures Association (NFA) of a proceeding for violations of NFA rules precluded the CFTC’s enforcement action.
Notwithstanding the Judgment requiring the Defendants to pay a total of more than $2.1 million in restitution, 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 action are Carlin Metzger, Ashley J. Burden, Heather Dasso, Venice Bickham, Joseph Konizeski, Scott Williamson and Rosemary Hollinger.
The CFTC thanks the National Futures Association and the United Kingdom Financial Conduct Authority for their assistance in this matter.
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CFTC’s Precious Metals Customer Fraud Advisory
The CFTC has issued several customer protection Fraud Advisories that provide the warning signs of fraud, including the Precious Metals Fraud Advisory, which alerts customers to precious metals fraud and lists simple ways to spot precious metals scams.
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 complaint online.