Commodity Futures Trading Commission (CFTC), precious metals crime and fraud

By Commodity Futures Trading Commission ……
 

On Monday, October 28, the United States Commodity Futures Trading Commission today announced that the U.S. District Court for the Southern District of Florida entered a default judgment against defendants Aviv Michael Hen of New York, and Omega Knight 2, LLC, as well as a consent order against Erez Hen of Florida, for fraud and illegal, off-exchange precious metals transactions and failing to register with the CFTC.

The court’s default judgment requires defendants Omega Knight and Aviv Hen to pay a civil monetary penalty of $11,442,771, pay $3,814,257 in disgorgement, and imposes permanent registration and trading bans against them. The court’s consent order requires Erez Hen to pay a civil monetary penalty of $75,000, pay $275,000 in disgorgement, and imposes a five-year registration and trading ban against him, and requires him to comply with certain undertakings involving two Erez Hen-owned entities unrelated to Omega Knight.

The judgment and consent order resolve a CFTC enforcement case filed on June 13, 2018, charging the defendants with engaging in illegal, off-exchange precious metals transactions.

In its motion for default judgment, the CFTC presented evidence that from March 2013 through June 2017, Omega Knight, including Aviv Hen, engaged in a scheme to defraud customers located throughout the United States in connection with precious metals transactions. According to the default order, the defendants made numerous false statements to induce customers to enter into leveraged and fully-paid precious metals transactions, and Omega Knight received a minimum of $5.5 million from at least 90 customers in connection with these transactions.

The default order found that Omega Knight failed to use all of the customer funds it collected to purchase metal for its customers’ precious metals transactions. Instead, Omega Knight and Aviv Hen misappropriated customer funds to pay personal expenses, to distribute purported “profits” and disbursements to other customers, and to fund Omega Knight’s operations. Through the issuance of false trade confirmations, account statements, and other communications to customers, Omega Knight and Aviv Hen concealed their misappropriation and fraudulent scheme.

Moreover, the default order found that Omega Knight’s leveraged or financed precious metals transactions constituted illegal, off-exchange retail commodity transactions. Notably, Omega Knight’s leveraged or financed precious metals transactions never resulted in actual delivery of the full amount of metal purchased to customers. In addition, the default order found that Omega Knight accepted customer orders and funds in connection with those transactions and therefore acted as a futures commission merchant without being registered as required.

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 wrongdoers are held accountable.

The Division of Enforcement staff members responsible for this action are Patricia Gomersall, Jason Wright, Kassra Goudarzi, Hillary Van Tassel, A. Daniel Ullman II, and Paul G. Hayeck.

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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.
 

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