On Thursday, July 1, the Commodity Futures Trading Commission (CFTC) announced that it has filed a civil enforcement action in the U.S. District Court for the Southern District of New York against Robert Jeffrey Johnson, Kathleen Hook, Ross Baldwin, Precious Commodities, Inc. (PCI), National Coin Broker, Inc. (NCB), and NCB Wholesale Co. (NCBWC), all of Florida, charging them with fraud in connection with a multimillion-dollar precious metals leasing scheme.
In continuing litigation against the defendants, the CFTC seeks restitution, disgorgement, civil monetary penalties, permanent trading and registration bans, and a permanent injunction against further violations of the Commodity Exchange Act (CEA) and CFTC regulations, as charged.
“As today’s enforcement action shows, the CFTC will vigorously investigate and seek to hold accountable those who make false promises and misappropriate customer funds,” said Acting Director of Enforcement Vincent McGonagle.
The complaint alleges that from approximately June 2014 through at least October 2019 PCI, NCB, and NCBW, acting as a common enterprise controlled by Johnson and Hook, engaged in a fraudulent and deceptive scheme to solicit and misappropriate at least $8 million in funds and silver from at least 60 investors in connection with a fraudulent silver leasing program, referred to as the “Silver Lease Program”. The complaint further alleges that Baldwin, Johnson, and Hook either directly engaged in deceptive conduct in furtherance of the scheme, or did so indirectly by virtue of their being control persons of NCB, PCI, and NCBWC, respectively.
As alleged in the complaint, the Silver Lease Program purported to offer investors guaranteed monthly lease payments in exchange for the use of silver purportedly purchased from NCB or silver already owned by investors. Investors were told that they would earn a monthly dividend between 3.9% and 5% for the use of their silver; i.e., that the silver would be used on a short-term basis to fulfill purchase orders and it would be replaced within a few days. Moreover, investors were told, falsely, among other things, that their investments were guaranteed and fully insured and their silver would be stored by PCI securely in a storage facility, often referred to as a vault.
In reality, as alleged in the complaint, the Silver Lease Program was complete fiction because PCI never operated or maintained a vault or secure storage facility capable of storing the silver purportedly held for investors. Moreover, according to the complaint, PCI and/or NCBWC misappropriated investors’ funds as well as any metals pledged to the Silver Lease Program by investors. In addition, the defendants used investor funds to make monthly payments to investors purporting to be “dividend” payments, but which were in fact Ponzi-style payments by PCI.
Related Criminal Action
In a separate, parallel matter, the United States Attorney for the Southern District of New York also announced criminal charges against Johnson, Hook, and Baldwin. [United States v. Johnson et al., 21 Cr. 428 (S.D.N.Y.)]. The CFTC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York, the FBI, the U.S. Mint, and the UK Financial Conduct Authority.
The Division of Enforcement staff members responsible for this action are Patrick Daly, Karin N. Roth, Christopher Giglio, Michael Cazakoff, R. Stephen Painter, Jr., Lenel Hickson, Jr., and Manal M. Sultan.
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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.
The CFTC also strongly urges the public to verify a company’s registration with the CFTC before committing funds. If unregistered, a customer should be wary of providing funds to that entity. A company’s registration status can be found at NFA BASIC.
Customers and other individuals can report suspicious activities or information, such as possible violations of commodity trading laws, to the Division of Enforcement via a toll-free hotline 866-FON-CFTC (866-366-2382), file a tip or complaint online, or contact the Whistleblower Office. Whistleblowers are eligible to receive between 10% and 30% of the monetary sanctions collected paid from the Customer Protection Fund financed through monetary sanctions paid to the CFTC by violators of the CEA.