By Commodity Futures Trading Commission ….
The U.S. Commodity Futures Trading Commission (CFTC) filed a civil injunctive enforcement action in the U.S. District Court for the Southern District of Florida against Florida-based Defendants KB Concepts Group, LLC d/b/a Apex Asset Advisors, LLC (Apex) and Kelvin Burgos, Apex’s president, controlling person, and managing member responsible for its day-to-day operations. The CFTC’s Complaint charges the Defendants with engaging in illegal, off-exchange transactions in precious metals with retail customers on a leveraged, margined, or financed basis. The Complaint further alleges that Burgos, as controlling person for Apex, is liable for Apex’s violations of the Commodity Exchange Act (CEA).
According to the Complaint, from at least September 2012 and continuing through at least February 2013, Apex, by and through its employees, including Burgos, solicited retail customers by telephone to engage in leveraged, margined, or financed precious metals transactions. During that period, Apex collected approximately $456,977 USD from at least 10 customers in connection with precious metals transactions. Of this amount, approximately $156,783 was paid to Apex in the form of commissions, markups, storage fees, and interest charges, according to the Complaint. The Complaint also alleges that Apex accepted customer orders and funds, and therefore acted as a Futures Commission Merchant (FCM), but failed to register with the CFTC as an FCM, as required.
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, leveraged, margined, or financed transactions such as those conducted by Apex are illegal off-exchange transactions unless they result in actual delivery of metals within 28 days. The Complaint alleges that metals were never actually delivered in connection with the leveraged, margined, or financed precious metals transactions made on behalf of Apex’s customers.
The Complaint also alleges that Apex executed the illegal precious metals transactions through Hunter Wise Commodities, LLC (Hunter Wise). The CFTC filed an enforcement action against Hunter Wise in the United States District Court for the Southern District of Florida on December 5, 2012, charging it and other Defendants with engaging in illegal, off-exchange precious metals transactions, and charging Hunter Wise with fraud and other violations.
On February 19, 2014, the district court found that Hunter Wise had no actual metal to deliver to customers and held that Hunter Wise engaged in illegal precious metals transactions and was required to register as an FCM but did not do so and therefore violated Sections 4(a) and 4d of the CEA (see CFTC v. Hunter Wise Commodities, LLC, et al., Case No. 9:12-cv-81311 (Order on the Parties’ Motions for Summary Judgment)). On April 15, 2014, the U.S. Court of Appeals for the Eleventh Circuit affirmed the district court’s issuance of a preliminary injunction and held that the CFTC’s jurisdiction under Section 2(c)(2)(D) of the CEA extends to the precious metals transactions at issue in the case and that no exception to the CFTC’s jurisdiction applied. And, on May 16, 2014, after a bench trial on the remaining claims, including fraud, the district court entered an Order finding that Hunter Wise, its related companies, and their owners fraudulently misrepresented the nature of precious metals transactions that resulted in millions of dollars in customer losses.
In its continuing litigation against Apex and Burgos, the CFTC seeks disgorgement of ill-gotten gains, civil monetary penalties, restitution, permanent registration and trading bans, and a permanent injunction from future violations of the CEA, as charged.
CFTC Division of Enforcement staff members responsible for this action are Michael Loconte, James Garcia, Michael Solinsky, and Rick Glaser.
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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.