U.S. Attorney’s Office Files Parallel Action in Response to Previous CFTC Fraud Charges
The types of investments that one can invest in are nearly as diverse as the brokers who trade them and the investors who invest in them. One such investment practice is commodity futures pools. This type of investment is a private investment which ‘pools’ investor monies to be used in the futures and commodities markets. This allows the fund to be used as a single investment vehicle to increase leverage, with the anticipated outcome being greater profit potential. When managed appropriately, a commodity futures pool can garner significant profits for investors. It is unfortunate that, just like other investments, there are those who use these investment opportunities to defraud customers.
In January 2011, the U.S. Commodity Futures Trading Commission (CFTC), the regulatory agency that oversees the trading of futures, issued a press release announcing that the agency had gotten a federal court order to freeze the assets of Robert J. Andres and Winsome Investment Trust, both based in Houston, Texas, as well as Robert L. Holloway of San Diego, California, and US Ventures, LLC of Salt Lake City, Utah. The order also served to stop the possible destruction of any of the books or records belonging to any of the defendants.
The order was the result of a CFTC anti-fraud civil complaint that was filed in federal court earlier that month. The complaint stated that Andres and Winsome had fraudulently solicited others to commit to investing in a commodity futures pool. The complaint also stated that the defendants had misappropriated these funds and attempted to hide the fraud by generating phony account statements to those who participated in the pool that did not accurately reflect the profitability of the investments.
The complaint alleges that from approximately May 2005 until November 2008, Andres and Winsome fraudulently sought out roughly $50.2 million from more than 240 people with the promise to invest these funds into a commodity futures pool that Holloway and US Ventures controlled. In order to entice investors, Andres and Winsome claimed an erroneous level of performance and made assurances to the investors that they would receive the return of not only their principal investment, but also profits. Yet, in spite of Andres’ and Winsome’s assertions, US Venture’s and Holloway’s trading was unsuccessful and realized overall net losses of almost $11 million. Additionally, the complaint states that more than $26 million was deposited in US Venture’s trading accounts by Andres and Winsome, but they then withdrew nearly 60% of those funds.
Allegedly, the defendants only traded a small amount of the funds in the pool and embezzled a much larger part of the monies to pay pool participants in a manner very similar to how a Ponzi scheme works. Instead of pay-outs to the participants, Andres and Holloway supposedly used the funds to settle personal and business expenses that were unrelated to the pool. For instance, Holloway used a portion of these monies for his own homes, cars, and lawn and maid services among other things according to the complaint. In Andres’ case, he used these monies to invest in other businesses, one of which was an aerospace consulting firm in which he invested $4.2 million. This was in addition to giving a portion of these funds to his wife.
In an effort to hide their nefarious activities, the defendants made up profitability reports that did not reflect the true nature of the trading. These reports indicated that trading had always been profitable and suffered no losses. Many times Holloway purportedly instructed US Ventures employees to use his estimated trading results when issuing these statements to participants. The fact that nearly $11 million was lost through trading was not included on these statements which actually showed daily returns of up to 1.6613%.
At the time that the original complaint was filed in 2011, the CFTC was seeking disgorgement of ill-gotten gains, restitution to defrauded customers, civil monetary penalties, and permanent injunctions which would prohibit trading and further violations of federal commodities law. As a result of this complaint and the actions that it alleges against the defendants, last month the CFTC procured a federal court order against the defendants. This order states that all four defendants must pay civil penalties in the amount of $32,370,000, as well as restitution in the amount of $12 million in reparations to clients whom they defrauded. The order continues on to state that all four of the defendants are banned from trading and registration, as well as from committing further violations of the Commodity Exchange Act.
In a parallel action, the U.S. Attorney’s Office for the District of Utah has filed criminal charges against both men. Andres pleaded guilty and is set to face sentencing for five counts of wire fraud on August 20, 2014. Holloway was indicted on four counts of wire fraud and one count of making and filing a false income tax return. His trial date was set for July 8, 2014, but has been rescheduled to July 29, 2014.
The Blum Law Group specializes in helping people who have been victimized by brokers or investment firms. If you believe you have suffered financial losses as a result of the actions of Andres, Holloway, or either of these companies by participating in this fraudulent commodity futures pool, please give us a call at 877-STOCK-LAW for a free consultation.