Central District of California Orders Precious Metals Firm and Owners to Pay $38M for Commodity Fraud and Registration Violations

On December 21, the Commodity Futures Trading Commission (CFTC) announced that the Central District of California entered an order for permanent injunction and $38 million in monetary penalties against Monex Deposit Company, Monex Credit Company, Newport Services Corporation and company owners, Louis Carabini and Michael Carabini.

According to the order, between July 2011 and August 2021, the defendants operated the retail over-the-counter trading platform, Atlas, which allowed customers to speculate on precious metals price movements. During that time, the defendants executed thousands of leveraged transactions which were required to be executed on a regulated exchange.

However, the court said that the trades were not on a regulated exchange, and the majority of these trades resulted in losses for Monex’s customers. Additionally, the decision found the defendants engaged in fraud in the solicitation of customers, including touting the importance of precious metals as a hedge against economic uncertainty. 

Further, the order added that Monex engaged in deceptive sales tactics through its sales representatives such as pitching the possibility of “30-40% net gains,” “annualized rate of return of 20% or more” and “unlimited upside potential.” The ruling stated that Monex never disclosed that the majority of its customers lost money in concluding that Monex’s claims about the profitability of leveraged trading of precious metals were misleading. 

The court’s order requires the defendants to pay $33 million in restitution to customers, and a $5 million civil penalty. Further, it bars the defendants from trading futures or options on a regulated market or registering in any capacity with the CFTC for 10 years and permanently enjoins them from engaging in off-exchange leveraged retail commodity transactions or fraud.

The CFTC’s press release added that victims may not recover any money as the defendants may lack sufficient funds to pay.