The US Commodity Futures Trading Commission (CFTC) has filed a complaint in federal court in Santa Ana, California, charging defendants Robert J Cannone of Laguna Niguel, Thomas B Breen of San Juan Capistrano, Francis Franco of Anaheim, and their company National Equity Holdings, Inc. of Laguna Niguel, with fraudulently operating a USD1.4 million commodity futures pool and with registration violations.
The CFTC complaint, filed in the US District Court for the Central District of California, alleges that from at least May 2009 through at least May 2010, the defendants fraudulently solicited and accepted at least USD1.4 million from 20 or more individuals to trade commodity futures contracts by participating in a commodity pool called NEH.
The defendants traded only a portion of the pool participant funds in proprietary accounts, sustaining overall and significant losses of approximately USD582,631, according to the complaint. Defendants also allegedly misappropriated the majority of the pool participants’ funds to make so-called returns to participants in monthly payments that defendants claimed were the profitable proceeds of their trading. Cannone, Breen, and Franco also are charged with misappropriating pool participant funds for personal use. To conceal their fraud and trading losses from the pool participants, defendants allegedly issued false account statements reflecting profits.
After claiming to customers that all of their funds were lost in trading, and promising to return their funds, pool participants have not received their principal back, according to the complaint.
Additionally, National Equity Holdings failed to register with the CFTC as a commodity pool operator, and Cannone, Breen, and Franco failed to register as associated persons of National Equity, the complaint alleges.
Specifically, in their solicitations, the defendants (1) falsely claimed to have a successful and experienced trader (Franco) for the pool, (2) misrepresented the likelihood of profits and the risks associated with trading commodity futures, (3) failed to disclose that they were not properly registered with the CFTC to operate a pool, and (4) failed to disclose their intended uses of pool participant funds, according to the complaint. Cannone, Breen, and Franco allegedly operated in concert and aided and abetted each other in the fraud.
In its continuing litigation, the CFTC seeks a return of ill-gotten gains, restitution to defrauded customers, civil monetary penalties, and permanent injunctions against further violations of the federal commodities laws.