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US District Court orders Willie Lee Cloud Jr to pay more than USD5.35m over forex Ponzi scheme

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A federal court has entered a default judgment order requiring defendants Willie L Cloud, Jr and his company, C & R Financial, Inc, both of Houston, Texas, to pay restitution of USD280,170.66 and a USD5,070,000 million civil monetary penalty for operating an off-exchange foreign currency (forex) Ponzi scheme.

The order stems from a CFTC complaint filed on 4 March, 2010, that charged the defendants with violating the anti-fraud provisions of the Commodity Exchange Act.

The order, entered on 24 March, 2011, by Judge Gray H Miller of the US District Court for the Southern District of Texas, permanently bans the defendants from engaging in any commodity-related activity, including trading, and from registering or seeking exemption from registration with the CFTC.

The order finds that Cloud and C & R Financial, Inc., from at least January 2008 to January 2010, solicited more than USD585,000 from at least 37 members of the public to trade off-exchange forex contracts, luring them with false promises of enormous returns through defendants’ forex trading. However, the order finds that the defendants traded only some customer funds and lost the majority of the funds — approximately USD98,000 — trading forex. According to the order, the defendants transferred the remaining money, approximately USD85,000, from the trading accounts into Cloud’s personal bank account.

The order also finds that the defendants misappropriated at least USD280,000 of customer funds for a variety of personal and business expenses, including child support payments, anger management sessions, hundreds of meals, a 1971 Oldsmobile and cash withdrawals of approximately USD148,000.

Additionally, the order finds that the defendants paid purported profits to customers that “must have come from the principal of other existing or subsequent customers.” Thus, the court concluded that the defendants operated a Ponzi scheme.

To conceal their trading losses and misappropriation, the defendants provided customers with false account statements that did not reflect the defendants’ substantial trading losses but, rather, reported rates of return ranging from eight to 259 percent for periods of five to six months.
On March 26, 2010, the Harris County, Texas District Attorney’s Office indicted Cloud with Misapplication of Fiduciary Property, a felony, in Texas District Court (Case No. 125669201010-3(2010)). Cloud pled guilty on 17 March, 2011, and faces sentencing on 20 April, 2011.

The CFTC appreciates the assistance of the Harris County, Texas District Attorney’s Office.
CFTC Division of Enforcement staff responsible for this case are Andrew Ridenour, Patrick Pericak, Jessica Harris, Michael Loconte, Kenneth McCracken, Rick Glaser and Richard Wagner.

 

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