The US Commodity Futures Trading Commission (CFTC) has filed an enforcement action charging Gary Futch and his son, Bradley A Futch and their firm Tradewind Investments, LLC (Tradewind), with commodity options fraud. Tradewind was registered as a Commodity Trading Advisor from February 2008 through June 2009.
According to the CFTC’s complaint, filed in the US District Court for the Southern District of Mississippi on 29 November, 2011, from early 2007 through October 2008, Tradewind took in approximately USD5.6 million from about 25 clients, mostly family, friends, or acquaintances of the Futches. Tradewind offered a trading program focused on selling option spreads. During their client solicitations, the Futches allegedly made a series of fraudulent misrepresentations including 1) misrepresenting their respective roles with Tradewind, 2) promising that Tradewind would never leave its clients’ option spreads “naked,” i.e., without protective positions in place, 3) promising that no more than 25 percent of a client’s funds would be at risk with any given trade, and 4) claiming that Tradewind’s strategy ensured that clients would never receive margin calls. The Futches allegedly knew that these misrepresentations were false when they made them, and these misrepresentations were intended to, and did, mislead Tradewind’s clients about the risks inherent in selling options.
In fact, according to the complaint, Tradewind’s strategy failed on a particularly volatile market day on 10 October, 2008, resulting in complete losses for all of Tradewind’s clients, plus additional margin calls. Losses allegedly totalled over USD5.6 million. Tradewind ceased operations shortly thereafter, and the Futches each filed for bankruptcy, according to the complaint.
In its continuing litigation against the defendants, the CFTC seeks disgorgement of ill-gotten gains, restitution to defrauded customers, civil monetary penalties, permanent trading and registration bans, and permanent injunctions against further violations of federal commodities law.
