Fraudster fined $33m for biggest US retail foreign exchange scam
By Jeremy Grant in Washington
Published: January 12 2007 02:00 | Last updated: January 12 2007 02:00
A probe into the biggest US retail foreign exchange scam on record wrapped up yesterday with a $33m (â¬26m, £17m) fine for a man who solicited millions of dollars from unsuspecting investors to buy 42 luxury cars, eight homes and extravagant entertainment.
Total fines in the three-year case, which has inv-olved three other co-defendants, previous injunctions and civil penalties, have totalled $150m.
The case highlights the proliferation of fraudulent foreign exchange schemes involving trading of currencies outside the interbank market and involving products offered to ordinary investors.
The retail forex market is largely unregulated but the Commodity Futures Trading Commission, the US futures regulator, has the power to pursue alleged fraud since products frequently involve types of currency futures contracts.
However, fraudsters have been able to escape CFTC action by designing contracts that fall outside many court-defined definitions of a futures contract.
In the latest scam, Oregon native Russell Cline was found guilty by a US district court of fraudulently soliciting $40m from individuals.
Gregory Mocek, the commission's director of enforcement, said the case had involved a massive financial fraud.
"In light of our success in prosecuting retail forex scams over the past four years, we are hopeful that all of those involved in the illegal activity will see that their deceptive business models are becoming less attractive," he said.
Forex scams account for about 28 per cent of the CFTC's case load.
According to a court order, Mr Cline and his company, Orion International, orchestrated a scheme starting in 1998 in which he "fraudulently solicited customers to purchase illegal off-exchange forex options and futures contracts by misrepresenting the profits and risks inv-olved in forex trading".
Mr Cline misappropriated much of the customers' funds to pay for personal expenses and entertainment and to pay others who participated in the scheme to defraud Orion's customers. His purchases included private chartered jets, a river house valued at more than $3m, seven houses worth between $500,000 and $1.5m, and a $500,000 sound system.
As part of the scheme, Mr Cline provided customers with false account statements and directed the posting of false information on Orion's website regarding trading profits, market conditions and opportunities, the balances in individual investors' accounts, and the reasons for delays in paying customers' withdrawals.
Mr Cline has been in jail since May after pleading guilty in 2004 to charges of mail fraud and money laundering to a federal grand jury in Portland. He is serving an eight-year sentence and was ordered to pay restitution of $16m.
Copyright The Financial Times Limited 2007
By Jeremy Grant in Washington
Published: January 12 2007 02:00 | Last updated: January 12 2007 02:00
A probe into the biggest US retail foreign exchange scam on record wrapped up yesterday with a $33m (â¬26m, £17m) fine for a man who solicited millions of dollars from unsuspecting investors to buy 42 luxury cars, eight homes and extravagant entertainment.
Total fines in the three-year case, which has inv-olved three other co-defendants, previous injunctions and civil penalties, have totalled $150m.
The case highlights the proliferation of fraudulent foreign exchange schemes involving trading of currencies outside the interbank market and involving products offered to ordinary investors.
The retail forex market is largely unregulated but the Commodity Futures Trading Commission, the US futures regulator, has the power to pursue alleged fraud since products frequently involve types of currency futures contracts.
However, fraudsters have been able to escape CFTC action by designing contracts that fall outside many court-defined definitions of a futures contract.
In the latest scam, Oregon native Russell Cline was found guilty by a US district court of fraudulently soliciting $40m from individuals.
Gregory Mocek, the commission's director of enforcement, said the case had involved a massive financial fraud.
"In light of our success in prosecuting retail forex scams over the past four years, we are hopeful that all of those involved in the illegal activity will see that their deceptive business models are becoming less attractive," he said.
Forex scams account for about 28 per cent of the CFTC's case load.
According to a court order, Mr Cline and his company, Orion International, orchestrated a scheme starting in 1998 in which he "fraudulently solicited customers to purchase illegal off-exchange forex options and futures contracts by misrepresenting the profits and risks inv-olved in forex trading".
Mr Cline misappropriated much of the customers' funds to pay for personal expenses and entertainment and to pay others who participated in the scheme to defraud Orion's customers. His purchases included private chartered jets, a river house valued at more than $3m, seven houses worth between $500,000 and $1.5m, and a $500,000 sound system.
As part of the scheme, Mr Cline provided customers with false account statements and directed the posting of false information on Orion's website regarding trading profits, market conditions and opportunities, the balances in individual investors' accounts, and the reasons for delays in paying customers' withdrawals.
Mr Cline has been in jail since May after pleading guilty in 2004 to charges of mail fraud and money laundering to a federal grand jury in Portland. He is serving an eight-year sentence and was ordered to pay restitution of $16m.
Copyright The Financial Times Limited 2007