The CFTC recently filed a six-count complaint in the U.S. District Court for the Eastern District of California charging four individuals and four entities with operating a $14.5 million binary options and retail foreign currency Ponzi scheme. The agency charged California-based defendants John D. Black and his affiliated entities Financial Tree (d/b/a Financial Tree Trust), Financial Solution Group (d/b/a Financial Solution Group Trust), and New Money Advisors, LLC, as well as his associates Christopher Mancuso and Joseph Tufo. The CFTC also charged Colorado-based defendants John P. Glenn and his law firm, The Law Firm of John Glenn, P.C. for playing a pivotal role in the scheme. Additionally, the defendants were charged with violating various registration requirements and disclosure rules. Furthermore, the complaint named seven relief defendants who received funds from the fraudulent operation for which they had no lawful entitlement (CFTC v. Financial Tree d/b/a Financial Tree Trust, June 15, 2020).
A vast Ponzi scheme in action. According to the complaint, Between June 15, 2015 and the present, the defendants fraudulently solicited approximately $14.5 million from at least 91 members of the public, including pooled investments in binary options and forex. Pool participants were solicited to trade binary options and forex in two commodity pools, the Financial Tree Pool and the Financial Solution Group Pool. At least 53 U.S. residents deposited over $6 million in this scheme, and at least an additional 38 non-U.S. residents deposited over $8 million in these vehicles.
The defendants traded only a small portion of funds in binary options or forex. Instead, the defendants misappropriated the vast majority of those funds by tapping into over $11 million to make payments to certain pool participants in a style consistent with a Ponzi scheme, as well as for personal use, such as travel, home renovations, limousine expenses, spa and haircare expenses, online gambling, and expenses relating to divorce and spousal support.
Pernicious misrepresentations. In furtherance of the scheme, the defendants issued false account statements and lulled pool participants with material misrepresentations and omissions which included the following:
- pool funds would be held in a fiduciary-protected, separate bank account and used to establish lines of credit to trade binary options and/or forex on pool participants’ behalf, which would yield 10-70 percent monthly returns;
- 85 percent of defendants’ trades were successful; and,
- defendants’ trading of pool funds was overseen by a respected accounting firm.
Colorado attorney engaged to further deceive prospective pool investors. In its complaint, the CFTC alleged that in August 2014, Black, on behalf of Financial Tree, and Glenn, on behalf of Glenn Law Firm, executed a "Paymaster Agreement" which provided that the Glenn Law Firm would accept funds from third parties and disburse the funds to Financial Tree in exchange for a fee. The CFTC asserted there was no legitimate business reason for pool participants to wire funds to the Glenn Law Firm, and for the Glenn Law Firm to then wire funds to Financial Tree (less his fee), as pool participants could have just as easily wired money directly to Financial Tree.
Instead, the CFTC alleged that Black engaged the Glenn Law Firm, and Glenn used his position as an attorney and Managing Partner of the Glenn Law Firm, to deceive prospective Pool Participants into believing the pools were legitimate and safe. The agency further noted that defendant Mancuso communicated to a prospective client that his money would be safe because "you’re not paying us, you’re paying an attorney."
Court freezes assets. On July 2, 2020, the court entered a restraining order freezing the defendants’ and the relief defendants’ assets, and permitted the CFTC to inspect all the defendants’ and the relief defendants’ relevant records.
DOE Director comments. CFTC Director of Enforcement James McDonald stated, "This action is among the latest examples of the CFTC’s efforts to aggressively root out fraud and bad actors involved in our markets." He added, "Where necessary and appropriate—and even during a global pandemic—the Commission will move swiftly to preserve assets for potential victims, including through statutory restraining orders that freeze assets that could be used later to compensate victims."
Relief sought. In its continuing litigation against the defendants, the CFTC seeks disgorgement of ill-gotten gains, civil monetary penalties, restitution, permanent registration and trading bans, and a permanent injunction against further violations of the Commodity Exchange Act and CFTC regulations, as charged.
The case is No. 20-cv-1184 TLN AC.