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From Securities Regulation Daily, July 22, 2015

Attorney settles charges of aiding and abetting precious metals fraud for $883,000

By Lene Powell, J.D.

In a significant CFTC “gatekeeper” enforcement action in federal district court, Florida attorney Jay Bruce Grossman has agreed to pay $883,000 in penalties, without admitting or denying the CFTC’s allegations, in connection with aiding and abetting illegal precious metals schemes spearheaded by Hunter Wise Commodities. The CFTC had alleged that Grossman enabled various entities by “crafting the illusion” via false statements in account documents and court filings that the schemes were legitimate, when actually his clients did not purchase or store physical metals for customers as they claimed. In addition to the fines, Grossman agreed not to appear or practice as an attorney before the CFTC unless reinstated (CFTC v. Grossman, July 22, 2015, Bloom, B.)

Background. According to the CFTC, Jay Bruce Grossman is licensed to practice law in Florida, New York, and the District of Columbia, and maintains a law practice in Fort Lauderdale, Florida. Since 2009, Grossman advised multiple entities, including Hunter Wise Commodities, LLC and various intermediaries, that held themselves out as “clearing firms” for networks of telemarketing firms or "dealers" that solicited the retail public to buy precious metals like gold and silver on a financed basis. The dealers typically represented that the customers would receive title to the physical metals and the dealers would store the metals for the customer. The dealers sent the customer funds on to Hunter Wise Commodities or intermediaries, and customers were charged high markups and fees. However, Hunter Wise did not actually buy, sell, loan, store, or transfer any physical metals, and merely managed exposure on the transactions using derivatives in margin trading accounts, said the complaint.

In May 2014, a Florida federal district court found Hunter Wise liable for fraud and ordered the firm to pay a civil monetary penalty of over $55 million and restitution of more than $52 million. According to Judge Donald Middlebrooks, the fraud perpetrated by Hunter Wise and associated individuals was “repeated, callous, and blatant.” Other Grossman clients were also subject to significant fines.

Aiding and abetting. The CFTC said Grossman knew that under the Commodity Exchange Act, after July 16, 2011 retail commodity transactions like those engaged in by his clients must be executed on or subject to the rules of a CFTC-registered board of trade, and that Hunter Wise did not actually sell physical metals to dealers or retail customers, store metals, or disburse loans. The CFTC alleged that Grossman prepared documents, including account agreements and commodity transfer forms, that he knew would deceive customers throughout the lifecycle of their retail commodity transactions. The documents did not disclose to customers that Hunter Wise made book entries instead of buying and storing the physical metals that customers thought they owned.

The CFTC also alleged that Grossman made false statements in his representation of dealers in frequent litigation by defrauded customers. For example, in one motion to dismiss a complaint, Grossman characterized the plaintiff’s purchase as a “purchase of cash gold metal.” Grossman also represented that plaintiffs purchased actual bullion from an intermediary, who in turn purchased it from a counterparty. Grossman said in one court filing that metal associated with the purchases was typically held in a depository for safekeeping and was rarely transferred due to security reasons, costs of transportation, and to avoid the cost of weighing and assaying the metal. However, Grossman knew that Hunter Wise and its dealers held no physical metals, the CFTC said.

Sanctions. The consent order required Grossman to pay a $150,000 civil monetary penalty and restitution of $733,000. Grossman was also enjoined from violating Sections 4(a), 4b, and 6(c)(l) of the Commodity Exchange Act and Regulation 180.1, and was prohibited from practicing or appearing as an attorney before the CFTC unless reinstated by CFTC order.

The case is No. 14-CIV-62061-BLOOM/Valle.

MainStory: TopStory CommodityFutures Enforcement FraudManipulation FloridaNews

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