Fraud costs commodities trader $15.7 million and lifetime ban
It seems like a lifetime ago. But it was only 2015 when the Commodity Futures Trading Commission (CFTC) charged California resident Hannes Tulving, Jr., and his firm with misappropriation and fraudulent solicitation in a precious metals scheme that defrauded at least 381 customers nationwide. It has taken some time, but the CFTC has finally announced that a federal court has imposed a $15.7 million civil penalty and a lifetime trading brand against Tulving and his firm, The Tulving Company, Inc.
According to the CFTC, Judge Robert J. Conrad Jr., of the U.S. District Court for the Western District of North Carolina entered a Supplemental Consent Order (Supplemental Order) against the defendants of Newport Beach, CA. He found that Tulving and the company fraudulently solicited customers in connection with precious metals transactions, misappropriated customer funds, and concealed their fraud with false statements that the customer accounts were profitable.
The Supplemental Order, issued November 29, 2018, requires the defendants to pay a civil monetary penalty of $15,761,432 and follows the Court’s January 5, 2016 Consent Order of Permanent Injunction, which imposed permanent trading and registration bans against the defendants, and prohibited them from committing further violations of the Commodity Exchange Act and CFTC Regulations.
Criminal judgments + fines + lifetime ban
The Court also issued criminal judgments against both defendants in a related criminal proceeding after they each pleaded guilty to one count of wire fraud and aiding and abetting in violation of 18 U.S.C. §1343 and 2. Moreover, Tulving was sentenced to 30 months in prison.
Both the Consent and Supplemental Orders arise from a CFTC enforcement action filed on September 11, 2015, charging the Defendants with fraudulently offering contracts of sale of commodities in interstate commerce, namely, contracts for the sale of gold, silver, platinum, and palladium bullion and coins (precious metals), and misappropriating customer funds for improper and unauthorized uses, including (surprise!) the defendants’ financial benefit.
Making false representations
From approximately August 2013 through January 2014, Tulving marketed the Tulving Company as a large, stable, and highly reputable precious metals firm that delivered actual product to customers. In response to that outreach at least 381 investors from throughout the US submitted orders with Tulving Company to purchase more than $150 million in precious metals.
Of course, the Tulving team did not deliver. They failed to purchase precious metals with at least $15 million of the customers’ funds and, according to the CFTC, they knew that their representations to some of the customers were false because they never bought the product. In fact, the firm misappropriated a portion of customer funds by, among other things in true Ponzi scheme fashion, using customer funds to fulfill other customers’ orders, to pay the company’s debts, and to reimburse money to previous customers who did not receive their coins – all to keep the business going.
The Court further found that Tulving acted as the sole controlling person and agent of Tulving Company. He was the sole shareholder and president of Tulving Company, and he was the sole person responsible for making business decisions on behalf of Tulving Company and controlled the operations of the Company.
Of course, fining a bad actor is no guarantee that victims of the fraud will receive payment, because sufficient funds or assets for repayment may not exist.
The moral of the story: Caveat emptor! However, what if a compliance professional had been able to execute appropriate oversight. It may not have stopped individuals from throwing good money to a bad actor. However, it might have helped spot the exposures sooner. That’s where Patrina comes in. We’ve built our business based on helping organizations (and individuals) stay on the “straight and narrow” efficiently and cost-effectively. So, let’s talk. Call 212-233-1155 to ask about Patrina’s cost-effective, designated third-party services, our comprehensive, 8-module compliance solution, and compliant data capture, file storage, and records archiving specifically designed for the financial services community. Be smart. Be covered.