Aug. 05--Florida-based Southern Trust Metals, Robert Escobio and his British Virgin Islands-based entity Loreley Overseas Corp. are facing civil charges for allegedly operating an illegal precious metals scheme, the U.S. Commodity Futures Trading Commission said today.
The operation is alleged to have collected more than $2.6 million from at least 135 customers.
The CFTC filed a civil enforcement Complaint in the U.S. District Court for the Southern District of Florida against Escobio, of Coral Gables and the two companies he controls.
The CFTC complaint charges that, from at least July 16, 2011 to May 1, 2013, the defendants operated a scheme that defrauded retail customers in connection with illegal, off-exchange, financed precious metals transactions. Customers collectively lost $600,000 of the funds invested with Southern Trust Metals, according to the complaint.
In a separate unlawful scheme, the Defendants, between February 2011 and May 2013, solicited and accepted more than $900,000 from customers for the purchase or sale of commodity futures and options, without registering with the CFTC as a Futures Commission Merchant, according to the complaint.
Southern Trust Metals solicited retail customers to engage in off-exchange leveraged, margined, or financed precious metals transactions. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, these transactions are illegal unless they result in actual delivery of metal within 28 days.
The complaint alleges that metals were never actually delivered in connection with these precious metals transactions. Instead, the complaint alleges, Southern Trust engaged in a series of transactions that ended with over-the-counter derivative trades in margin trading accounts in the name of Loreley with two U.K.-based trading firms.
Additionally, the complaint states, Southern Trust told customers that it was making loans to purchase precious metals in connection with these transactions, but in fact, no loans were made, no metals were purchased, and the transactions were illegal commodity transactions under the Dodd-Frank Act.
In its continuing litigation against Southern Trust, Loreley, and Escobio, the CFTC seeks disgorgement of ill-gotten gains, restitution for the benefit of customers, civil monetary penalties, permanent registration and trading bans, and a permanent injunction from future violations of the Commodity Exchange Act, as charged.
The CFTC thanks the U.K. Financial Conduct Authority for its assistance in this matter.
CFTC Division of Enforcement staff members responsible for this action are Carlin Metzger, Heather Johnson, Joseph Konizeski, Scott Williamson, and Rosemary Hollinger.
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