SEC alleges investment fraud scheme
MIAMI (Legal Newsline) - An attorney and two other South Florida residents were charged Wednesday by the Securities and Exchange Commission with operating a $27.5 million investment fraud scheme.
Investors thought they bought securities consisting of "pre-sold" commodities contracts with a pre-determined profit, but the profits came from other investors, the SEC said.
The companies involved, Commodities Online LLC and Commodities Online Management LLC, were shut down last year and had their assets froze. The SEC filed charges against the founder and former company president, James C. Howard III, as well as vice president Louis N. Gallo III and outside counsel Michael R. Casey. The U.S. Attorney also filed criminal charges against the trio.
According to the SEC's complaint, Commodities Online offered investors the chance to participate in its brokering of commodities via pre-sold contracts - like large amounts of iron ore. Investors were sold participation units in unregistered offerings and that Commodities Online had already secured a buyer and a seller of the commodity, the SEC said.
But Commodities Online performed only a limited percentage of the commodities transactions that were promised to investors, said the SEC. The majority of "profits" allocated or distributed to investors were not from completed commodities transactions, but instead taken from other investors, the SEC said.
Meanwhile, according to the SEC complaint, Howard and Gallo were dissipating millions of dollars in investor funds to sham companies. Through these companies, Howard and Gallo allegedly stole investor funds for their own use.
The SEC is seeking disgorgement, financial penalties and permanent injunctions against Howard, Gallo, and Casey.