The Commodity Futures Trading Commission last week revealed that it had imposed one of the most significant fines ever against an individual in former currency trader Russell Cline.
Mr Cline was ordered to pay defrauded investors more than $33 million, among other reliefs.
Cline and others were sued by the CFTC and the State of Oregon on May 7, 2003, for engaging in fraud in the sale and solicitation of illegal foreign currency (forex) futures contracts and misappropriating customer funds.
According to the order, Cline and his company Orion International, Inc. (Orion) orchestrated a scheme starting in December 1998 in which they fraudulently solicited customers to send funds totaling over $40 million to participate in a purported foreign currency fund. Cline fraudulently solicited customers to purchase illegal off-exchange forex options and futures contracts by misrepresenting the profits and risks involved in forex trading.
Cline misappropriated much of the customers’ funds to pay for personal expenses, including homes, cars, and entertainment, as well as to pay others who participated in the scheme to defraud Orion’s customers.
As part of the scheme, Cline provided customers with false account statements and directed the posting of false information on Orion’s website regarding trading profits, market conditions and opportunities, the balances in individual investor’s accounts, and the reasons for delays in paying customers’ withdrawals.
In addition, Cline used over $13 million in customer funds to pay other customers fictitious profits on their investments. To the extent that Cline used a small portion of customer funds for trading, he sustained net trading losses.
Commenting on the court mandated fine, Gregory Mocek, the CFTC’s Director of Enforcement, stated:
“This was a massive financial fraud. However, in light of our success in prosecuting retail forex scams over the last four years, we are hopeful that all of those involved in the illegal activity will see that their deceptive business models are becoming less attractive. We were fortunate to be able to work with the State of Oregon and the Office of the United States Attorney to implement strong enforcement of federal and state criminal and civil laws. These cooperative enforcement efforts made a significant impact on the ultimate outcome of this case.”
In May 2004, a federal grand jury in Portland issued a criminal indictment against Cline, charging him with 39 counts of mail fraud, wire fraud, and money laundering based on the conduct alleged in the civil action filed by the CFTC and the State of Oregon.
After Cline plead guilty to two counts of mail fraud and one count of money laundering, the court entered judgment on May 8, 2006, sentencing Cline to 97 months in prison and ordering him to pay the aforementioned restitution of $16,567,905. Cline is currently incarcerated and serving his sentence.
Experts have suggested that despite the "symbolic" size of the CFTC fine, there is little likelihood of recovering the illegally obtained funds, as the majority had already been spent by Cline.
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