The U.S. Commodity Futures Trading Commission (CFTC) has announced that it has filed a civil enforcement action in the U.S. District Court for the Southern District of Florida against defendants Omega Knight 2, LLC, its owner and president, Aviv Michael Hen of Great Neck, New York, and Erez Hen of Florida.
The CFTC’s complaint charges the defendants with fraud and engaging in illegal, off-exchange transactions in precious metals. The Complaint also charges Omega Knight with failing to register with the CFTC as a Futures Commission Merchant (FCM), as required, and alleges that Aviv Hen, as controlling person for Omega Knight, is liable for Omega Knight’s violations of the Commodity Exchange Act (CEA).
Specifically, from March 2013 and continuing through at least June 2017, Omega Knight allegedly engaged in a scheme to defraud customers located throughout the United States in connection with precious metals transactions. The complaint alleges that the defendants made numerous false statements to induce customers to enter into leveraged, financed, and fully-paid precious metals transactions, and they received at least $5.5 million from at least 90 customers in connection with these transactions.
According to the complaint, the defendants failed to use all of the customer funds they collected to purchase metal for their customers’ precious metals transactions. Instead, the defendants allegedly misappropriated customer funds to pay personal expenses, to distribute purported “profits” and disbursements to other customers, and to fund Omega Knight’s operations. Through the issuance of false trade confirmations and account statements and other communications to customers, the defendants allegedly concealed their misappropriation and the fraudulent scheme.
Moreover, the complaint alleges that the defendants’ leveraged or financed precious metals transactions constituted illegal, off-exchange retail commodity transactions. Notably, the defendants’ leveraged or financed precious metals transactions never resulted in actual delivery of the full amount of metal purchased to customers, according to the complaint. The complaint also alleges that Omega Knight accepted customer orders and funds in connection with those transactions and therefore acted as an FCM, but failed to register with the CFTC as an FCM, as required.
In its continuing litigation against Omega Knight, Aviv Hen, and Erez Hen, the CFTC seeks disgorgement of ill-gotten gains, civil monetary penalties, restitution, permanent registration and trading bans, and a permanent injunction against further violations of the CEA, as charged.