CFTC fines Cypress Wealth Management Group $530,000 for off-exchange transaction involving retail traders

The U.S. Commodity Futures Trading Commission (CFTC) has filed an Order instituting proceedings and settling charges against Cypress Wealth Management, Inc. and its former owners and operators, Ted L. Romeo of Pompano Beach, Florida, and Richard D. Schrutt of Tampa, Florida. The CFTC Order charged illegally offering off-exchange financed transactions in precious metals to retail customers and failing to register with the CFTC as a Futures Commission Merchant (FCM), as required.

The CFTC Order requires the respondents jointly to pay restitution of $330,764 to their customers plus a $100,000 civil monetary penalty. Ted Romeo is ordered to pay an additional $100,000 civil monetary penalty. The Order also requires the respondents to cease and desist from further violations of the Commodity Exchange Act, as charged, and prohibits them from trading on or pursuant to the rules of any registered entity.

The Illegal Transactions

CFTC buildingSpecifically, the CFTC Order finds that, from in or about January 2012 to at least March 2013, the respondents solicited retail customers to buy and sell physical precious metals in off-exchange, leveraged transactions. According to the Order, customers paid a percentage of the purchase price for the metals and received financing for the remainder of the purchase price, while paying commissions and fees on the transactions.

Off-exchange transactions with retail customers are illegal under the Dodd-Frank Act. As explained in the Order, financed transactions in commodities with retail customers like those engaged in by the respondents must be executed on, or subject to, the rules of a board of trade that has been designated by the CFTC as a contract market. Since the respondents’ transactions were done off-exchange with customers who were not eligible contract participants or eligible commercial entities, the transactions were illegal, the Order finds.

Failure to Register

The Order also states that it is unlawful for any person to act as an FCM, unless such person is registered with the CFTC as an FCM and such registration has not expired or been suspended or revoked. Cypress acted as an FCM by soliciting and accepting customers’ orders for financed precious metals transactions and, in connection with those transactions, accepting funds from those customers, including customers who were not eligible contract participants or eligible commercial entities. As such, Cypress acted as an unregistered FCM. Romeo and Schrutt are also liable for Cypress’s failure to register because they were controlling persons of the company.

The CFTC cautions victims that restitution orders may not result in the recovery of money lost because the wrongdoers may not have sufficient funds or assets. The CFTC will continue to fight vigorously for the protection of customers and to ensure the wrongdoers are held accountable.

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