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Texan Steven Lyn Scott charged with solicitation, fraud, misappropriation of client funds and registration violations
The U.S. Commodity Futures Trading Commission (CFTC) has today reported that it filed an enforcement action March 19, 2014 against Defendant Steven Lyn Scott, who is also known as Stevon Lyn Scott, of Dallas, Texas, charging him with solicitation fraud, misappropriation of customer funds, and registration violations in connection with operating a fraudulent commodity pool scheme.
According to the CFTC Complaint, from at least January 5, 2009 and through at least March 30, 2011, Mr. Scott fraudulently solicited at least $1,146,000 from at least 43 pool participants to participate in pooled investment vehicles to trade in off-exchange agreements, contracts, or transactions in foreign currency (forex) on a leveraged or margined basis. Scott, directly and by word of mouth, allegedly solicited pool participants located in Texas and solicited at least some pool participants by email. Pool participants allegedly included Mr. Scott’s friends, family members, and other members of the general public.
Specifically, according to the complaint, Mr. Scott solicited pool participants to participate in pooled investment vehicles in the name of an entity he owned and controlled, Stewardship Financial Exchange, Inc. In his solicitations, Scott allegedly guaranteed monthly returns between two percent and five percent to pool participants who entered into six-month contracts, purportedly generating such returns by pooling participants’ funds and trading in off-exchange forex transactions on a leveraged or margined basis.
However, instead of trading pool participants’ funds, Mr. Scott initially directly misappropriated 50 percent of pool participants’ funds by depositing their funds into his personal and corporate bank accounts, and then using the funds for personal expenses, the Complaint alleges. Scott then subsequently misappropriated the remaining funds throughout the relevant period by trading them in his personal trading accounts.
In soliciting actual and prospective customers, the CFTC asserts that Mr. Scott allegedly omitted material facts
Examples of such matters include allegations that he failed to trade pool participants’ funds as promised, and that he misappropriated pool participants’ funds.
In addition, the CFTC reports that he did not generate the monthly “profits” guaranteed to pool participants, and that he was acting as a Commodity Pool Operator without being registered as such, as required by the Commodity Exchange Act and CFTC Regulations, among other citations. Mr. Scott’s omissions were material and operated as a fraud or deceit upon pool participates, according to the Complaint.
In its continuing litigation against Scott, the CFTC seeks civil monetary penalties, restitution, disgorgement of ill-gotten gains, trading and registration bans, and a permanent injunction against further violations of the federal commodities laws.
North American authorities are well renowned for stringent customer protection laws, with the CFTC having completed a number of enforcements recently, as well as preparing to hold a round table on April 3 in order to clarify further matters regarding OTC derivative trading in relation to the Dodd-Frank Act.