James A. Shepherd and his company, James A. Shepherd Inc. (JAS Inc.), have been ordered to pay $7 million in penalties and $8,060,810.43 in restitution following a judgment entered by Judge Robert J. Conrad, Jr. of the U.S. District Court for the Western District of North Carolina. The judgment, issued on September 12, 2016, also permanently bans Shepherd and JAS Inc. from violating the Commodity Exchange Act (CEA) and CFTC Regulations, and prohibits them from future trading and registration activities.
The CFTC initially filed an enforcement action against Shepherd and JAS Inc. on June 17, 2013, alleging commodity pool fraud. The agency accused the defendants of fraudulently soliciting approximately $10 million from roughly 176 investors and misappropriating at least $4.45 million of those funds.
According to the court order, Shepherd, formerly of Vass, North Carolina, and JAS Inc., a Delaware corporation based in Southern Pines, North Carolina, admitted to all findings and allegations outlined in the CFTC complaint. The defendants were found to have violated anti-fraud provisions of the CEA by misappropriating funds and providing false representations to the National Futures Association (NFA) regarding the pool’s assets.
Between April 2006 and June 2013, Shepherd and JAS Inc. allegedly transferred pool participant funds to Shepherd’s personal bank account for personal use and to cover unrelated business debts. Funds were also diverted to futures and options trading accounts held in Shepherd’s name, resulting in substantial trading losses, and to a separate hedge fund operated by Shepherd, used to fulfill redemption requests from its investors.
The defendants concealed their actions by issuing false monthly statements to pool participants and the NFA, falsely inflating the net asset value (NAV) of the pool. They allegedly forged bank statements and confirmations, and made false statements to the pool’s auditor and the NFA during audits.
This case is related to a criminal action where Shepherd pleaded guilty to securities fraud on July 11, 2013, stemming from the same conduct. He was sentenced to 84 months in prison on February 11, 2015, and ordered to pay $8,409,279.43 in criminal restitution.
Source: CFTC.gov
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