Michael Hudspeth, of Statesville, North Carolina, along with Timothy Bailey of Monroe, NC, and their company PMC Strategy, LLC, are facing charges of fraud in connection with a $669,000 Ponzi scheme, the Commodity Futures Trading Commission (CFTC) announced on February 14, 2011. The scheme, which targeted over 22 individuals, operated from June 2008 until at least November 2010.
The CFTC filed a civil lawsuit on February 9, 2011, in the U.S. District Court for the Western District of North Carolina, alleging that Hudspeth, Bailey, and PMC fraudulently solicited funds from investors for off-exchange foreign currency (forex) trading. According to the complaint, Hudspeth falsely claimed successful forex trading history and misrepresented the risk involved to investors, stating only 2% of funds were at risk and offering a 30-day redemption notice.
The CFTC alleges that the defendants misappropriated $129,000 of customer funds for personal use. Of the $669,000 collected, only $497,000 was deposited into forex trading accounts, resulting in approximately $300,000 in losses. The defendants allegedly used $151,000 of the funds to pay earlier investors, characteristic of a Ponzi scheme, and to enrich themselves. They concealed trading losses by issuing false profit checks to customers, creating the illusion of successful returns.
Since February 2010, the defendants failed to honor customer redemption requests or make promised monthly payments. Judge Graham C. Mullen issued an emergency order on February 9, 2011, freezing the defendants’ assets and preventing the destruction of financial records. A hearing on the CFTC’s motion for a preliminary injunction was scheduled for February 17, 2011.
The CFTC is seeking disgorgement of ill-gotten gains, restitution for defrauded customers, rescission of contracts, civil monetary penalties, and permanent bans from trading and registration, as well as a permanent injunction against further violations of commodities laws.
Source: CFTC.gov
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