Waxahachie, Texas – Scott P. Kear, Sr. and his associate Jeffery L. Lyon are facing significant penalties following a federal court order obtained by the U.S. Commodity Futures Trading Commission (CFTC). The order, entered on October 25, 2010, by Judge Barbara M. G. Lynn of the U.S. District Court of the Northern District of Texas, resolves charges of fraud stemming from a scheme to defraud investors.
The CFTC filed its anti-fraud enforcement action in September 2009, alleging that Kear, Sr., Lyon, and the entities they controlled – M25 Investments, Inc. and M37 Investments, LLC – fraudulently solicited approximately $8 million from roughly 213 individuals. The scheme involved the sale of off-exchange leveraged foreign currency (forex), forex options, and commodity futures contracts.
The court order mandates the defendants to jointly and severally pay $7,404,036.56 in restitution to the victims. In addition, M25 and M37 are jointly responsible for a $7.1 million civil monetary penalty. Kear, Sr. must pay a $1.4 million penalty, while Lyon will pay $375,000. The order permanently bars all defendants from engaging in any commodity-related activities and prohibits them from registering with the CFTC.
According to the court findings, from December 2007 to September 2009, the defendants targeted individuals across multiple states including West Virginia, Texas, Mississippi, and Maryland, often focusing on members of their churches. They promised guaranteed monthly interest payments of two percent, totaling 24 percent annually, along with a two percent renewal bonus for reinvested funds.
However, the CFTC found that the majority of the funds collected were not used for trading and that those funds which *were* traded sustained substantial losses. The defendants operated a Ponzi scheme, using funds from new investors to pay earlier investors, falsely presenting these payments as trading profits. They concealed the scheme through fabricated monthly account statements that falsely indicated customers were earning the promised two percent monthly interest.
The litigation against defendant David Seaman was dismissed by separate order. The CFTC acknowledged the assistance of the National Futures Association, the Danish Finanstilsynet, and the U.S. Attorney’s Office for the Northern District of Texas in the investigation.
This case was led by CFTC staff members Timothy M. Kirby, Kevin K. Batteh, Kara Mucha, Gretchen L. Lowe, and Phyllis J. Cela.
Source: CFTC.gov
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