SEC And CFTC Crack Down On Internet-Based Financial Fraud

TWO US-based regulatory authorities, the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), have recently taken action against financial fraudsters operating on the Internet.

According to a spokesperson for the CFTC, three activities have attracted the attention of its recently formed Internet surveillance group: misrepresenting a legal securities offering; illegally selling securities not listed by an exchange; and offering trading advice despite not being registered with appropriate regulatory organizations.

A final judgement of permanent injunction was entered against William Sellin on August 1. Sellin ran two Florida-based corporations, Zaitech Holdings and Baccaratt Holdings.

Sellin consented to the injunction without admitting or denying the SEC's allegations, which stated that he conducted a fraudulent offering of securities through the Internet and Compuserve.

According to court papers, Sellin solicited investments through at least 43 advertisements in at least 21 Internet newsgroups, offering promissory notes guaranteeing returns of 12 per cent to 22 per cent on US government-backed securities. The SEC charged that Sellin's representations were false and misleading, since the securities advertised were not secured or collateralized with the US government.

"The Internet can act like an electronic boiler room where a promoter like William Sellin can reach out into cyberspace and find investors," comments Charles Senatore, a regional director of the SEC. "It's another means of mass communication to try and drum up interest in a promotion that may be shady," he adds.

Sellin's assets have now been frozen by the SEC and he is awaiting word on whether the Commission will require him to pay any penalty fees.

However, as far as the SEC knows, there is no evidence of investor loss from Sellin's recent government-backed securities scam, says Senatore.

The CFTC took action against two men early last month that the regulatory body viewed as acting in violation of US federal commodity trading laws.

Steven Marks of Florida and Spencer Brown of Texas have been ordered by the CFTC to stop promoting their respective investment services until they register as Commodities Trading Advisors (CTAs), says a CFTC spokesperson.

Both men were discovered by the Internet surveillance division of the CFTC's division of enforcement, formed earlier this year, says the spokesperson.

The CFTC has also set up an area on its Web site, located at http://www.cftc.gov, where the public can inform the commission of any unscrupulous activity on the Internet.

Marks had been posting messages on Usenet chat groups and offering subscriptions to his electronic newsletter, Market Pulse Online.

This newsletter contained market updates and trading recommendations concerning eight categories of commodity futures and options.

Marks had also been providing personalized trading advice to subscribers of his newsletter. But due to previous monetary judgements totalling around $9,000 owed to former clients, Marks is unable to register as a CTA.

According to the CFTC spokesperson, Marks has agreed to make restitution to his former clients as well as refund about $5,000 to people who bought subscriptions to his on-line newsletter.

Brown had been soliciting investors via his Web site to open commodity future trading accounts that would be managed by a computer trading program called Pro Trade.

He had been operating as an unregistered CTA only a few weeks before he was ordered to halt business by the CFTC. The spokesperson says Brown has consented to the CFTC's order.

Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.

To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe

You are currently unable to copy this content. Please contact info@risk.net to find out more.

You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here