The CFTC obtained judgment against defendants operating Ponzi scheme

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The U.S. Commodity Futures Trading Commission (CFTC) obtained more than $16.2 million in restitution and civil monetary penalties in a federal court order against defendants Scott P. Kear, Sr., Jeffery L. Lyon and entities controlled by them, M25 Investments, Inc. (M25) and M37 Investments, LLC (M37).   All defendants are based in Waxahachie, Texas.    The order was entered on October 25, 2010, by Judge Barbara M. G. Lynn of the U.S. District Court of the Northern District of Texas.   

In summary, in September 2009 the CFTC filed an anti-fraud enforcement action that charged the defendants with fraudulently soliciting approximately $8 million from approximately 213 individuals to trade off-exchange leveraged foreign currency (forex), forex options and commodity futures contracts.

The CFTC argued that from December 2007 to September 2009, the defendants and their representatives fraudulently solicited individuals in West Virginia, Texas, Mississippi, Maryland and other states to trade forex and forex options.  

According to the order, the defendants often targeted elderly individuals through their churches promising guaranteed interest payments on investments of 2 percent monthly and 24 percent annually, as well as an additional 2 percent renewal bonus if customers reinvested.

The defendants also represented to customers that their returns would come from profitable trading.  Instead, the majority of customers’ funds were not used for trading, and funds that actually were traded sustained significant losses.

The few funds paid to customers by M25 and M37 were funds received from other customers and were not trading profits.   The defendants concealed their fraud by issuing monthly account statements that falsely assured customers that they were earning 2 percent monthly interest.  Therefore, the CFTC order finds that M25 and M37 operated a Ponzi scheme.

The CFTC ordered the defendants jointly and severally to pay $7,404,036.56 in restitution.  The order also requires M25 and M37 jointly and severally to pay a $7.1 million civil monetary penalty and Kear and Lyon to pay civil monetary penalties of $1.4 million and $375,000, respectively.  The order permanently prohibits the defendants from engaging in any commodity-related activity and from registering with the CFTC in any capacity.

Anna Timone (195 Posts)


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