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Federal Court Orders California Man to Pay Over $600,000 for Commodity Pool Fraud

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— The Commodity Futures Trading Commission today announced that the U.S. District Court for the Central District of California entered a consent order on June 7 for a permanent injunction, monetary sanctions, and equitable relief against Daniel Hewko of Fort Bragg, California. 

The consent order resolves the CFTC’s claims against Hewko in the CFTC action filed against him, his son, Daniel Adam Hewko, and Main & Prospect Capital, LLC, on November 13, 2019 [See CFTC Press Release No. 8078-19] alleging, among other things, fraud, misappropriation of investor funds, and failing to register with the CFTC as an Associated Person of a Commodity Pool Operator. The CFTC action against Daniel Adam Hewko and Main & Prospect Capital, LLC is ongoing.

The order requires Hewko to pay $500,000 in restitution to victims of the fraudulent scheme and to pay a $107,500 civil monetary penalty. The order also permanently prohibits Hewko from further violations of the Commodity Exchange Act (CEA) and CFTC regulations, as charged, and imposes a permanent registration ban and a 10-year trading ban.

Case Background

The order finds that since at least August 2014, Hewko solicited funds from investors for a pooled investment vehicle marketed to prospective investors as the Global Opportunity Fund (Fund). Hewko transferred more than $1.1 million in investor funds into a futures trading account which was used to trade a limited amount of futures contracts including crude oil and E-mini S&P 500 futures contracts, both of which were traded on designated contract markets. According to the order, from approximately January 2016 through approximately October 2018, Hewko emailed investors account statements for the Fund, which reported investment gains. However, all of the purported investment returns contained in the account statements were false. What little futures trading the Fund did resulted in losses, and proceeds were not invested in any other manner that generated any returns at all for investors.

The order also finds that Hewko made payments of the Fund assets to various entities and individuals who were not entitled to such payments. According to the order, Hewko also made statements to investors about their investments that were not true, including telling investors their withdrawal requests could not be satisfied because the Fund assets were “in a trade” (when, in reality, the Fund assets were not “in a trade” but rather had been dissipated) and telling at least one investor the investor’s funds were not lost or gone, which also was not true.

Further, the order finds that Hewko solicited funds for participation in a commodity pool but failed to register with the CFTC as an Associated Person of a Commodity Pool Operator.

The CFTC cautions that orders requiring repayment of funds to victims may not result in the recovery of any money lost because the wrongdoers may not have sufficient funds or assets. The CFTC will continue to fight vigorously for the protection of customers and to ensure the wrongdoers are held accountable.

The Division of Enforcement staff responsible for this matter are Karin Roth, Michael Cazakoff, R. Stephen Painter, Jr., Lenel Hickson, Jr. and Manal Sultan.  

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CFTC’s Commodity Pool Fraud Advisory

The CFTC has issued several customer protection Fraud Advisories and Articles, including the Commodity Pool Fraud Advisory, which provides information about a type of fraud involving individuals and firms, often unregistered, offering investments in commodity pools.

The CFTC also strongly urges the public to verify a company’s registration with the CFTC before committing funds. If unregistered, a customer should be wary of providing funds to that company. A company’s registration status can be found using NFA BASIC.

Customers and other individuals can report suspicious activities or information, such as possible violations of commodity trading laws, to the Division of Enforcement via a toll-free hotline 866-FON-CFTC (866-366-2382), file a tip or complaint online or contact the CFTC Whistleblower Office. Whistleblowers are eligible to receive between 10 and 30 percent of the monetary sanctions collected paid from the CFTC Customer Protection Fund financed through monetary sanctions paid to the CFTC by violators of the CEA.

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