CPA Involved in $58 Million Forex Fraud Scheme Faces Court Order

The U.S. Commodity Futures Trading Commission (CFTC) announced that a federal court in Miami has issued a preliminary injunction order against Timothy F. Stubbs, a certified public accountant (CPA) who allegedly participated in a fraudulent foreign currency (forex) scheme that misappropriated at least $58 million from customers.

The CFTC’s Allegations Against Stubbs

According to the CFTC’s complaint, filed in January 2022, Stubbs was one of five individuals and five companies that operated a common enterprise under the name, which solicited and received funds from U.S. and international customers for purported forex trading. The complaint alleged that the defendants made false and misleading representations to customers about the profitability, risk, and security of their investments, and failed to register with the CFTC as required by law. The complaint also alleged that the defendants misappropriated customer funds for their own personal use and benefit, and concealed their fraud by issuing false account statements and tax documents to customers.

CPA Involved in $58 Million Forex Fraud Scheme Faces Court Order
CPA Involved in $58 Million Forex Fraud Scheme Faces Court Order

The CFTC sought restitution to defrauded customers, disgorgement of ill-gotten gains, civil monetary penalties, permanent registration and trading bans, and permanent injunctions against further violations of the Commodity Exchange Act (CEA) and CFTC regulations.

The Court’s Findings and Order Against Stubbs

On September 22, 2023, Judge Darrin P. Gayles of the U.S. District Court for the Southern District of Florida entered a preliminary injunction order against Stubbs, finding that the CFTC demonstrated a reasonable likelihood that Stubbs will continue to violate the CEA. The court also found volumes of evidence pointing to Stubbs’ involvement in the common enterprise, noting that “as Stubbs is a CPA, it is reasonable to conclude that he either knew about the Fraudulent Enterprise or stuck his head in the sand to manufacture plausible deniability.”

The court’s order prohibits Stubbs from engaging in fraud in violation of the CEA, freezes Stubbs’ assets, and requires him to preserve books and records and return funds misappropriated from customers. The order also requires him to provide the CFTC with immediate access to his books and records.

“The CFTC is gratified the court considered the voluminous evidence the Division of Enforcement presented and found the injunction was warranted,” said Director of Enforcement Ian McGinley. “The CFTC will continue to pursue alleged participants in fraudulent schemes regardless of their denials or attempts to hide their involvement in a scheme.”

The SEC’s Parallel Action Against Archegos

The CFTC’s action against Stubbs is part of a larger civil enforcement case against Archegos Capital Management LP and its CFO, who were also charged by the CFTC with fraud, misappropriation, and registration violations in connection with the same forex scheme. Archegos was a family office hedge fund that collapsed in March 2021 after failing to meet margin calls from its prime brokers, resulting in billions of dollars in losses for its counterparties.

The Securities and Exchange Commission (SEC) filed a parallel action against Archegos and its CFO in April 2022, claiming exclusive jurisdiction over the total return swaps (TRS) on exchange-traded funds (ETFs) and custom baskets that were used by Archegos to gain synthetic exposure to various securities. The SEC alleged that Archegos violated federal securities laws by failing to report its TRS positions as beneficial ownership of the underlying securities, and by engaging in insider trading and market manipulation.

The CFTC and the SEC filed amicus briefs in support of their respective positions on jurisdiction over the TRSs at issue, which rekindled historical disputes between the two agencies over the regulation of various financial products. The court dismissed the CFTC’s action against Archegos and its CFO with prejudice on September 19, 2023, finding that the TRSs at issue were security-based swaps under the exclusive jurisdiction of the SEC.

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