Federal Court in North Carolina Orders James A. Shepherd and His Company, James A. Shepherd Inc., to Pay More than $15 Million in a Monetary Penalty and Restitution for Commodity Pool Fraud
In a Related Criminal Action, Shepherd Pled Guilty to Fraud and Was Sentenced to 84 Months in Prison
Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that Judge Robert J. Conrad, Jr. of the U.S. District Court for the Western District of North Carolina entered a Final Judgment and Consent Order (Order) against Defendants James A. Shepherd and his company, James A. Shepherd Inc. (JAS Inc.), requiring them to pay, jointly and severally, a $7 million civil monetary penalty and $8,060,810.43 in restitution to defrauded commodity pool participants. The Court’s Order also permanently prohibits Shepherd and JAS Inc. from further violations of the Commodity Exchange Act (CEA) and CFTC Regulations, as charged, and imposes permanent trading and registration bans on them. According to the Order, Shepherd formerly resided in Vass, North Carolina, and JAS Inc. is a Delaware corporation with a principal place of business in Southern Pines, North Carolina.
The Court’s Order arises from a CFTC enforcement action filed against Shepherd and JAS Inc. on June 17, 2013 (see CFTC Complaint and Press Release 6610-13). The CFTC charged them with commodity pool fraud by fraudulently soliciting approximately $10 million from approximately 176 investors and misappropriating and commingling at least $4.45 million of the pool’s funds.
In the Order, the Defendants admit to all of the findings made in the Order and all of the allegations in the CFTC Complaint. The Order finds that the Defendants violated anti-fraud provisions of the CEA, misappropriated pool participants’ funds, and falsely misrepresented the pool’s assets to the National Futures Association (NFA). According to the Order, beginning in April 2006 and through June 2013, the Defendants misappropriated and commingled at least $4.45 million of pool participants’ funds by transferring pool participants’ funds to 1) Shepherd’s own bank account, for his personal use and to repay business obligations unrelated to the pool, 2) futures and options trading accounts maintained in Shepherd’s own name, which suffered significant trading losses, and 3) a bank account in the name of a separate hedge fund operated by Shepherd, which he used to pay redemptions to those hedge fund investors.
False Monthly Statements to Pool Participants and the NFA
The Order further finds that the Defendants concealed their fraud, comingling, and misappropriation by issuing false monthly statement to pool participants, including distributing to pool participants periodic statements and annual certified financial statements that falsely represented the net asset value (NAV) of the pool. The Defendants knew that their representations about the NAV were fraudulent when they were made, the Order finds.
The Court’s Order further finds that the Defendants further concealed the fraud by forging bank statements and bank confirmations and making false statements to the pool’s outside auditor and the NFA during the course of their respective audits. Defendants knew the year-end certified financial statements they filed with the NFA and mailed to pool participants were false when they were made, according to the Order.
Related Criminal Action
In a related criminal case, on July 11, 2013, Shepherd pled guilty to securities fraud based on the same conduct on which the CFTC action was based (see United States of America v. James Alexander Shepherd, 3:13-cr-00167-RJC). On February 11, 2015, Shepherd was sentenced to 84 months in prison and ordered to pay $8,409,279.43 in criminal restitution. In the CFTC’s Order, the Defendants will receive a dollar-for-dollar credit for any payments of criminal restitution that Shepherd makes.
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 CFTC thanks the U.S. Attorney’s Office for the Western District of North Carolina, the Federal Bureau of Investigation, and the National Futures Association for their assistance.
CFTC Division of Enforcement staff members responsible for this case are Elizabeth C. Brennan, Patryk J. Chudy, David Acevedo, Lenel Hickson, Jr., and Manal M. Sultan.
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CFTC’s Commodity Pool Fraud Advisory
The CFTC has issued several customer protection Fraud Advisories that provide the warning signs of fraud, including the Commodity Pool Fraud Advisory, which warns customers about a type of fraud that involves individuals and firms, often unregistered, offering investments in commodity pools.
Customers can report suspicious activities or information, such as possible violations of commodity trading laws, to the CFTC Division of Enforcement via a Toll-Free Hotline 866-FON-CFTC (866-366-2382) or file a tip or complaint online.
Last Updated: September 12, 2016