CFTC CHARGES 3 COMPANIES, ONE INDIVIDUAL IN MULTI-MILLION DOLLAR PRECIOUS METALS FRAUD SCHEME

FROM:  COMMODITY FUTURES TRADING COMMISSION 
September 30, 2013

CFTC Charges Lions Wealth Holdings, Inc., Lions Wealth Services, Inc., 20/20 Precious Metals, Inc. and Bharat Adatia in Multi-Million Dollar Fraudulent Precious Metals Scheme

CFTC alleges that Defendants, who took in more than $2.4 million during the past two years, defrauded customers in connection with precious metals transactions and engaged in illegal off-exchange commodity transactions

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today filed an injunctive enforcement action in the U.S. District Court for the District of Nevada against three Nevada corporations: Lions Wealth Holdings, Inc. and Lions Wealth Services, Inc., both doing business as Lions Wealth Capital (collectively Lions Wealth), and 20/20 Precious Metals, Inc. (20/20 Metals), and their principal Bharat Adatia of San Juan Capistrano, California. The CFTC Complaint charges that the three companies and Adatia took in more than $2.4 million in customer funds between July 2011 and February 2013, while fraudulently marketing illegal, off-exchange trading of precious metals on a leveraged, margined or financed basis.

According to the CFTC Complaint, Defendants falsely claimed to sell gold, silver, platinum, and palladium to retail customers in retail commodity transactions. The Complaint further alleges that the Defendants offered to arrange for loans to customers to purchase physical metals and the storage and transfer of customers’ physical metals to an independent depository. The Complaint further alleges that these statements were false, in that the Defendants did not sell or transfer ownership of any physical metals, did not disburse funds as loans, and did not cause any metals to be stored in any depositories for or on behalf of Lions Wealth and 20/20 Metals customers. Rather, the Complaint states that Defendants forwarded customer funds to a third-party, Hunter Wise Commodities, LLC and its various subsidiaries and related entities, which also did not purchase or hold metals in the customers’ names. The Complaint alleges that Defendants nevertheless charged customers storage fees and other charges on metals that did not exist and interest on loans that were never made.

The Complaint alleges that these financed precious metals sales were made illegal by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) of 2010, which took effect on July 16, 2011. According to the CFTC Complaint, Lions Wealth and 20/20 Metals collectively took in $2,474,207 in customer funds between July 16, 2011 and February 22, 2013. During that same time, at least 44 Lions Wealth retail customers collectively incurred at least $1,807,712 in trading losses, commissions, interest charges and other fees, and at least 30 20/20 Metals retail customers collectively incurred at least $570,266 in trading losses, commissions, interest charges and other fees, according to the Complaint.

The CFTC sued Hunter Wise in the U.S. District Court for the Southern District of Florida on December 5, 2012, charging it with engaging in illegal, off-exchange precious metals transactions, as well as fraud and other violations (see CFTC Press Release 6447-12).  On February 25, 2013, the U.S. District Court issued a preliminary injunction against Hunter Wise, froze the firm’s assets, and appointed a corporate monitor to assume control over those assets (see CFTC Press Release 6522-13). The CFTC also has brought actions against other purported precious metals dealers that solicited and introduced customer accounts to Hunter Wise. (See CFTC Press Releases 6680-13 and 6653-13).

CFTC Division of Enforcement staff responsible for this action are Elizabeth N. Pendleton, Melissa Glasbrenner, William P. Janulis, Scott Williamson, and Rosemary Hollinger.

CFTC’s Precious Metals Fraud Advisory

In January 2012, the CFTC issued a Precious Metals Consumer Fraud Advisory to alert customers to precious metals fraud. The Advisory states that the CFTC had seen an increase in the number of companies offering customers the opportunity to buy or invest in precious metals. The CFTC’s Advisory specifically warns that companies often fail to purchase any physical metals for their customers, instead simply keeping the customer’s funds. The Advisory further cautions consumers that leveraged commodity transactions are unlawful unless executed on a regulated exchange.