WASHINGTON (HedgeWorld.com)–The Commodity Futures Trading Commission settled a lawsuit over an unregistered commodity pool and the misappropriation of its funds, with defendants Paulino Rene Dias Jr. and Victor Smith, both California residents, and Krute Corp., Woodland Hills, Calif. The CFTC initiated this action in April 2003.
Mr. Dias was an associated person of various introducing brokers intermittently between 1993 and October 2002, when the National Futures Association suspended his AP registration for lying, and for failing to cooperate with the NFA’s investigation of Krute.
The CFTC alleged that beginning in or around November 2001, Krute, a Nevada corporation that was under Mr. Dias’ control and that employed Mr. Smith, solicited money for a commodity pool that would trade commodity futures contracts and options thereon.
According to Krute’s agreement with its pool participants, it was entitled to 25% of profits generated from its investments, as well as 0.25% of assets for management and accounting services. There is no evidence that Krute ever earned a profit on investments. Nonetheless, during the course of the pool’s operation, Krute and the individual defendants directed a substantial portion of the pool’s assets to pay business expenses, such as employee salaries and rent, as well as personal expenses, such as seven months’ rent on Mr. Dias’ apartment.
Furthermore, beginning January 2002, defendants withdrew approximately US$70,000 in cash, transferred more than US$150,000 to another corporate entity under their control–Iceland Management Systems, Inc., Thousand Oaks, Calif., paid themselves approximately US$180,000 and transferred approximately $66,000 to former non-Krute employees.
The consent order settling this litigation, filed with the U.S. district court, central district of California, imposes US$240,000 in civil penalties, orders customer restitution of US$1.95 million and enjoins the defendants from ever again trading commodity futures or options or controlling or directing any commodities accounts or applying for registration for such activity.
In entering into this consent order, the defendants neither admitted nor denied the allegations of the complaint or the findings of fact in the consent order.
Contact Bob Keane with questions or comments at: email@example.com.