U.S. District Court for the Southern District of Texas has issued a permanent injunction against Texas resident Richard Hale and Texas-based Allegheny Gulf Investments Inc. that prohibits them from, among other things, controlling or directing any commodity futures or options trading accounts. The defendants also were ordered to pay a $440,000 fine for violations related to trading natural gas futures.
In September 2003, the Commodity Futures Trading Commission (CFTC) filed a complaint against the Corpus Christi, TX-based Allegheny Gulf and Hale, charging them with misappropriating customers’ funds to cover $2 million in natural gas futures trading losses (see Daily GPI, Oct. 8, 2003).
The court order was issued Dec. 17, 2004 by Judge Sim Lake, and represented a final judgment against the defendants following CFTC’s 2003 complaint. The order specifically found, among other things, that between approximately November 1998 and January 1999, Allegheny, through Hale, entered into three separate joint venture trading agreements with three individuals for the purpose of trading natural gas futures and options on futures contracts.
According to the findings in the order, the defendants then opened three separate joint trading accounts at Refco Inc. (Refco) to trade under the three joint trading agreements. The order found that the three accounts were opened in the name of Allegheny and established as sub-accounts of a master account also held in the name of Allegheny. The order further found that Hale directed the trading in all four trading accounts.
According to the order, around January 1999 the defendants instructed Refco to cross-margin the sub-accounts with Allegheny’s master account, but failed to inform the three customers that their sub-accounts were cross-margined with Allegheny’s master account.
By November 1999, said the order, Hale had traded the Allegheny master account into a deficit of approximately $2 million. According to the order, funds from two customer sub-accounts were transferred to the Allegheny master account to cover those losses, resulting in customer losses of $1 million for those two customers. The court found that these actions constituted fraud and misappropriation in violation of the Commodity Exchange Act.
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