(HedgeCo.Net) The U.S. Commodity Futures Trading Commission has announced that it filed a civil enforcement action in the U.S. District Court for the Central District of California charging Main & Prospect Capital, LLC and two California men—the firm’s president, Daniel Adam Hewko (Adam Hewko), and his father, Daniel Hewko—with fraud. The complaint also alleges that the defendants violated CFTC registration requirements and various commodity pool operator requirements.
The complaint alleges that since at least August 2014, the defendants have received more than $2.3 million from at least 19 investors for the purpose of investing in a pooled investment vehicle operated by Main & Prospect Capital and marketed to prospective investors as the Global Opportunity Fund. According to the complaint, Main & Prospect Capital solicited, received, or accepted investor funds for the purpose of trading futures contracts, deposited more than $1.1 million of the fund’s assets into a futures trading account, and traded a limited number of futures contracts.
As alleged in the complaint, the defendants falsely told investors that the fund would trade various financial instruments, including stocks, commodities, and foreign currency. Instead, the defendants allegedly dissipated and misappropriated fund assets for the benefit of themselves and others. The complaint further alleges that Adam Hewko caused account statements to be created that falsely claimed the fund had been profitable, and Daniel Hewko emailed those statements to fund investors.
The complaint alleges that, when investors tried to withdraw their funds, Daniel Hewko sought to cover up the defendants’ wrongdoing by falsely telling investors they could not withdraw money because fund assets were, in his words, in a “trade,” or because of the CFTC’s investigation into the defendants’ conduct. Daniel Hewko also continued to falsely tell investors that their investments had been profitable.
The complaint further alleges that Main & Prospect Capital violated Commission regulations by failing to operate its commodity pool as a separate legal entity and register with the CFTC as a commodity pool operator. Finally, the complaint alleges Adam and Daniel Hewko both failed to register with the CFTC as associated persons of Main & Prospect Capital, as required by Commission regulations.
In its continuing litigation, the CFTC seeks full restitution to defrauded investors, disgorgement of any ill-gotten gains, civil monetary penalties, permanent registration and trading bans, and a permanent injunction against further violations of the Commodity Exchange Act, as charged.