The Commodity Futures Trading Commission filed a federal complaint Tuesday against two men and their Michigan-based investment company for allegedly operating a $1 million commodity trading fraud that affected approximately 33 investors. The complaint was filed in the U.S. District Court for the Eastern District of Michigan against Brian Mitchell of Michigan, Kevin Mack Jr. of Maryland, and their company Young Pros Investment Group LLC.
According to the complaint, from December 2020 through May 2022, Mitchell and Mack fraudulently solicited and received funds from pool participants to trade commodity futures through YPIG. The CFTC alleges the defendants made material misrepresentations about Mitchell's trading success, provided false guarantees of profit and protections against loss, and failed to disclose the significant risks involved in futures trading.
The complaint details how the defendants allegedly incurred losses in most months they traded on behalf of the pool participants. To conceal these substantial losses, the CFTC alleges Mitchell and Mack issued false account statements to investors and operated a Ponzi-style scheme by using funds from new participants to make payments to earlier participants, creating the illusion of profitable trading.
The charges include multiple registration violations under the Commodity Exchange Act. The defendants allegedly failed to register the commodity pool with the CFTC, failed to register Mitchell and Mack as associated persons of the pool, and failed to operate the pool as a separate legal entity. Additionally, the complaint alleges the defendants commingled pool participants' funds with their own personal funds, violating CFTC regulations designed to protect investor assets.
Mitchell faces additional charges for violating a prior CFTC administrative order issued against him in 2021. That order prohibited Mitchell from directly or indirectly trading on any CFTC-registered entity and from engaging in any activities requiring CFTC registration for three years. The order was issued after Mitchell was found to have failed to register as a commodity trading advisor while providing commodity trading advice to more than 15 people.
Despite the 2021 prohibition, the current complaint alleges that from September 2021 through at least May 2022, Mitchell continued to solicit funds to trade commodity interests and directed trading activities for the pool. This alleged conduct represents a direct violation of the administrative order and demonstrates a pattern of regulatory defiance.
The CFTC's complaint seeks comprehensive relief against all defendants, including restitution for defrauded investors, disgorgement of ill-gotten gains, civil monetary penalties, and permanent trading and registration bans. The commission also seeks a permanent injunction to prevent future violations of the Commodity Exchange Act and CFTC regulations.
This case highlights the ongoing regulatory challenges in the commodity trading sector, where unregistered operators can exploit retail investors through sophisticated fraud schemes. The alleged Ponzi-style operation demonstrates how fraudsters can maintain investor confidence through false documentation while systematically depleting investor funds.
The commodity pool structure at the center of this case is a legitimate investment vehicle when properly registered and operated. Commodity pools allow multiple investors to combine their resources to trade futures contracts, potentially providing access to markets and strategies that individual investors might not be able to pursue independently. However, these pools are subject to strict registration and operational requirements designed to protect investors.
The CFTC's enforcement action underscores the importance of investor due diligence when considering commodity trading investments. Investors should verify that commodity pool operators and their associated persons are properly registered with the CFTC and should be skeptical of guarantees of profit or protection against loss, which are prohibited under federal regulations.
The case also demonstrates the CFTC's commitment to pursuing repeat offenders who violate administrative orders. Mitchell's alleged continuation of prohibited activities despite the 2021 order may result in enhanced penalties and demonstrates the importance of compliance with regulatory restrictions.
For investors who may have been affected by similar schemes, the CFTC maintains resources for reporting suspected fraud and provides guidance on identifying potentially fraudulent investment opportunities. The commission encourages investors to research any commodity trading advisor or pool operator before investing and to report suspicious activities to regulatory authorities.
The complaint represents allegations that must be proven in federal court. All defendants are presumed innocent until proven guilty, and the case will proceed through the federal litigation process in the Eastern District of Michigan. The outcome of this enforcement action may provide important precedent for similar cases involving unregistered commodity pools and repeat regulatory violators.