The U.S. District Court for the Southern District of New York has imposed substantial financial penalties totaling $18.4 million against six defendants who operated a fraudulent precious metals scheme, the Commodity Futures Trading Commission announced Monday.
The court entered a consent order against Ross Baldwin and his inactive Florida firm National Coin Broker Inc., requiring them to pay restitution as part of a broader enforcement action. The court had previously entered a default judgment against Robert Jeffrey Johnson, Kathleen Hook, Precious Commodities Inc., and NCB Wholesale Co.
Under both court orders, the defendants must pay a combined $6.9 million in restitution on a joint and several basis. The defendants subject to the default judgment must also pay an $11.5 million civil monetary penalty. All defendants face permanent trading and registration bans and are permanently enjoined from violating the Commodity Exchange Act and CFTC regulations.
The enforcement action stems from a fraudulent scheme that operated from approximately June 2014 through October 2019. During this period, the defendants solicited millions of dollars in cash and silver from the public through what they called the Silver Lease Program, a purported precious metals leasing operation.
The scheme targeted investors seeking returns through precious metals investments. According to the CFTC's allegations, the defendants misrepresented the nature and risks of their program while soliciting funds from unsuspecting victims. The five-year operation allowed the defendants to amass substantial sums before regulatory authorities intervened.
The CFTC's investigation revealed that the Silver Lease Program was not the legitimate precious metals investment opportunity it was portrayed to be. Instead, it functioned as a fraudulent scheme designed to enrich the defendants at the expense of investors who believed they were participating in a lawful metals trading program.
The current rulings resolve the CFTC's enforcement action that was originally filed on July 1, 2021. The commission's Division of Enforcement pursued the case over several years, ultimately securing both consent orders and default judgments against the various defendants.
The case also involves parallel criminal proceedings that have resulted in guilty pleas from the main defendants. Johnson pleaded guilty to wire fraud, while Hook pleaded guilty to conspiracy to commit wire fraud. Baldwin pleaded guilty to multiple charges including two counts of conspiracy to commit wire fraud, two counts of wire fraud, and one count of making false statements to CFTC officials.
These criminal convictions in the related case *United States v. Johnson et al.* underscore the serious nature of the conduct involved and demonstrate coordination between civil and criminal enforcement authorities in addressing commodities fraud.
The CFTC worked with multiple law enforcement agencies throughout the investigation and prosecution. The commission acknowledged the assistance of the U.S. Attorney's Office for the Southern District of New York, the Federal Bureau of Investigation, the U.S. Mint, and the UK Financial Conduct Authority in building the case.
The permanent injunctions imposed by the court prohibit all defendants from future violations of commodities law and regulations. The trading and registration bans effectively remove them from the commodities markets, preventing them from engaging in similar schemes or serving in registered positions within the industry.
However, the CFTC cautioned that court orders requiring restitution do not guarantee victims will recover their losses. The agency noted that wrongdoers may lack sufficient funds or assets to satisfy restitution obligations, a common challenge in enforcement cases involving fraudulent schemes.
The total financial impact of the Silver Lease Program on investors was not disclosed in the announcement, though the CFTC indicated that millions of dollars were solicited from the public over the scheme's five-year operation. The restitution amount of nearly $7 million suggests significant investor losses occurred during the program's operation.
This case represents part of the CFTC's ongoing efforts to protect commodity market participants from fraudulent schemes. The commission emphasized its commitment to holding wrongdoers accountable and fighting vigorously for customer protection in commodities markets.
The enforcement action highlights the risks investors face in alternative investment schemes, particularly those involving precious metals. The CFTC's successful prosecution demonstrates the agency's ability to pursue complex fraud cases across multiple years and coordinate with criminal authorities to achieve comprehensive resolution.
The Division of Enforcement staff responsible for the action included Patrick Daly and Karin Roth, according to the CFTC's announcement. Their work resulted in one of the more substantial commodities fraud settlements announced by the commission this year.