Judge Effectively Orders Treble Financial Penalty By Imposing $64.8 Civil Fine Against Ponzi Swindler Already Convicted In Criminal Case; Scammer Charles E. Hays Also Ordered To Disgorge $19.9 Million In Illicit Profits And Banned From Trade For Life

UPDATED 2:37 P.M. ET (U.S.A.) If you’re a modern-day commodities fraudster and Ponzi schemer, be prepared to have massive criminal and civil exposure. The recent cases against Charles E. “Chuck” Hays of Minnesota tell a tale of significant prison time, a huge criminal restitution order and civil fines that effectively exposed him to treble damages while also holding him accountable for his ill-gotten gains. Indeed, his legal problems didn’t end even after he was sentenced to jail in May 2010.

Here is some of the notable math from the criminal case against Hays, who pleaded guilty in April 2009 to running a commodity-pool Ponzi scheme.

Jail sentence ordered by U.S. District Judge Donovan Frank: 117 months.

Restitution ordered by Frank in criminal case: $21.6 million.

The criminal case against Hays, who operated a company known as Crossfire Trading LLC, was brought by federal prosecutors and the U.S. Postal Inspection Service.

Now, the math of the civil side of the Hays’ prosecution has been released:

Civil fine against Hays ordered by Frank: nearly $64.8 million. (The amount was arrived at by totaling the proceeds of the Ponzi scheme ($40.4 million) and subtracting the Ponzi payments to victims ($18.8 million) to arrive at the figure of $21.6 million — and then trebling that number to determine the fine.)

Disgorgement of ill-gotten gains ordered by Frank: $19.9 million. (The amount is a bit less than the $21.6 million figure noted above because Hays was given credit for slightly more than $1.6 million he lost while trading. Even so, the full amount of $21.6 million is due in the judgment in the criminal case.)

Additional penalty imposed by Frank in civil case: lifetime ban from trading.

Although Hays argued he didn’t deserve a lifetime ban after running a Ponzi scheme that gathered more than $40 million and issuing false statements to investors, the judge didn’t buy it.

“Hays’ activities justify a permanent trading ban because Hays has shown himself to represent an inherent threat to the integrity of the futures market,” Frank wrote.

The CFTC brought the civil case and persuaded Frank the steep fine and disgorgement order were warranted.

“In light of the egregiousness and continuing nature of the fraud in this case, which spanned over eight years, such an assessment is appropriate,” Frank wrote. He also left the door open for victims to sue Hays, meaning that the orders in the federal cases did not bar private litigants from seeking their own remedies against Hays.

Fraudsters could take a clue from the federal litigation and severe penalties against Hays, Frank suggested.

“Given that Hays must repay his criminal penalty before turning to his civil penalty, the imposition of a civil monetary fine (or for that matter, disgorgement) is largely academic,” he noted in his order. “Nonetheless, the Court was persuaded by the CFTC’s comments at the motion hearing that this action is necessary to adequately address Defendants’ violations and deter against future violations while the events leading to this lawsuit are fresh in people’s minds.”

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