EDITOR’S NOTE: Both the CFTC and SEC have encountered incredibly elaborate fraud schemes — some with elements that only can be described as bizarre and deeply disturbing. The story below is based on a fraud case brought by the CFTC against Gary D. Martin and Brenda K. Martin of St. Augustine, Fla. The Martins are husband and wife. Their company, Queen Shoals Consultants LLC, also was named in the March 2011 complaint. The complaint was filed in the Western District of North Carolina.
The CFTC now has obtained a consent order against the defendants. Chief U.S. District Judge Robert J. Conrad Jr. presided over the case. In issuing the uncontested order, Conrad highlighted testimony by Gary Martin. Martin’s testimony and the fact set against him and his co-defendants was disturbing in several ways. The PP Blog previously has written about “fraud creep” on the Internet, and the Martin/Queen Shoals case provides another compelling example of viral larceny that traded in part on religion and devastated senior citizens . . .
A Florida couple scammed investors in an elaborate Forex and commodities swindle in which they posed as “experts” to recruit customers while funneling $22 million to a criminal scammer now serving a 22-year prison sentence in the same North Carolina facility that houses Bernard Madoff.
Among the alarming consent findings by Chief U.S. District Judge Robert J. Conrad Jr. against Gary D. Martin and his wife Brenda K. Martin were that they used the Internet and pitchmen who had minimal or no trading credentials to fuel a fraud turbine that put money in their pockets as well as the pocket of Ponzi schemer Sidney S. Hanson.
Hanson controlled a similarly named entity known as Queen Shoals LLC and was running a $33 million Ponzi scheme that targeted senior citizens and people of faith by using QSC and other entities as feeders, according to court filings.
In March 2011, Hanson, 63, was sentenced to 22 years in federal prison. He is listed as an inmate at the Butner Federal Correctional Complex in Butner, N.C. The Martins and QSC drove $22 million to the Hanson scheme, receiving referral fees of up to 5 percent while maintaining the illusion that legitimate commerce was taking place, according to court filings.
Said Noth Carolina Secretary of State Elaine F. Marshall upon Hanson’s sentencing, “What made this case even more sickening was that the scam was crafted to appeal to victims through their deeply held religious beliefs.”
Through a process that remains unclear, the Martins and QSC managed to recruit at least 53 “consultants” to pitch their scheme, according to Conrad’s ruling.
“Although the Martins represented via the QSC website that ‘[our consultants have a vast background in financial services … ,’ Martin admitted that this representation was false,” Conrad wrote. “Of the 53 known QSC consultants, only 8 to 10 had taken a four day course to become ‘certified estate planners, but even these consultants had no other background in financial services. None had any experience trading forex. Martin admitted that a number of the QSC consultants represented to customers as possessing a ‘vast background in financial services’ were actually former high school coaches, J. C. Penney sales clerks, or insurance salesmen . . .”
The ruling makes in clear that, not only were unqualified reps acting as QSC pitchmen, the QSC scheme was a fraud itself — one that was enabling an even larger fraud operated by Hanson.
“All of the representations concerning the Defendants’ alleged experience and expertise in trading forex were false,” Conrad ruled. “Martin admitted in his testimony under oath as the corporate designee of QSC that, contrary to the Defendants’ in-person and website representations to prospective and actual customers, he and his wife had no training or experience in buying or selling foreign currency, commodity futures contracts, options on commodity futures contracts, or any other financial instrument.”
Promises of “guaranteed” annual earnings of between 8 percent and 24 percent were used by the Martins to lure customers as part of the fraud, Conrad ruled.
Fancy terminology such as “non-depletion,” “leveraged” trading and “proprietary trading practices” also were part of the fraud, according to court filings.
Customers also were told that “no less than 18 different profit centers” existed and that the purported profit centers “allowed the creation of the profits claimed to be achieved by the Defendants,” Conrad ruled.
“Indeed, the website touted that all customer funds were ‘immediately placed into our approximate (sic) 60 sub accounts’ and that the forex accounts traded by the Defendants were ‘profit generating,’” Conrad ruled.
But “[a]ll of the representations concerning trading and guaranteed profits were false,” Conrad ruled.
“[Gary] Martin admitted under oath that the Defendants never engaged in any forex trading on behalf of customers,” Conrad ruled. “In fact, Martin admitted that the Defendants never engaged in any type of trading or investing with customer funds. There were no forex accounts, gold accounts, silver accounts, or ’60 sub accounts.’
“All of the Martins’ representations regarding ‘profitable accounts’ were false,” Conrad ruled. “There was no ‘leveraging’ on behalf of customers, no ‘profit centers,’ and, because there was no trading, there were no profits. Instead, the Martins simply turned over customer funds to Sidney S. Hanson . . . in return for a payment of approximately $1.44 million Martin described in his testimony as a ‘referral’ fee.”
Read earlier story.
Read the consent order.
EDITOR’S NOTE: Thanks to a PP Blog reader for pointing us to the Charlotte Observer’s story on the sentencing of Jonathan Davey.
