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The U.S. Commodities Futures Trading Commission (CFTC) filed a civil enforcement action on January 8, 2020. They were charging U.S. Coin Bullion LLC's owners with misappropriation of funds. The U.S. District Court filed the charge for the Middle District of Florida.

Salvatore Esposito and Joseph Esposito are the owners of U.S. Coin Bullion LLC. The charges levelled against them were:
•    They engaged in fraudulent solicitations. This is in connection with the alleged acquisition of precious metals.
•    They embezzled over $7.9 million of customer funds. 

This charge is part of CFTC's actions in policing precious metals transactions. CFTC claims the company violated the Commodity Exchange Act and Commission Regulations. The charge seeks to ban the two men from registering with CFTC.

It also seeks to bar them from trading in CFTC-regulated markets. The indictment also seeks to have the defendants compensate their clients. The two men were controlling persons of the company. Hence, the CFTC considers them liable for the violation of the Act and Regulation.

Summary of the complaint against U.S. Coin Bullion

The U.S. Coin Bullion operated from at least 2012 to July 2019 as a retail precious metal dealer. It claimed that they sold precious physical metals to customers for the full price of the metals. They petitioned customers by phone, the internet, and U.S. mail.

They told these customers that they would get and store these metals for them. They also promised hefty pay-offs in return. 

Customers had many ways to buy metals. They could open an account on the company's website then fund the account. The company received funds through:
•    Interstate wires
•    Credit card payments and 
•    Checks sent in the U.S. mail. 

At least 120 customers received buy orders and account statements from the company. These falsified orders and reports claimed that
1.    The U.S. Coin Bullion had bought precious metals on their behalf.
2.    The U.S. Coin Bullion had organized to store the purchased metals at a depository.

A few customers opted to store their purchases themselves. They were not included in this complaint. 
Yet, the company did not buy any precious metals. The company embezzled over $7.9 million they received from the customers.

They used the entire amount to pay for personal and business expenses. They also operated as a Ponzi scheme. They used money from new customers to pay earlier customers who requested for withdrawal. They also used it to trade leveraged metals with third-party precious metal dealers. 

Where did the money go?

They used part of the money to pay for company expenses and to pay out withdrawals. The company also bought silver for itself. By 2016 at least, the company was using its customers' funds to buy millions of dollars' worth of silver.

They took out loans to buy silver on margin. They then used the customers' money to pay for the storage fees of this silver and to pay the interest on the loans. By buying the silver on margin, they were subject to margin calls. That was if the silver's market price declined. 

The price of silver has fallen to $15 per ounce from $35 an ounce in 2012. Because of this fall, the company had to deposit more funds. For this reason, it experienced massive losses. They falsified buy orders and account statements to cover up the fraud to their customers.

They made it appear as if they had purchased the silver for the customers and not themselves. The company's margin purchases led to a loss of almost all the silver market value, which the customers believed they had. 

The first case

Two cases have been filed against the brothers. The first one was prosecuted last year. The U.S. secret service Orlando field office and central Florida Task Force investigated the case. The Florida Attorney General's Office of Citizen Services – Consumer Assistance Program assisted them.

The court charged them with mail fraud and conspiracy to commit wire fraud. 
This is because they used instruments of interstate commerce like the internet and the U.S. mail to:
a)    Distribute marketing information to customers and potential customers, 
b)    To receive funds from customers.
c)    To send false to potential and actual customers. 

They pleaded guilty to the charges in October last year. Salvatore Esposito (48 years) received a sentence of 7 years and three months in prison. Joseph Esposito (44years) received a sentence of under six years in prison.

The second case

The second case is the civil enforcement action against them by CFTC. They are charging them with misappropriating consumer funds. They are also charging them with engaging in fraudulent investment solicitations.

The CFTC seeks restitution, ancillary remedial relief, and monetary penalties. The ancillary remedial relief includes but is not limited to,
a)    Registration and trading bans
b)    Rescission
c)    Disgorgement, and 
d)    Pre-judgment and post-judgment interest. 

The CFCT wants wrongdoers to know that such actions will face significant consequences. 
There was a Covid-19 outbreak in the prisons where the two brothers were serving their sentences. They postponed the case for this reason. After the outbreak, the prison enacted several restrictions.

Because of this, the regulator was unable to communicate with the defendants. Furthermore, Joseph was recently transferred to a different jail in Florida. This was after two weeks of quarantine. 

This court was to hear arguments on March 23, 2020. But, it was put on emergency schedules due to Covid-19. The regulator said that it would be rescheduling the case. It said, "Plaintiff now files this motion seeking an additional 90-day extension.

As a result of the ongoing COVID-19 pandemic, additional restrictions were placed upon Defendants' ability to leave their cells, and receive mail, during the additional 60-day extension period."

This postponement follows a series of Corona virus-related delays and notices issued by the U.S. regulators in the past three months. 

Conclusion

The Esposito brothers defrauded their clients of more than 7.9 million dollars. They took their money under pretences and misappropriated it. They then lied to them by falsifying documents.

For this reason, they deserve their day in court. Now, only one question remains. How will the victims of this unfortunate conspiracy be compensated? 
 

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