Manhattan U.S. Attorney And FBI Assistant Director In Charge Announce Commodities Fraud And Related Charges Against Principals Of Commodities Trading Pool
Preet Bharara, the United States Attorney for the Southern District of New York, and George Venizelos, the Assistant Director in Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), yesterday announced the unsealing of commodities fraud, securities fraud, wire fraud, and conspiracy charges against MICHAEL JAMES SEWARD, president of the now-defunct, unregistered commodities trading pool SK Madison Commodities, LLC (“SK Madison”). As alleged, SEWARD and his former business partner, YAN KAZIYEV, a/k/a “Ian Kaziyev,” convinced investors to part with approximately $1.3 million under false pretenses, and then pocketed approximately $700,000 of those funds for themselves. SEWARD is currently detained in Pinellas County, Florida on unrelated state felony charges.
Also unsealed yesterday were identical charges against KAZIYEV, as well as KAZIYEV’s June 25, 2014 guilty plea, pursuant to a cooperation agreement, to all counts, before the Honorable Paul A. Crotty.
Manhattan U.S. Attorney Preet Bharara said: “Yan Kaziyev and, as alleged, Michael Seward fraudulently convinced investors to put their money into an unregistered commodities trading pool, and then used that money for their personal gain. This case shows that investors should be aware of the potential for fraud in commodities trading pools, as they should be in any other securities investment.”
Assistant Director in Charge George Venizelos said: “Like we’ve seen time and time again, the defendants cooked up a scheme to defraud unwitting investors. Under the guise of a profitable commodity trading pool and an investment in a social media company, the defendants failed to do anything except steal from those who trusted them. Today the game is up. The defendants find themselves on the wrong side of the law and charged in Manhattan Federal Court.”
According to the allegations in the Indictment against SEWARD and the Information against KAZIYEV unsealed today:
From July 2011 through May 2013, SEWARD and KAZIYEV, through SK Madison, engaged in a scheme to defraud over 20 individuals by convincing them to invest approximately $1.3 million into the unregistered commodities pool they were operating. To lure investors, SEWARD and KAZIYEV made false representations about the success of their pool and, in some cases, about the very nature of the investments they were soliciting.
For example, from around July 2011 to around October 2011, SEWARD and KAZIYEV convinced two investors to pay approximately $330,000 to an entity called SK Madison Partners (“SKM Partners”), which these investors understood would be purchasing stock in an Internet social media company. SEWARD, KAZIYEV, and another individual took hefty “commissions” for themselves out of the funds and invested the remainder not in any Internet social media company but in the SK Madison commodities trading pool. From there, SEWARD and KAZIYEV withdrew yet more of funds for their own benefit.
To those investors who knew they were investing in SK Madison’s commodities pool, SEWARD and KAZIYEV lied about the success the pool had enjoyed. They mailed and emailed false “track record” reports reflecting purported trading profits in most months from August 2011 through dates in 2012 and 2013. These profit figures were fictitious, even for those months in which the SK Madison pool had turned a profit, the amount of profit bore no relationship to the figure reported in the “track record.” And the “track record” reports reflected trading profits in months in which the pool had in fact suffered significant trading losses. Similarly false profit figures were published to investors through monthly account statements.
In or about the spring and summer of 2013, when confronted by members of the National Futures Association (“NFA”) and the Commodity Futures Trading Commission (“CFTC”) with their large withdrawals from SK Madison’s trading and bank accounts for their own benefit, SEWARD and KAZIYEV sought to justify the withdrawals by citing “commissions” of either $55 or $110 per transaction that SK Madison purportedly had charged for operating the commodities pool. In fact, although SK Madison’s prospectus alerted investors that a $55 commission would be levied per completed transaction, the withdrawals that SEWARD and KAZIYEV made and caused to be made from the accounts bore no relationship to the number of trades effectuated in the accounts, and far exceeded what might have been calculated using the $55 commission figure.
SEWARD, 35, of Largo, Florida, and KAZIYEV, 36, of Queens, New York, are both charged with commodities fraud, securities fraud, wire fraud, and conspiracy to commit commodities, securities, and wire fraud. The conspiracy count carries a maximum sentence of five years in prison and a fine of the greater of $250,000 or twice the gross gain or loss from the offense. The securities fraud charge carries a maximum sentence of 20 years in prison and a fine of the greater of $5 million or twice the gross gain or loss from the offense. The commodities fraud charge carries a maximum sentence of 10 years in prison and a fine of the greater of the costs of the prosecution plus $1 million or twice the gross gain or loss from the offense. The wire fraud charge carries a maximum sentence of 20 years in prison and a fine of the greater of $250,000 or twice the gross gain or loss from the offense.
Mr. Bharara praised the investigative work of the FBI and thanked the CFTC, which has filed civil charges in a separate action. Mr. Bharara also thanked the NFA for its assistance in this investigation.
Today’s announcement is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF) which was created in November 2009 to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. Attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Since the inception of FFETF in November 2009, the Justice Department has filed more than 12,841 financial fraud cases against nearly 18,737 defendants including nearly 3,500 mortgage fraud defendants. For more information on the task force, visit www.stopfraud.gov.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorney Sarah E. McCallum is in charge of the prosecution.
The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.
The charges contained in the Indictment are merely accusations, and the defendant is presumed innocent unless and until proven guilty.