Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

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Tuesday, May 26, 2009

SEC Alleges Foreign Currency Software Program Fraud

On May 21, 2009, the SEC filed a civil action against PrivateFX Global One Ltd., SA, 36 Holdings, Ltd., Robert D. Watson, and Daniel J. Petroski alleging their involvement in a multi-million dollar foreign-currency software program fraud. The U.S. District Court for the Southern District of Texas entered a temporary restraining order against the defendants, froze their assets, and appointed a receiver over them and all affiliated entities.  The SEC release identifies Watson as a Texas A&M finance professor and Petroski as a Houston lawyer and certified public accountant.

The SEC’s complaint alleges that Watson and Petroski raised more than $19 million from investors and claimed they would earn profits through “Alpha One,” a foreign-currency trading software program purportedly owned by their firm PrivateFX Global One Ltd. They claimed they would employ the services of 36 Holdings Ltd., a so-called “deal clearing company” owned and controlled by Watson. The SEC alleges that Watson and Petroski misrepresented to investors that it had millions of dollars in bank accounts in the U.S. and Switzerland and that their foreign exchange trading business had achieved an annual return of more than 23 percent since its inception and has never had a losing month. 

The SEC’s complaint also alleges that in response to Commission investigative subpoenas, Watson and Petroski produced phony records purporting to show that 36 Holdings held an account at Deutsche Bank, where it earned more than $2 million for Global One in 2009 by trading foreign currencies. In fact, 36 Holdings did not even have an account at Deutsche Bank. The SEC’s complaint also alleges that the defendants provided the Commission staff with phony bank statements from a Swiss bank and falsely claimed that 36 Holdings had almost $70 million on deposit there, including $11 million of Global One funds.

Specifically, the Commission alleges that the defendants violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Commission’s investigation is continuing.

http://lawprofessors.typepad.com/securities/2009/05/sec-alleges-foreign-currency-software-program-fraud-.html

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