A North Carolina investment advisor accused of fraudulently soliciting around $713,000 from clients to trade off-exchange foreign currency has been barred from both the securities and commodities futures industry under two consent agreements.
Roy Scarboro Jr. of Archdale, N.C., owner of the Capital Asset Management Fund LP, an unregistered investment fund agreed to the punishment under deals with the Commodity Futures Trading Commission and the Securities and Exchange Commission under which he neither denied nor admitted to the charges.
Scarboro has also pleaded guilty to related federal criminal charges in a plea bargain that will result in him receiving a 26-month prison sentence and a requirement to pay $682,664 in restitution. He will be sentenced on May 4.
The CFTC and SEC lawsuits charged him with misappropriating client money for his personal use and issuing false account statements to clients to conceal the fraud.
The CFTC settlement, filed with the court Sept. 1, requires Scarboro to pay a $350,000 civil monetary penalty and permanently prohibits him from trading on a CFTC-registered entity and from registering or seeking exemption from registration with the CFTC.
The SEC settlement bars him from the securities industry.
According to the CFTC lawsuit, beginning in June 2009, Scarboro solicited and received about $713,000 from at least six people to trade off-exchange leveraged forex through Capital Asset Management Fund.
Scarboro told at least one investor that only 20 percent of the company's funds would be used to trade forex, with the remainder being invested in U.S. Treasuries, according to the CFTC. However, Scarboro used the funds to trade forex only and never invested in any type of U.S. Treasury instrument, according to the CFTC.
Scarboro also deposited about $612,000 in forex trading accounts at registered Futures Commission Merchants, according to the CFTC. He sustained consistent losses as a result of his trading, with no profitable months, and lost about $597,000 of his clients' funds, according to the CFTC.
To conceal his trading losses, Scarboro issued false monthly account statements that showed only modest profits or losses.
In addition, Scarboro falsely reported to participants on these account statements that he was taking no allocation of the profits for himself as CAMF's general partner, according to CFTC. The order also finds that Scarboro misappropriated at least $59,000 of participants' funds.
-Jim McConville