CFTC Complaint: Trendsystems, Inc. Misrepresents Trading Performance To Clients
This case is a good example of how new investors are taken advantage of. There are three clients involved in this case so we will list the details of each client and what mistakes they made dealing with this company.
The Ritter Account
On or about October 1999, Richard Ritter (“Ritter”) saw an advertisement for Trendsystems software in a nationally published newspaper and responded to the advertisement by calling Stephens(Defendant) on the telephone. By phone, Stephens solicited Ritter to allow Trendsystems to manage a trading account for him. On or about February 2000, pursuant to Stephens’ instructions, Ritter opened a managed account in Ritter’s wife’s name (“the Ritter Account”) at Linnco Futures Group (“LFG”), an FCM, and his wife signed a power of attorney authorizing Trendsystems to trade the account.
On or about February 2000, Ritter caused $13,500.00 to be sent to LFG for the purpose of funding the account. Ritter never deposited additional funds in the account. Beginning around February 2000 and continuing until approximately August 2000, Stephens told Ritter on almost a daily basis that his account was making a profit. Stephens never informed Ritter that the account was unprofitable.
On or about March or April 2000, Stephens sent Ritter written account statements, which purported to show that the Ritter account had grown from an initial investment of $13,500.00 to approximately $115,000.00. On or about May 19, 2000, Stephens sent Ritter a written account statement via electronic mail which purported to show that the Ritter account had an account balance of $153,286.87. On or about August 9, 2000, Stephens sent Ritter a written account statement which purported to show that the Ritter account had an account balance of $365,386.48!!!
Between February and August 2000, Stephens also provided Ritter with oral updates concerning the balance in the Ritter account. In each of these updates, Stephens stated that the Ritter account was consistently earning money. In fact, the Ritter account suffered trading losses under Trendsystems’ management, and, contrary to Stephens’ written and oral representations, at the time that Stephens informed Ritter that the Ritter account balance was approximately $365,386.48, the actual balance for the Ritter account was approximately $180.00.
The biggest mistake made here was that the client did not receive account statements from his clearing firm. I’m not sure why this didn’t happen. The client should always receive statements regardless of whether he signs power of attorney over to his broker. ALWAYS GET YOUR OWN ACCOUNT STATEMENTS TO MONITOR YOUR TRADING ACTIVITY AND ACCOUNT BALANCES. Your clearing firm sends them after every trade and every month. These incredible returns almost seem to good to be true. If something just didn’t seem right, too good or too bad, it is usually a good idea to question and investigate the situation.
The Hanna Account
On or about June 2000, Stephens solicited George Hanna to allow Trendsystems to manage a trading account for him. On or about June 14, 2000, Stephens instructed Hanna to fill out and send his LFG account opening documents directly to him at Trendsystems. Stephens further instructed Hanna to send his initial investment to a Trendsystems bank account in Americus, Georgia. On or about June 14, 2000, Hanna sent $5,000.00 to a Trendsystems bank account in Americus, Georgia and sent Stephens his completed LFG account opening documents which authorized Trendsystems to trade on his behalf. Subsequently, Hanna sent an additional $2,000.00 to the same Trendsystems bank account in Americus, Georgia. On or about June 15, 2000, Stephens told Hanna that he had received his account opening documents and initial investment and that Trendsystems had begun trading Hanna’s account.
On or between June 17, 2000 and early September 2000, Stephens provided Hanna, via facsimile and hand delivery, with at least three written account statements showing that he had made a profit every day that the account was traded. On or between June 17, 2000 and early September 2000, Stephens orally updated Hanna as to the status of his account and consistently informed Hanna that his account was profitable.
On or about August 31, 2000, Stephens provided Hanna with a trading account statement which purported to show that Hanna’s account had grown from a total investment of $7,000.00 to approximately $35,000.00 by August 31, 2000. In fact, neither Stephens nor Trendsystems ever forwarded Hanna’s initial investment to LFG and although the account was opened in Hanna’s name, it was never actually traded. After Hanna repeatedly asked him to do so, Stephens returned Hanna’s initial investment to him, but Stephens never gave Hanna the profits he was supposed to have earned in his account.
Something is fishy with this one. I don’t understand why a broker would go through the trouble of open an account for a client, not trade it and then lie to the client about making profits everyday. I would like to hear Stephens explanation on this one. All I can gather is that maybe Stephens had the clients put money into the Trendsystems bank account and he was in effect stealing the money. However, he must have known the client would ask for the money someday. Point to remember-make sure that your checks are always make payable to the clearing firm. Brokers do not have the authority to have checks made payable to themselves.
The Flynt Account
On or about August 2000, Stephens solicited E.J. Flynt to allow Trendsystems to manage a trading account for him. On or about August 2000, Stephens instructed Flynt to fill out and send LFG account opening documents to open an account in his name directly to Stephens at Trendsystems. Stephens further instructed Flynt to send his initial investment of approximately $10,000.00 to a Trendsystems bank account in Americus, Georgia. On or about August 16, 2000, Flynt sent approximately $10,000.00 to a Trendsystems bank account in Americus, Georgia. Subsequently, Flynt sent another investment of $3,800.00 to the same Trendsystems bank account. On or about August 16, 2000 Stephens informed Flynt that Trendsystems had opened and begun trading an account in his name at LFG.
Stephens provided Flynt with an account number for his purported trading account at LFG. On or between August 17, 2000 and early September 2000, Stephens and Trendsystems provided Flynt with at least two written account statements, one of which was printed on Trendsystems letterhead, which purported to show that his account at LFG had been consistently profitable every day of trading. On or between August 17, 2000 and early September 2000, Stephens had numerous conversations with Flynt in which he informed Flynt that his LFG account had been consistently profitable every day of trading. On or about August 31, 2000, Trendsystems provided Flynt with a written statement, on Trendsystems letterhead which purported to show that Flynt’s account balance was $22,189.77. In fact, neither Stephens nor Trendsystems ever opened a trading account for Flynt at LFG and the account number given to Flynt by Stephens belongs to another unrelated client at LFG.
This one is also very strange. It looks like the money went directly into the Trendsystems bank account for Stephens own use. The complaint does not mention what happened to the money. It is also a good idea to keep the information your broker sends you.