President of Commodities Trading Pool Sentenced in Manhattan Federal Court for Misappropriating Hundreds of Thousands of Dollars of Client Funds
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that MICHAEL JAMES SEWARD, president of the now-defunct, unregistered commodities trading pool SK Madison Commodities, LLC (“SK Madison”), was sentenced to 18 months in prison in connection with his misappropriation of approximately $1.3 million of client investor funds. SEWARD pled guilty to a conspiracy to commit securities fraud on August 7, 2015, and was sentenced today by United States District Judge Edgardo Ramos.
SEWARD’s coconspirator, Yan Kaziyev, pled guilty pursuant to a cooperation agreement on June 25, 2014, and awaits sentencing by United States District Judge Paul A. Crotty.
U.S. Attorney Preet Bharara said: “Michael Seward conspired to sweet-talk investors out of their money with promises of double-digit returns from a commodities pool and a purported investment in an Internet company. He lied to investors to lure them in, and then he lied to them to keep them at bay. Now Seward has been sentenced to prison for his deception.”
According to the Indictment and other submissions filed in Manhattan federal court, and other statements made in open court:
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 the 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 e-mailed 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.
* * *
As part of the sentence imposed today by Judge Ramos, SEWARD, 35, of Largo, Florida, was further sentenced to two years of supervised release and was ordered to pay $200,000 in forfeiture and $750,000 in restitution to the victims of the offense.
Mr. Bharara praised the investigative work of the Federal Bureau of Investigation 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.
The charges were brought in connection with the President’s Financial Fraud Enforcement Task Force. The task force was established 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 fiscal year 2009, the Justice Department has filed over 18,000 financial fraud cases against more than 25,000 defendants. For more information on the task force, please visit www.StopFraud.gov.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorney Sarah Eddy McCallum is in charge of the prosecution.