The U.S. Commodity Futures Trading Commission has obtained a federal court order freezing the assets and prohibiting the destruction of documents against an Illinois-based firm and its Toronto-based principals.

The CFTC says that it has secured the order against commodity pool operator Brookshire Raw Materials Management LLC, and its principals,
John Marshall and Stephen Adams, Brookshire Raw Materials Group Inc.
and Brookshire and Co. Ltd., all of Toronto.

The asset-freeze order, which was entered on February 19, by Judge Amy St. Eve of the U.S. District Court for the Northern District of Illinois, arises from a CFTC complaint charging the defendants with misappropriating more than US$4.6 million of customer funds and destroying records, among other things. These allegations have not been proven, Judge St. Eve set a hearing on the CFTC’s motion for preliminary injunction on March 2.

The CFTC alleges that more than US$4.6 million in customer funds was withdrawn from the commodity pool without disclosure, and that false account statements were issued overstating the value of the pool and hiding the withdrawals. It says that when certain participants sought redemptions of their investments, they allegedly received additional false statements regarding the whereabouts and existence of their investments, but did not receive any funds.

According to the complaint, Marshall and Adams closed their offices in December 2008, destroyed company data stored on computer servers, and failed to acknowledge redemption requests. BRM allegedly has failed to produce required financial documents regarding the operation of the commodity pool in response to recent CFTC requests, the regulator claims.

The CFTC, which is seeking an order of permanent injunction against the defendants, monetary penalties, and other relief, acknowledged the assistance of the Ontario Securities Commission, the National Futures Association, and the Financial Crimes Enforcement Network in this action.

“This case is an excellent example of cross-border cooperation among regulators dedicated to fighting fraud and protecting investors,” said CFTC acting director of enforcement, Stephen Obie.