The Commodity Futures Trading Commission (CFTC) is near to the end of its action against Dro Kholamian and his company, Blue Star Trading, LLC. This becomes clear from a proposed consent judgment submitted at the Illinois Northern District Court on February 25, 2022.
The document, seen by FX News Group, outlines the proposed penalties to be imposed on the defendants. If entered by the Court, the judgment will settle all the charges alleged in the complaint against the defendants without a trial.
Let’s recall that this case was brought by the CFTC back in 2018. The CFTC complaint charged that the defendants fraudulently solicited potential clients to trade leveraged off-exchange Forex and commodity futures contracts through accounts they would manage. Blue Star and Kholamian did not trade all of the clients’ funds as represented and, instead, misappropriated those funds.
The CFTC Complaint also charged the defendants with registration violations. Records indicate that Kholamian had an affinity in the Armenian community with at least some of the individuals.
The proposed consent order, inter alia, directs Kholamian to pay restitution in the amount of $227,000, jointly and severally, with Blue Starwith this sum payable to the Forex or commodity interest clients. Also, the defendants will have to pay, jointly and severally, a civil monetary penalty in the amount of $150,000.
According to the Complaint, beginning in at least January 2013, the defendants fraudulently solicited and accepted at least $775,000 from individuals with whom Kholamian was acquainted through his local Armenian community, and overall possibly more than $1.9 million from more than 30 clients.
Kholamian, a long-time commodity trader and former floor broker, claimed that he would manage individual trading accounts for clients to trade forex and commodity futures contracts, generating for them a 10-20 percent profit on a $25,000 investment within one year, and that clients could withdraw their funds at any time, without penalty.
After his clients opened and funded their trading accounts, Kholamian assured them that that their investments were “doing well” and were on target to make the projected 20 percent return after one year. In fact, Kholamian did not trade on their behalf as promised. Instead, the Defendants misappropriated most of his clients’ funds, using those funds to pay personal expenses such as medical bills and business expenses, to make cash withdrawals and to pay other clients in the manner akin to a Ponzi scheme.
As part of his scheme, when clients demanded to withdraw their funds, Kholamian ignored their demands and lied about trading conditions that purportedly prevented him from making disbursements, claiming, for instance that he was “tied up in trades.” Eventually, when confronted with persistent demands from clients for the return of their money, Kholamian issued two $25,000 checks from his Blue Star bank account to clients, knowing that they could not be paid due to insufficient funds.
The proposed consent order requires Court approval.