Judge Says Speculators Planned Fraud
NEW YORK (AP) _ Two speculators whose gamble on gold prices brought down the firm that handled their trades were ″of a mind to defraud their creditors and possibly abscond″ with what money they had left, a judge said.
U.S. District Judge Kevin T. Duffy on Thursday denied a request by traders Gerald and Valerie Westheimer to dissolve the court order that has kept $3.4 million of their funds frozen since March 21, the day Volume Investors Inc. was placed in receivership.
The Westheimers in testimony denied they had discussed fleeing the country to avoid their debts or that their effort to obtain $3.4 million in negotiable bonds was related to such an effort.
But Duffy accused the Westheimers of offering ″a tissue of lies″ to explain why they failed to meet a $4 million margin call - a demand for more cash to support their position - from Volume, a firm which cleared trades in commodities options.
When the Westheimers failed to put up the cash to cover their losses, Volume was unable to meet its $26 million obligation to the Comex Clearing Association, the central clearing organization for the New York Commodity Exchange.
″Based in great part on the motives disclosed by the tissue of lies they tried to spin in their testimony ... I am compelled to issue the requested attachment orders to prevent the fraud on creditors obviously contemplated by the Westheimer defendants,″ Duffy wrote.
″The only conclusion that I can draw ... is that in fact they are of a mind to defraud their creditors and possibly abscond with their remaining assets,″ Duffy added.
The Westheimers and an associate, James Paruch, allegedly sold nearly 12,000 ″naked call″ options, in effect betting with borrowed money that the price of gold would fall.
Instead, the price leaped $44 dollars an ounce March 18 and 19. The Westheimers, who had guaranteed Paruch’s account at Volume, were responsible for making good on the losses.
The federal Commodity Futures Trading Commission sued to put Volume in receivership when it failed to meet its obligation to the Comex. The move left at least 75 other Volume customers, most of them professional traders, unable to retrieve funds in their accounts at the firm.
Volume’s court-appointed receiver, attorney Frank Wohl, filed suit against the Westheimers to recover an estimated $14 million in losses they allegedly cost the firm. Wohl also obtained the original order freezing the Westheimer’s assets.
The Westheimers maintained in their testimony that they never received a margin call from Volume; they were only vaguely familiar with Comex margin requirements; and they had tried to cover their gold positions but trades favorable to their position were improperly credited to other accounts. They have made similar claims in a suit against Wohl, Volume, the Comex and several exchange officials.
Duffy said he disbelieved the Westheimer’s claim that they were never asked to post more margin and that they were unfamiliar with the margin requirements. Both, he noted, were experienced options traders; Westheimer’s father had been a founding member of the Comex.
Jeffrey Fillman, the Westheimers’ attorney, did not return a telephone call.