WASHINGTON – A federal appeals court has ordered a district court to reconsider whether a former employee of a foreign currency trading scam in Bethesda must pay $5.3 million in restitution.
The 4th U.S. Circuit Court of Appeals on Tuesday upheld Esfand Baragosh’s April 2000 conviction on charges of misappropriating customer funds, “bucketing” customer orders, and offering commodity futures in violation of the Commodity Exchange Act.
A three-judge panel of the court rejected Baragosh’s claim that the commodities act did not apply to the sham trades engineered by Noble Wealth Data Information Services, for which he worked. The court affirmed $1.2 million in fines that were levied against Baragosh in the scheme.
But the appeals court said U.S. District Judge Peter Messitte was wrong to conclude without trial that Baragosh was a “controlling person” in the company and thus liable for the $5.3 million that prosecutors said it stole from investors. It ordered Messitte to reconsider Baragosh’s role in Noble Wealth.
“Now they have to decide whether Mr. Baragosh is liable for what Noble Wealth did,” said Matthew Kaiser, a third-year Georgetown law student who represented Baragosh on appeal.
A spokesman for the Commodity Futures Trading Commission, which prosecuted the original case, would not comment on the appellate court’s ruling.
According to court documents, Baragosh worked in both the Maryland and Georgia offices of Noble Wealth, advertising for “traders” who had to invest a minimum of $10,000 and were encouraged to recruit friends and family.
The former Rockville resident trained the investors to trade on the foreign currency market, advised them on strategy and walked the floor encouraging them to “trade, trade, trade.” He received $2 commission for every trade.
The Bethesda office was lined with computers displaying prices of German, Swiss, Japanese and British currency. When traders found a desirable price, they gave an order ticket to a Noble Wealth dealer who called Hong Kong and spoke in Chinese to get a price. The trader had a few seconds to accept, and then the dealer executed the trade in the Hong Kong office.
But Noble Wealth’s Hong Kong office was not a licensed brokerage house and the company does not appear to have purchased any foreign currency contracts based on customer orders, according to court records.
The court said Noble Wealth actually operated a “bucket shop,” matching customer buy and sell orders instead of investing it in the open market, and diverting the money to their own uses.
Although Baragosh was eventually named vice president of Noble Wealth, he never received any pay increase for the new title and was never listed on corporate documents as a director of the company, the court said. He answered to brothers Nawab Ali Khan and Murad Ali Khan, who ran the company and were sole principals of Noble Wealth.
The Khans have since left the country.
Since Baragosh’s conviction, Congress has amended the commodities act to make clear that the Commodity Futures Trading Commission has the authority to regulate all manner of foreign currency trading to the general public.