The state of Massachusetts has ordered a nationwide commodity options firm to halt its sales in the state, claiming the company's customers have lost "millions" through deceit.
Secretary of State Paul Guzzi issued the order Thursday against Lloyd, Carr and Co., a Boston-based firm with 11 offices across the country, whose staffs are engaged in telephone sales to residents of dozens of stakes.
"There's no question that (it) is the largest fraud going on in Massachusetts and in country right now," said Raymond Cocchi, director of the securities division in the secretary of state's office.
Investors have lost "millions" because promises of huge profits never materialized, Cocchi charged.
Salesman for the firm fail to tell prospective investors of the high risk involved in buying commodity options, according to Guzzi.
High pressure sales pitches are used by the firm's telephone solicitors to "stampede" investors, Guzzi said at a news conference to announce the results of a four-month investigation of the firm.
A commodity option entitles an investor to buy a commodity futures contract or cash commodity at a given date. A commodity futures contract is an greement to buy a commodity - such as wheat or coffee - at a specific price by a certain date. The commodity option being sold by the firms in the U.S. are traded on exchanges in London.
James Carr, president of Lloyd, Carr and Co., said he planned to go to court to quash the subpoenas, issued by the state to obtain company records.
"The state has no jurisdiction," Carr said, referring to the exclusive jurisdiction given to a federal agency, the Commodity Futures Trading Commission, in this area.
Carr called Guzzi's charges against the firm "absolutely untrue."
Salesmen's calls to prospective customers are monitored to insure they do not make inaccurate claims, he said.
The average commodity option is purchasing by the firm at $1,000 and is sold to the investor for $6,000 or $7,000, Cocchi said.
The firm does not disclose the markup or the salesman's commission, which range from $300 to $400, investigators found.
Carr admitted that customers do not know the markup before they purchase the option, explaining, "You don't know in advance what your markup is."
Earlier Thursday, an employee of Lloyd, Carr and Co. was arrested for assaulting a cameraman as state officials, accompanied by television and newspaper cameras, delivered subpoenas requesting the company's records.
Fearful that records might be destroyed before the subpoenas were delivered, state officials rummaged through trash left outside the company's downtown offices Wednesday night, Guzzi said.
Earlier this month, a U.S. District Judge in Boston ordered the firm to halt fraudulent practices, but Guzzi said the tactics have persisted.
In Michigan, a federal judge has ordered the firm to stop alleged fraudulent practices. Both rulings should have blocked the firm's operations anywhere in the U.S.